DETROIT (AFP)--Struggling U.S. automaker General Motors Corp.
(GM) appears unlikely to reach key agreements ahead of a March 31
deadline after its union and bond-holders went public with a spat
over concessions.
"We don't think GM will be able to meet certain objectives by
the deadline," Standard & Poor's Equity Research Services
analyst Effraim Levy wrote in a research note Tuesday.
The United Auto Workers union and bond-holders are "playing cat
and mouse about accepting equity in lieu of cash until they see
what the other stakeholders get," Levy said.
GM is under pressure to hammer out a deal with its union and
bond-holders to reduce operating costs and trim benefits as part of
its bid to restructure under the government's multi-billion-dollar
bailout package.
Levy said he expects the union to reach an agreement by the
deadline but noted "resistance from GM bond-holders with nearly $30
billion in debt (principle amount) to swapping that debt for GM
shares worth about one-third that amount."
But a union source close to the talks said negotiations with GM
are being held up by a lack of sufficient sacrifices on the part of
bond-holders.
The source also warned that "time is an issue" and noted it
takes about seven to 10 days to get an agreement ratified by
members.
The disagreement went public last week when the UAW's
legislative director, Alan Reuther, complained in a letter to
legislators that bond-holders were demanding additional sacrifices
from retirees that go "beyond those called for by the terms of the
loan agreements."
The ad hoc committee of GM bond-holders responded with a
statement suggesting the pensioners were at the root of GM's
problems.
They stepped up their offensive Sunday with a letter warning the
presidential task force on the automotive industry that the
government's proposal wouldn't be accepted by a sufficient number
of bond-holders.
"The result of such a failed exchange would likely be a
bankruptcy that would have dire consequences for the company, the
tens of thousands of hard-working Americans that GM employs and the
economy as a whole," the committee wrote.
GM is currently funding its operations with a $13.4 billion loan
and has asked the U.S. Treasury for another $16.4 billion to
weather a collapse in auto sales amid a deepening economic
crisis.
GM spokesman Tom Wilkinson declined to comment on the letter or
the status of negotiations "except to say that GM remains committed
to concluding its balance sheet restructuring on an expedited
basis."
While the Treasury has used the specter of a GM bankruptcy to
try to pressure bond-holders to reach a deal, industry observes
said it was unlikely that the government will let the largest U.S.
automaker fail.
Steve Rattner, the lead advisor to the auto task force, appeared
to back off the March 31 deadline in a series of recent interviews
in which he criticized bond-holders for being "difficult" and
warned that GM and Chrysler could need "considerably more" aid than
they have already asked for.
Ford, the third automaker in Detroit's "Big Three," said it will
attempt to weather the economic storm without government bailout
funds.
On Thursday the Treasury released $5 billion to prop up auto
suppliers in a move that was interpreted as a sign that the
administration wasn't prepared to force GM into bankruptcy.
"It wouldn't make any sense to help the suppliers and not help
the automakers," said U.S. congressman Thaddeus McCotter of
Michigan.
But government support and a thoughtful restructuring plan might
not be enough to save GM if auto sales don't improve soon, warned
Rebecca Lindland, an analyst with IHS Global Insight.
"The threat of GM going bankrupt still is very real," she said
in a telephone interview.
"We can continue to throw billions of dollars at those
companies, but until the American consumer starts spending again
it's not going to help."