By Kendra Marr
Washington Post Staff Writer
Thursday, February 12, 2009
General Motors and Chrysler have spent the last two months unveiling fuel-efficient cars, shuttering a jobs bank that paid furloughed workers and taking other steps to cut costs and transform product lines.
But to prove they are worthy of additional federal loans, they still must negotiate concessions from the United Auto Workers and their bondholders and present them Tuesday as part of so-called viability plans to the government. So far, GM has received $9.4 billion and could get $4 billion more if its plan satisfies the government. Chrysler has collected $4 billion in loans and plans on requesting an additional $3 billion.
These progress reports are further complicated by the Obama administration's delay in appointing a car czar to head the government's review. Some analysts attribute much of the delay to the change in government.
"It could not have happened instantly," said David E. Cole, chairman of the Center for Automotive Research, who federal officials contacted for suggestions on forming the review office. "There was a change in administration and it takes time to put things together."
Though the concession agreements are due next week, GM and Chrysler have until March 31 to complete them.
The Treasury Department has mandated that the union cut compensation to levels competitive with Nissan, Toyota and Honda. The U.S. automakers also must agree on how much they will contribute to a union-run health-care trust for retirees.
The firms currently pay an average of $55 an hour in wages and benefits to hourly workers, while Japanese automakers pay about $46 an hour, according to an analysis by Barclays Capital.
Analysts predict the talks will continue right up to the Tuesday deadline, much like when automakers and unions negotiated new contracts in 2007.
"Part of the negotiation process is that you don't want to give any more than you have to," said Dennis Virag, president of the Automotive Consulting Group.
GM's announcement Tuesday that it would reduce pay for salaried workers could put pressure on the unions to do the same, said Gary N. Chaison, a professor of industrial relations at Clark University in Worcester, Mass.
"Resisting would make them look like villains," he said.
Bondholders pose another challenge. GM and Chrysler first need substantial restructuring plans, including union concessions, to calculate their values for bond and equity holders, analysts said.
Then the automakers need to reduce their outstanding unsecured debt by at least two-thirds through an exchange of debt for equity in the companies.
Recently 10 GM bondholders formed a committee to negotiate terms of the swap.
But even if GM reaches an agreement with the bondholder committee, it will still need to persuade other individuals to accept it.
Last year, when it was on the verge of seeking bankruptcy protection, GM failed to get bondholders to agree to a debt-for-equity swap.
GM is at risk of losing its federal loans if they balk again, though bankruptcy would wipe out bondholders.
"Eventually they'll come around," Virag said. "There is no other option."