MILWAUKEE - The clock is ticking on a June 1 deadline for General Motors Corp. to restructure, and this make-or-break week is expected to bring more plant closures, employee concessions and other last-minute efforts.
Without changes, the federal government has said, the Detroit-based automaker (NYSE:GM) will have to file for bankruptcy protection by next Monday.
The company has been trying to overhaul its business so it can keep receiving federal money to stay afloat as it deals with soaring costs and slumping sales. On Friday, GM borrowed US$4 billion more from the U.S. government on top of the $15.4 billion it has already received.
In exchange, the Obama administration has demanded moves that include reducing debt, cutting labor costs and shedding dealerships, brands and excess factories.
This week, GM's efforts to cut labour costs continued with the Canadian Auto Workers union announcing its members approved wage reductions and other concessions that will see the company use some of the money it received from government to top up its pension plan.
Other earlier concessions helped lower GM Canada's labour costs to the level of competitor Toyota in Canada.
The agreement with the Canadian Auto Workers freezes workers' pension benefits until 2015 and slashes labour costs by $15 to $16 an hour through cuts to benefits. The union has also agreed to negotiate a health-care trust, which it will administer to cover retirees' benefits.
Under the deal, the company also agreed that it would give up its special status under Ontario law -- a status that has allowed it to underfund its pension plan since the 1990s -- and begin topping it up immediately.
The company's U.S. workers were expected to vote on their own concessions later this week on a deal reached among the United Auto Workers, GM and the federal government last week.
Details of that agreement, which most likely includes changes to paying for retiree health care, have not been released yet. Plant-level union officials were expected to be briefed on the agreement Tuesday morning in Detroit.
GM was also expected to announce the closing of 14 more plants as part of its previously announced effort to close 16 factories to trim production and cut costs. The moves will lay off 21,000 workers. So far the company has announced two plants it plans to close: an engine plant in Massena, N.Y., and a parts stamping plant near Grand Rapids, Mich.
Union concessions are expected to ease one of GM's biggest problems -- labor costs -- but even if the union approves those, there's still the issue of debt.
The company's unsecured bondholders have resisted an offer to take a 10 per cent stake in the company to wipe out $27 billion in debt. If that's approved, it may keep the company out of bankruptcy. But analysts say that's unlikely because bondholders have argued the proposal is too small a stake for the amount they are owed. Given the amount of money at stake, it's not likely the bondholders will approve it, said Erich Merkle, an independent auto industry analyst in Grand Rapids, Mich.
"That's a tremendous amount of money, and the bondholders are just going to look at it and say, 'We'll take it into court,' and I think they believe they can probably get more," he said.
The bond exchange offer expires Tuesday, though GM has said in a regulatory filing that it would decide Wednesday if it would be extended.
Among other unresolved matters for the automaker:
The question of its European unit Opel: On Monday German Chancellor Angela Merkel said the country hopes to loosen Opel's ties with General Motors before a possible bankruptcy filing. Merkel's government is looking at three bids, including one from Magna International (TSX:MG.A), and expects a decision on Opel's future midweek.
It's still not clear what will happen with the Saturn, Hummer and Saab brands. GM has said it plans to phase those brands out or sell them.
U.S. President Barack Obama said in an interview broadcast Saturday on C-SPAN he had hope for the ailing GM and Chrysler LLC, which is restructuring under Chapter 11 bankruptcy protection. He said the administration could not let either company simply shutter, which is why it had to intervene.
