GM plan: Many play role

By Don Shilling

Overtime limits and work rule changes are said to be part of a new labor deal.

Workers on the factory floor and executives on Wall Street each will play a role in whether General Motors’ turnaround plan continues to advance.

The plan, which asks the federal government for up to $30 billion, won’t be complete until the automaker reaches deals with the United Auto Workers and its bondholders. Conditions of future federal funding include reduced labor costs and revised loan agreements.

Fritz Henderson, GM chief operating officer, said on a conference call Wednesday that the automaker didn’t have enough time to complete those negotiations before submitting its viability plan to the Treasury Department the day before.

GM and UAW have reached a preliminary agreement on lowering labor costs, but details aren’t being released because the two sides are continuing to talk about revising a retiree health care plan.

UAW members will have to ratify the changes.

Dave Green, president of UAW Local 1714 in Lordstown, said he hasn’t heard anything about what the two sides have agreed upon so far. It could be weeks before details are explained to local union officials because negotiations over the health care plan, called a VEBA, are complex, he said.

The Associated Press reported the deal limits overtime, changes work rules, cuts lump-sum cash bonuses and gets rid of cost-of-living pay raises.

GM’s plan said the proposed work rule changes would “significantly reduce labor costs.” Work rules govern what types of jobs workers can perform and the staffing required in certain areas.

Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Mich., said work rules have been a key part of the negotiations because GM needs to be more flexible in how it staffs its plants, especially among skilled trades workers.

“It’s something that should have been changed quite some time ago, but better late than never,” he said.

The UAW has resisted significant changes in past negotiations but now understands that the survival of GM is in jeopardy, he said.

Virag said he hasn’t heard that cutting the base pay of UAW members will be part of the deal.

Automotive News reported that the agreement includes workers giving up two of the lump-sum bonuses they are due in their current contract. The trade publication said the deal calls for workers to be paid for overtime only if they work more than 40 hours in a week, not if they work more than eight hours in a day.

Automotive News also said supplemental unemployment benefits would be reduced. The UAW already has announced that it has suspended the Jobs Bank, which paid workers nearly their full wage once the unemployment benefits expired.

Henderson said GM’s preliminary labor deal contains “major steps” to reducing costs but does not achieve the standards set forth by the government in December. Those loan agreements said GM must reduce its labor costs to match those of U.S. plants operated by foreign automakers by 2012.

Henderson said GM will continue to work on other ways to bring its costs down, but didn’t elaborate.

The government also wants GM to reduce its long-term financial commitments before accepting more loans.

GM now is slated to transfer $20 billion to the union-operated VEBA, which would take over retiree health care. The government wants the union to accept half of this payment in GM stock.

Bondholders also are being asked to accept GM stock for two-thirds of the $28 billion they are owed.

Henderson said he expects the administration to review the GM plan while the VEBA and bondholder negotiations continue. GM has until March 31 to satisfy the conditions of its December loans or federal officials can demand repayment, but Henderson said GM could receive an extension.

GM previously was allocated $13.4 billion but is requesting an additional $9.1 billion. It also is asking for a credit line of $7.5 billion to be used if car sales are worse than expected.

Virag said he expects GM to receive the additional funding it requested. The only other option would be for the cash-strapped automaker to go out of business, which would drag down hundreds of suppliers, he said. The fall of the suppliers also would put Ford Motor Co. and Chrysler out of business, he said.

Both GM and Chrysler were required to submit bankruptcy filing options as part of the viability plans. Both companies said it would be more expensive to finance the companies in bankruptcy court. Ford, meanwhile, has said it could make it through this year without government help.

Virag said the only source of funding in bankruptcy would be the federal government. No other funding sources are available, so a bankruptcy filing would be converted to a liquidation case after about six months without federal funds, he said.

Green, the UAW leader in Lords-town, said he is confident the administration understands the need to keep the auto industry going until the recession is over and auto sales rebound.

Ray Young, GM chief financial officer, said the company’s plan forecasts that operating cash flow will almost break even in 2011. The plan says GM will fully repay its loans by 2017.

The company is expecting depressed auto sales in 2009 and 2010, but is optimistic because of its new product line. By 2014, 90 percent of its U.S. car sales will come from new designs that are being developed globally, the plan said.

It noted that these global designs save on material costs and reduce engineering expenses and capital investment.

One of the key vehicles for GM’s future is the Chevrolet Cruze, which will launch later this year in other countries. GM is in the process of spending $350 million at the Lordstown complex, which will build the car for the U.S. market starting next year.

With the Cruze in place, Lords-town’s future is safe, Virag said.

GM’s plan said it will close five more plants by 2012, but doesn’t indicate which will be closed.

The plan highlights the Cruze as one of eight major product launches that are upcoming for GM. It contained color photos of each of the eight vehicles.

“Lordstown is part of the long-term picture,” Green said. “We’ve done good things to build a quality product out here and hopefully that will continue for many, many years.”

shilling@vindy.com