Time ticking away for sides to agree to concessions

Ford has said that talks with the UAW have begun.

DETROIT (AP) — Cash-strapped General Motors Corp. and Chrysler LLC have about four weeks left to hammer out concessions from the United Auto Workers union and bondholders and meet federal loan obligations, but the stakeholders may have good reasons for stalling.

The automakers received commitments last month from the Bush administration for a total of $13.4 billion in loans from the Treasury Department, but they have to submit a plan by Feb. 17 outlining how they’ll cut their costs and free up cash to become competitive and viable in the long term.

The UAW — a major supporter of President-elect Barack Obama — may be banking on changes to the government’s requirements, or even the elimination of loan terms that require labor cost parity with foreign automakers with U.S. factories.

GM Chief Operating Officer Fritz Henderson said last week that the company has started negotiating with the union in an effort to get the required changes.

Ford Motor Co. also said discussions with the UAW had begun. Though Ford isn’t seeking federal aid now, officials have said it would seek the same UAW concessions as its domestic counterparts so Ford doesn’t have a competitive disadvantage.

The UAW declined to comment on the nature of its talks with the automakers, but earlier this month, it flew members of its negotiation team to Detroit. It’s unclear whether the negotiation team is meeting with the automakers or devising a plan to take to the new president.

When Congress considered a bailout for GM and Chrysler late last year, the UAW opposed efforts by Sen. Bob Corker, R-Tenn., that would have required the union to cut worker pay and benefits sometime in 2009 to levels that are competitive with U.S. plants run by Toyota Motor Corp. and other foreign automakers.

UAW President Ron Gettelfinger has said the union will approach President-elect Barack Obama’s administration to end what he called unfair requirements in the loan terms for concessions from the union.

With a more heavily Democratic Congress now in place, the UAW may be aided by lawmakers if not specifically Obama. Rep. Barney Frank, D-Mass., has introduced legislation that would get rid of the loans’ condition of labor cost parity. He proposes empowering the incoming Obama administration’s “car czar” to determine how the automakers meet their viability requirements.

Alan Reuther, the UAW’s legislative director, said the union was awaiting Obama’s selection of the auto czar before beginning discussions on the requirements.

“We’ve been very clear that we think the Corker provisions were not appropriate,” said Reuther, who is not involved in the current talks. “We’re pleased that the White House indicated that they are simply targets and not binding, but we think they should have not been there in the first place.”

As for bondholders, GM must get them to exchange their debt for equity, similar to the deal GM’s financial arm, GMAC Financial Services, had to strike last month to secure bank holding company status.

It’s often a tough sell to persuade bondholders to get less of a return than they originally bargained for, or take the chance that holding stock will pay off, but the alternative may be zero if GM fails to meet the loan requirements and files for bankruptcy.

“The upside potential for return for bondholders would be better served by holding common stock,” said Richard Hilgert, president and senior financial analyst for Chicago-based Automotive Financial Research LLC. “It would make much more sense for the bondholders to work with GM on this than to put up some sort of a block to prevent this from going forward.”

A group of GM bondholders has hired New York law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP to represent them in negotiations. Hilgert said the move is a regular part of the process.

But the bondholders may also be in a wait-and-see mode like the UAW, since the value of any future equity is tied to what happens with the union, particularly how wages and benefits will affect the company’s balance sheet.