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General Motors Corp. has an agreement that may enable it to put its labor worries aside and be more competitive. A four-year contract agreement, which GM tentatively struck early Sept. 26 with the United Auto Workers, ended a landmark two-day strike that could have delivered a staggering blow to GM, and could serve as a model bargaining agreement for labor's upcoming talks with Ford Motor Co. (The UAW's talks with Chrysler LLC, which followed GM's, temporarily resulted in a strike and later ended in four-year tentative agreement.)
GM unveiled further details of the agreement Oct. 15, saying it would shed $46.7 billion of its $64.3 billion retiree healthcare oblgiations, the balance of which are due workers in other unions or salaried GM employees. The agreement, The Deal's Lou Whiteman points out, will leave GM with labor costs more aligned with foreign competitors. SETTLING DOWN Sources in September told Whiteman that GM would also:
GM did get its way in seeking limits over a controversial program that allowed union members to continue receiving full pay and benefits even when there was no job available for them. The automaker is positing the deal as a way to make it more competitive. How competitive is another question. The news follows a settlement GM reached earlier in September with Troy, Mich.-based Delphi Corp., a former GM unit and the world's largest auto parts maker, resolving many outstanding issues and clearing a major hurdle to Delphi's emergence from bankruptcy. (See more below.) Both legal tangles could have thrown serious wrenches into GM's turnaround. The latest move to right its course came in late June, with the sale of Allison Transmission for $5.6 billion to Carlyle Group and Onex Corp. If GM is indeed beginning to turn things around, it's been a long road to get here. The tale of embattled GM incorporates many harsh business realities: the decline in power of the once-mighty American union; the possible attempt to eliminate the burden of pensions and benefits through bankruptcy protection; and the messy fallout of a changing industry. Hope for what may have signaled a new chapter in the company's story, a three-way alliance with Renault SA and Japan's Nissan Motor Co. Ltd., faded in early October 2006, a lost cause that highlights the difficulty automakers will likely face in global M&A activity, particularly from labor, but signals such tie-ups may prove inevitable. Debate about the fate of the troubled automaker continued into November 2006, when activist investor Kirk Kerkorian, who had lobbied for the tie-up, cut his 9.9% stake in GM to 7.4%, sparking talk anew about his intentions. Then, days later, he sold 14 million more shares in the automaker for $28.75 each for a return of more than $400 million. Weeks earlier, the GM board rejected the alliance as it was structured, Kerkorian said he wouldn't seek any more GM shares and that his board representative Jerome York was stepping down, and GM's shares headed south. Published reports said GM was readying for war, having hired Goldman, Sachs & Co. and Morgan Stanley to defend it in the event of a Kerkorian-speared takeover attempt. CORPORATE TUNE-UP In 2005 analysts said GM would need to slash its labor-related costs to stay competitive. Enter Kerkorian. The billionaire financier, who once was Chrysler's leading shareholder, first approached GM with an offer to buy 28 million shares for $868 million. He eventually landed 7.2% of shares through his Las Vegas investment company, Tracinda Corp., and later boosted his stake to 9.9%.
Ahead of the failed Renault-Nissan talks, GM undertook a series of moves to both raise and save cash, after many months of burning through it.
AND THEN THERE'S DELPHI GM's former subsidiary Delphi found itself stuck in bankruptcy, having lost more than $700 million through the first half of 2005 before seeking court-supervised protection in October 2005. The filing raised fears over provisions in Delphi's 1999 spinoff agreement that could force its former parent to assume the employee benefits of terminated Delphi employees as part of its reorganization. At the time, GM said that could cost it as much as $11 billion. Terms of the Sept. 6 settlement call for the automaker to take $2.7 billion in cash and the unconditional release of any claims against it in return for supporting Delphi's labor agreements. Delphi's reorganization plan calls for a $2.55 billion equity investment led by Appaloosa Management LP that includes Harbinger Capital Partners Master Fund I Ltd., Merrill Lynch & Co., UBS Securities LLC, Goldman, Sachs & Co. and Pardus Capital Management LP. The investment, coupled with a multibillion-dollar exit loan -- Delphi has said it needs between $7 billion and $7.5 billion -- is expected to lead the parts maker out of Chapter 11. WILL THE ENGINE STALL? What would certainly be a historic bankruptcy if GM were to seek protection might look a lot different from what it would have been one year ago. On Oct. 17, 2006, the bankruptcy reform bill President Bush signed the previous April went into effect with a slew of new provisions that effectively make things harder for large corporations seeking protection. -- Carolyn Murphy
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