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Chrysler, UAW reach deal
Chrysler LLC reached a deal on concessions with the United Auto Workers late Sunday night, clearing the way for a deal with Fiat SpA, while General Motors Corp. prepared to announce a major restructuring today -- in what is set to be one of the most significant weeks in the history of the U.S. auto industry.
The settlement agreement, subject to ratification by UAW members at Chrysler, includes a revision of the 2007 health care deal, and members must approve the deal by Wednesday.
"We recognize this has been a long ordeal for active and retired auto workers and a time of great uncertainty," said UAW President Ron Gettelfinger. "The patience, resolve and determination of UAW members in these difficult times is extraordinary and has made it possible for us to reach the agreement we will present to our membership.
The UAW said it also reached a deal with Fiat and the U.S. government. The agreements were achieved after marathon talks.
The White House and Treasury Department declined to comment.
Chrysler, facing a Thursday government deadline to win concessions essential to completing the Fiat deal to receive up to $6 billion in additional federal loans, hailed the deal.
"We commend the UAW's leadership for their endless determination and perseverance in reaching this tentative agreement, especially during these unprecedented economic circumstances that plague the automotive industry," said Chrysler's Al Iacobelli, chief bargainer and vice president-employee relations. "As a result, Chrysler LLC can continue to pursue a partnership with Fiat SpA."
The Canadian Auto Workers ratified a deal Sunday night.
GM plans to announce early today a bond exchange offer to the holders of its $28 billion in unsecured debt, proposing trading the debt for primarily equity -- though it has until June 1 to win tough concessions.
The Detroit automaker also will lay out new details today of its revamped restructuring, including shuttering its Pontiac brand, speeding up plant closures and increasing the number of facilities it will shut; it isn't expected to name the plants that will be closed. In February, GM said it planned to close 14 of its 47 U.S. plants by 2012 and cut 20,000 U.S. jobs -- and it now plans to do more, faster.
The automaker also is expected to announce today that it will dramatically speed shrinkage of its dealer network.
President and CEO Fritz Henderson will be joined during the 9 a.m. news conference by Chief Financial Officer Ray Young; Troy Clarke, group vice president and president, GM North America; and Mark LaNeve, GMNA vice president, vehicle sales, servicing and marketing.
Chrysler or GM could file for bankruptcy, even with concessions, in order to shed bad assets.
"It was explained to us that Chrysler is getting ready for Chapter 11 filing," Ken Lewenza, president of the Canadian Auto Workers union, said in announcing the agreement Friday. "The company could be split into the new company and the old company. The old company would be liquidated."A big hurdle remains in convincing the holders of Chrysler's $6.9 billion in secured debt to make concessions.
The Treasury Department has proposed giving the holders, led by JPMorgan Chase, Citigroup, Goldman Sachs and Morgan Stanley, $1.5 billion in new debt and 5 percent equity.
On Thursday, the banks proposed getting $3.75 billion in debt and 40 percent equity. The Treasury could make a counteroffer as early as today.
The UAW deal may put more pressure on the debtholders to make concessions to help the automaker avoid bankruptcy.
Last week, GM got $2 billion more in short-term loans of up to $5 billion allocated by the Obama administration -- and has now received a total of $15.4 billion.
The Obama administration, which has been in talks to give Chrysler another $500 million in short-term loans, has not authorized that yet.
One big issue for Chrysler is that it won't produce any vehicles with Fiat technology until 2011. With the automaker burning through as much as $1 billion a month after losing $8 billion in 2008, it's unclear how it can survive on just $6 billion more in taxpayer loans.
Chrysler would likely file for bankruptcy in New York or possibly Delaware, where it is incorporated -- though Michigan Attorney General Mike Cox has urged the company to file -- if necessary -- in Michigan.
Chrysler would need debtor in possession financing -- funds to operate while it's in bankruptcy -- from the government or get government backing for such financing. It has pegged the figure at $24 billion over two years.
As a result, the government would have significant say-so in the bankruptcy -- since it would be a major creditor and the provider of financing.
The U.S. and Canadian governments have reportedly been working together to create a $40 billion fund to underwrite GM and/or Chrysler bankruptcy filings.
GM faces a June 1 deadline to win major concessions and convince the government it can be viable. It might enter bankruptcy with partial agreement among its creditors and unions to win broader concessions in what's known as a "prepackaged bankruptcy" -- a move that can shorten the time under court oversight.
Under one scenario, GM could be broken into "good" and bad" companies -- with the good company, composed of brands such as Cadillac, Chevy, GMC and Buick, emerging quickly -- while the bad GM would be sold off over a number of years under Section 363 of the bankruptcy code.
If either company sought court protection, it would seek approval to continue to issue paychecks and pay bills. It would decide which contracts it wanted to set aside or renegotiate in bankruptcy -- involving dealers, unions and suppliers.
The Obama administration is creating a $1.25 billion program that will guarantee the warranties of GM or Chrysler buyers if the automakers enter bankruptcy protection -- a move to bolster customer confidence.
The administration also has created a $5 billion program to guarantee payments owed to auto suppliers -- but not yet received. That protects suppliers in the event of an auto bankruptcy filing.
Analyst Joe Phillippi of AutoTrends Consulting Inc. in Short Hills, N.J., questioned speculation that if Chrysler files for bankruptcy, Fiat would be allowed to cherry-pick assets such as the Jeep brand, minivans and the Dodge Ram pickup.
"To get fair value, you have to put it up for auction," he said of Chrysler's assets. All Fiat has done to warrant special treatment is perform due diligence. Fiat has "expended a lot of mental assets," Phillippi said, but "no money or technology has been put in."
He also questioned how or if Fiat would pay for assets, given its position that it will not contribute cash as part of its proposed alliance with Chrysler.
A reality of bankruptcy is that a judge must grant first-day permission to pay bills to keep the lights on and pay suppliers. The court also would likely mandate that suppliers continue to ship parts.
"Whether there is a bankruptcy or not, on the other side of all this will be a Chrysler that doesn't resemble the Chrysler of a year ago," said Michael Robinet, vice president-global vehicle forecasts for CSM Worldwide in Northville