Hurdles Emerge For GM, Chrysler

By Kendra Marr and David Cho
Washington Post Staff Writers
Thursday, October 30, 2008

General Motors' pursuit of a possible merger with Chrysler is running up against several unresolved issues including whether the companies can line up government financing and win union support, according to people familiar with the matter.

But the talks are progressing on other fronts. One matter that has been decided is that GM's chairman and chief executive G. Richard Wagoner would oversee the combined company, said people who spoke on the condition of anonymity because the talks are private.

Wagoner was in Washington this week to ask the Bush administration for financial assistance with the merger, said an industry source briefed on the matter. Analysts said GM would need at least an additional $10 billion to combine operations and eliminate pieces of Chrysler that overlap with GM.

Treasury secretary Henry M. Paulson Jr. met with Wagoner, but it was unclear whether the department would put money into the merger. Treasury officials declined to comment on the matter.

Sources familiar with Treasury officials' thinking said the department is in negotiations to expand the $700 billion rescue plan to include U.S. auto companies. Under a broad interpretation of the law that authorized the financial rescue package, Detroit's Big Three are eligible for aid. But the Treasury has the authority to determine whether any money will be allocated.

GM's stock rose 8.2 percent yesterday as reports swirled around the negotiations.

If the world's largest automaker absorbed the smallest of Detroit's Big Three, the combination would begin with about 150,000 U.S. employees at more than 100 assembly, parts and stamping plants. And the two would support 600,000 retirees' health care and pensions. Together, the automakers control a web of about 10,000 dealers with sales between $110 billion and $130 billion.

A study by Anderson Economic Group in East Lansing, Mich., estimated that 25,000 to 35,000 jobs could be cut in a GM acquisition of Chrysler, which is owned by private equity firm Cerberus Capital Management.

UAW President Ron Gettelfinger told Detroit radio station WWJ this month he "would not want to see anything that would result in a consolidation that would mean the elimination of additional jobs." UAW spokesman Roger Kerson declined to comment.

Another major issue to resolve is what to do about the automakers' voluntary employee beneficiary associations, or VEBA -- union-run trusts that manage retiree health benefits. The companies continue to pay retiree costs until 2010, when management of the benefit programs shift to the union. A major part of last year's cost-cutting labor agreements, Detroit's Big Three contributed about $43 billion to the union-run trusts, transferring responsibility in the hopes that it would free up funds to better compete with foreign rivals.

However, the GM and Chrysler contracts were not identical, since they independently negotiated these retiree funds with the UAW. New talks, as well as court approval of a revised contract, would likely be needed after any merger -- opening the deal to union opposition.

"This is a whole new level of complexity," said Harley Shaiken, a labor relations professor at the University of California at Berkeley.


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