Automakers and Union Negotiate Key Issues for Government Aid

Strategic Insights -

Automakers General Motors and Chrysler were working on Wednesday to resolve two outstanding issues in their requests for government aid. The companies submitted plans to the government on Tuesday for how they plan to become profitable with a total of $39 billion in financing. The United Auto Workers (UAW) union reached a tentative agreement with the companies to reduce labor costs, including limiting overtime, changing work rules, and cutting lump-sum cash bonuses.

Key Takeaways:

  • The UAW union reached a tentative agreement with General Motors, Chrysler, and Ford to reduce labor costs, including limiting overtime, changing work rules, and cutting lump-sum cash bonuses.
  • The agreement limits supplemental pay that laid-off workers receive while collecting unemployment benefits, but base wages for UAW workers will remain the same.
  • The UAW fears that if it takes too much stock in the companies' health care trusts, the trusts may not have enough to pay benefits for hundreds of thousands of retirees and spouses.
  • Bondholders are holding out on a deal to exchange two-thirds of GM's debt for equity until there's more clarity from the union over the VEBA financing.
  • GM expects to save about $3 billion a year, while Ford says it will save $1 billion annually by funding the health care trusts.
  • GM has to pay roughly $20 billion into its health care trust, while Chrysler must pay around $9.9 billion, and Ford owes $6.3 billion to its VEBA at the end of this year.

Statistics:

  • $39 billion: Total financing requested by General Motors and Chrysler
  • $3 billion: Annual savings expected by GM from funding the health care trust
  • $1 billion: Annual savings expected by Ford from funding the health care trust
  • $20 billion: Amount GM must pay into its health care trust
  • $9.9 billion: Amount Chrysler must pay into its health care trust
  • $6.3 billion: Amount Ford owes to its VEBA at the end of this year

Sources:

  • Kimberly S. Johnson, The Associated Press
  • People briefed on the agreement ( anonymity requested due to the union's policy )