Chrysler, CAW in tentative deal, GM draws $2 bn

Chrysler, CAW in tentative deal, GM draws $2 bn
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First Published: Sat, Apr 25 2009. 11 30 AM IST
Updated: Sat, Apr 25 2009. 11 30 AM IST
Detroit/Washington: Chrysler won a round of concessions from its Canadian union on Friday while General Motors Corp soaked up $2 billion more in US government aid and Ford Motor Co posted a narrower-than-expected loss that sent its shares soaring.
The developments underscored the diverging fortunes of Ford and Chrysler and GM, both of which are operating under US government oversight and increasing pressure to win cost-saving agreements to avoid bankruptcy.
Chrysler and the Canadian Auto Workers’ (CAW) tentative agreement on a new labor contract is intended to cut costs and keep the automaker from bankruptcy.
Under the agreement, the no. 3 US automaker would leave hourly base pay intact but cut a range of benefits, including an annual Christmas bonus, and add flexibility to work rules that would make it easier for Chrysler to hire temporary workers.
Chrysler would also cut the third production shift at its Windsor, Ontario minivan plant.
Taken together, the contract changes would save Chrysler an estimated C$240 million in annual labor costs, CAW president Ken Lewenza said.
The leadership of the Canadian union also agreed to work with Chrysler to create a trust fund to pay for retiree health care modeled on a similar fund that the United Auto Workers union approved for Chrysler’s US workers in 2007.
Chrysler still owes over $10 billion to the UAW for that trust fund and is seeking concessions from the US union that would allow it to pay stock, rather than cash, into the fund in in a restructured company.
Talks on that issue between the UAW and Chrysler have been slow-moving and Lewenza urged other Chrysler stakeholders to make concessions needed to keep the automaker from bankruptcy.
“We were told by Chrysler that they still didn’t have entire deals done to avoid a bankruptcy filing. We urge all the stakeholders in the United States to make equal sacrifices,” CAW president Ken Lewenza told reporters in Toronto.
The tentative deal, which will be put to CAW-represented workers for ratification this weekend, is one of several agreements that Chrysler needs to reach by next week to win new US government aid and avoid liquidation.
Chrysler faces an 30 April deadline to reach agreements that would cut its debt, labor costs and cement an alliance with Italy’s Fiat to satisfy the Obama administration.
The government has not yet extended new money to Chrysler, which has been operating on $4 billion of emergency loans, but officials said they were working around the clock to avert a Chrysler bankruptcy filing and facilitate an alliance between Chrysler and Italy’s Fiat SpA.
The immediate deadlines for Chrysler partly eclipsed General Motors’ struggle. The Obama administration has rejected a GM restructuring plan, ousted its chief executive and told the automaker to cut deeper and move faster if it wanted to continue to receive government support.
GM has been operating under $13.4 billion of emergency loans from the US government. The $2 billion draw adds working capital for the automaker. The US Treasury could lend another $3 billion to GM.
On Thursday, GM announced plans to slash production in North America over the next three months.
GM said on Friday that the trustee for a fund created to allow GM employees to put savings into company stock had sold all of its shares. The sales started on 31 March, the day after the Obama administration rejected the automaker’s restructuring plans, and concluded on Friday.
GM said the trustee was authorized to sell the shares if it determined there was a serious question about GM’s short-term viability as a going concern without resorting to bankruptcy or no possibility in the short term of recouping substantial proceeds from the sale of stock in bankruptcy proceedings.
GM is looking to spin off its German unit Opel and UK’s Vauxhall Motors and is seeking investors. Fiat and Magna International are possible investors.
Fiat sought to play down expectations that it was about to make an offer for Opel.
GM shares closed up 4.32% at $1.69 on the New York Stock Exchange on Friday.
The struggles of Chrysler and GM overshadowed Ford’s results on Friday. Ford, which has not sought emergency government loans, posted a $1.4 billion loss that was less than analysts had expected and said it was on track to at least break even in 2011.
Ford chief financial officer Lewis Booth called the results encouraging and said the automaker expected the first quarter to have the worst cash burn of the year.
Booth said Ford risked being at a disadvantage if GM or Chrysler should file for bankruptcy, but the automaker has been preparing contingency plans should such a filing lead to disruptions in its parts supply base.
Chrysler, about 80% controlled by Cerberus Capital Management, would need to complete those agreements to maintain its funding and receive more. Without additional support, Chrysler could liquidate.
A critical part of the Chrysler restructuring is reducing about $7 billion of first-lien secured debt generated when the automaker broke away from Daimler AG in 2007.
Lenders have balked at taking a severe haircut on the first-lien debt, but they made a new offer to the US Treasury on Friday.
Talks between Treasury and the lenders have intensified as the deadline approaches. On Wednesday, the Treasury offered the lenders $1.5 billion and a 5% equity stake in a restructured Chrysler in exchange for the debt.
The lenders had offered to retain about $4.5 billion in debt and take a 40% stake in a new Chrysler supported by government investment and the Fiat deal.
The new offer cut that to $3.75 billion and dropped a requirement that Fiat make a $1 billion additional investment in Chrysler.
Chrysler told its US dealers on Friday that it was making progress in its restructuring talks with the U.S. government and had no plans to file for bankruptcy before the end of month deadline.
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First Published: Sat, Apr 25 2009. 11 30 AM IST