May 26, 2009 / 12:14 AM / 11 years ago

Crunch time looms for GM and Chrysler

DETROIT/WASHINGTON (Reuters) - United Auto Workers’ officials will gather on Tuesday to hear how many more U.S. factory jobs GM will cut as the embattled carmaker enters what could be its last week outside bankruptcy.

A logo is seen on a vehicle in New York May 15, 2009. More than 100,000 jobs are at risk from the unprecedented GM and Chrysler dealership closures in the U.S., showing the spreading economic pain from the collapse of the two automakers. REUTERS/Eric Thayer

Union officials representing 54,000 General Motors (GM.N) workers are scheduled to meet in Detroit to prepare for a quick ratification vote on a cost-cutting labour deal negotiated last week. The union aims to complete those votes by Thursday.

Approval of the contract, which would change payment terms on $20 billion (12.6 billion pounds) owed to a UAW trust fund, represents one of the hurdles for GM to clear before a June 1 deadline set by the Obama administration.

GM, which has received $19.4 billion in government funding since the beginning of the year, has been struggling to cut costs and reduce debts in order to continue to receive more government aid.

The company on Friday said it expected to need another $7.6 billion from the U.S. Treasury after June 1

Across the border in Canada, GM workers at plants in Ontario on Monday ratified concessions negotiated last week with a vote of 86 percent in favour.

“This has been a gruelling restructuring process, and no one has felt that more than our members and retirees,” Canadian Auto Workers President Ken Lewenza said in a statement.

The new contract cuts GM’s hourly labour costs in Canada by almost 30 percent, including an earlier round of concessions.

Meanwhile, GM and the U.S. autos task force worked through the weekend on a restructuring expected to send the carmaker into bankruptcy.

“We have routine and frequent contact with the task force,” GM spokesman Greg Martin said of the White House-appointed panel overseeing the overhaul of GM and bankrupt Chrysler.

GM faces a series of interim deadlines through this week. That includes a decision expected this week by the German government on the preferred bidder for GM’s Opel unit.

GM will also learn on Wednesday how much of its $27 billion in bond debt was tendered in exchange for shares. GM has set a target of slashing 90 percent of its bond debt, a goal analysts see as unreachable.

Wednesday’s bondholder deadline for GM coincides with an equally crucial turning point for its smaller rival Chrysler, which has been operating in bankruptcy since April 30.

Bankruptcy Judge Arthur Gonzalez could rule as early as Wednesday on whether Chrysler will be allowed to sell its most valuable assets to a new company that would be under the operational control of Italy’s Fiat FIA.MI.

If that approval is granted, a deal to create a merged Chrysler-Fiat with the backing of the U.S. government could be closed by the middle of next month.

The fiercest opposition has come from the ranks of the 789 dealers that Chrysler wants to drop from its retail network.

“Instead of allowing the free market to determine which dealers survive, Chrysler and the government are effectively playing the roles of judge, jury and executioner,” a committee of dealers opposed to the action said in an e-mail seeking support for their position on Monday.

About 330 Chrysler dealers from 47 states have joined the group, lawyers for the group said in a court filing on Monday.

At Richard Chrysler Jeep Dodge, about 45 miles west of Chicago, on Monday a steady stream of shoppers were looking for a deal on the 50 remaining vehicles on the lot.

“We don’t know why we’re on the (closure) list,” said Marni McClennan, a saleswoman at the dealership. “The irony is we could do with more inventory right now because we’re actually selling cars. We’ve had so many people coming in over the past few days it’s hard to keep up.

RUSHING ON GOVERNMENT TIME

A U.S. Treasury spokeswoman declined to comment on the status of GM negotiations.

GM and the UAW reached a tentative contract last week but details of the proposed pact have not yet been released.

Local UAW bargaining units posted notices for workers to be prepared to vote on the new contract within a day after they were briefed on its details.

That fast-track schedule is needed “to meet the United States government-issued deadline,” UAW Local 276 President Enrique Flores said in posting on the local’s website.

A key question is whether GM rolled back on plans to cut 21,000 UAW-represented factory jobs at the same time that it presses ahead with increased imports to the United States from its factories in China, Mexico and South Korea.

Under pressure from the Obama administration, GM has been rushing to complete plans to cut costs and debt and spin off brands including Saab, Opel, Hummer and Saturn.

But bondholders have balked at proposals that they forgive debt in exchange for a 10 percent stake in a restructured company.

Under GM’s current plan, a UAW trust fund for health care would get about a 39 percent GM stake. The U.S. Treasury would hold a 50 percent stake. Current shareholders would be left with just 1 percent of a restructured company.

The standoff between GM and its bondholders sets the stage for a bankruptcy filing, analysts have said.

A person familiar with Obama administration thinking on the matter said the administration was continuing to engage with GM bondholders to reach agreement on restructuring.

The person, who was not authorized to speak publicly on the situation, reiterated that there were no plans to steer GM into a bankruptcy filing before June 1.

Shares of GM, which the automaker has warned could be worthless in a bankruptcy, fell 36 percent from their highs in volatile trade last week to $1.43.

The U.S. government has provided a combined $36.6 billion to GM, Chrysler and their financing units since December.

In an interview broadcast over the weekend, Obama said he hoped GM and Chrysler would emerge from restructuring “leaner, meaner, more competitive.”

“Ultimately, I think that GM is going to be a strong company,” he said.

Additional reporting by David Lawder in Washington and Nick Carey in Chicago; Editing by Leslie Adler

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