The United Auto Workers struck a deal with General Motors and the U.S. government yesterday to cut labor costs, close factories and change the way retiree health care is funded.
The agreement could ease one of GM's biggest problems: The cost of its workforce. But the automaker is still struggling with a crushing debt that may drive it into a Chapter 11 bankruptcy.
General Motors Corp., which has received $15.4 billion in federal loans, faces a government-imposed June 1 deadline to finish a major restructuring or be forced into bankruptcy protection.
The government has told the automaker to cut labour costs, close factories, shed dealers and brands, and persuade at least 90% of its bondholders to sign on for the stock-for-debt exchange.
But thousands of bondholders are expected to shun the company's offer to take 10% of its stock to wipe out $27 billion in unsecured debt.
GM shares rose more than 32% to $1.92 yesterday.
GM has offered bondholders 225 shares for every $1,000 of debt.
But Douglas Baird, a University of Chicago law professor who specializes in bankruptcy cases, said the bondholder obstacle is nearly insurmountable.
"There's a collective action problem," he said.
"There are a lot of these bondholders. Even if there are a lot of them on board, that's not the same as 90% on board."
Still, the UAW deal could help shorten the length of time GM stays in bankruptcy protection, Baird said.
