*GM, UAW talks underway, making progress-sources
*GM, Chrysler face Tuesday deadline for viability plans
*European unions say GM plan already doomed to fail (Adds detail on scenarios, opposition from European union, UAW membership decline)
By Kevin Krolicki
DETROIT, Feb 16 (Reuters) - General Motors Corp (GM.N) and the United Auto Workers union were making progress in talks crucial to keeping GM out of bankruptcy, just hours from a deadline for the automaker to submit a survival plan to the U.S. government, people briefed on the talks said on Monday.
The two sides resumed negotiations Sunday on the central question of how the cash-strapped automaker will fund a trust for retiree health care after talks had broken off on Friday.
GM’s board was scheduled to convene via a telephone conference call on Monday to review a draft plan of the automaker’s viability plan due to be submitted to U.S. officials on Tuesday.
GM is seeking concessions from the UAW and debtholders as required under the terms of its $13.4 billion bailout.
Without a framework deal on how to cut GM’s crippling debt load, analysts have said the Obama administration would confront a political and economic dilemma in the coming days.
A bankruptcy for GM could cost tens of thousands of jobs and topple parts suppliers and dealers just as the White House is focused on trying to pull the economy from the brink of a deeper recession
An expanded aid package for GM and Chrysler could cost taxpayers billions of dollars more and risk a stronger bailout backlash by voters worried by the mounting cost.
U.S. Rep. Thaddeus McCotter, a Michigan Republican, said in an interview the renewed progress in GM’s talks with the UAW appeared to come after a breakthrough in parallel talks with GM’s bondholders.
“There may have been a misunderstanding on the part of some of the bondholders of what bankruptcy would mean for them,” said McCotter, who sits on the House Financial Services Committee that heard testimony from automakers as part of the bailout debate. “They will get this done.”
McCotter has been an advocate for government support of the industry’s turnaround.
The UAW and GM declined to comment on the state of the negotiations, which are seen as central to GM’s effort to reduce its debt and operating costs.
Even before GM’s plan was finished, the automaker’s European labor unions predicted it was doomed to fail.
The heads of GM’s European Employee Forum urged a spin-off of the Opel and Vauxhall brands rather than the deep cost cutting they said GM was seeking under the plan, internally dubbed GM’s “Renaissance” project.
“The implementation of the ‘Renaissance’ project in Europe will ultimately lead to a collapse of Opel/Vauxhall,” the statement said. “This means scorched earth will be left in Europe with major conflicts all the way to the end.” [nLG698215]
The signs of progress in the GM talks came after the White House announced how it will review GM’s plan. A task force to oversee the restructuring of the auto industry will be headed by U.S. Treasury Secretary Timothy Geithner and White House economic adviser Lawrence Summers.
In addition, Ron Bloom, a restructuring expert who has advised the United Steelworkers, was also named as an adviser to the Treasury on the crisis.
Bloom is considered an expert on the retiree health care issues central to the UAW-GM talks.
GM and the UAW agreed to create a retiree health-care fund as part of their landmark 2007 labor agreement. But the steep slide in auto sales in 2008 overwhelmed GM’s attempts to raise cash, leaving it unable to fund its commitment to the union.
Now the UAW is owed roughly $20 billion and faces pressure from GM to take half of that in equity in a recapitalized company. Such a move would give the UAW a significant stake in GM, and union officials have said they could seek a board seat.
The stakes are high for the UAW, which saw its active membership drop below 500,000 last year for the first time since 1941.
The union has already agreed to surrender job protections for auto workers at a time of rising unemployment, which hit 10.6 percent in GM’s home state of Michigan at year end.
Meanwhile, GM has been kept afloat with $9.4 billion in emergency federal funding. It has been promised another tranche of $4 billion as soon as this week from the U.S. Treasury.
GM has also been in talks with its bondholders in an attempt to cut $28 billion in unsecured debt by two-thirds.
Analysts believe more federal funding will be needed. GM had originally asked for $18 billion — suggesting they still have an immediate need for another $5 billion.
Brad Coulter, director of the Detroit-based turnaround firm Okeefe & Associates, said the final price tag for a GM bailout could approach $50 billion if the market remains depressed.
“My real interest in this is how much cash has to be put in,” Coulter said.
A parallel set of talks have been under way at GM’s smaller rival Chrysler LLC with the union and its creditors.
Chrysler, controlled by private equity firm Cerberus Capital Management LP [CBS.UL], has been granted $3 billion and is seeking an additional $4 billion in aid.
Both GM and Chrysler have buyout and early retirement offers to almost all of their nearly 91,000 hourly workers as they work to cut costs and bring in lower-cost workers. (Additional reporting by David Bailey in Detroit; editing by Maureen Bavdek and Jeffrey Benkoe)