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New Auto bailout negotiated without UAW
http://www.freep.com...S01/81222022/1014
UAW President Ron Gettelfinger, who now faces the prospect of renegotiating a new labor contract with Detroit’s automakers, today told Fox Business Network’s “Money for Breakfast” that the union was shut out of discussions for federal assistance between the Bush administration and the automakers — a slight he called “unbelievable” given the sacrifices the union is being pushed to make.

On Friday, the Bush administration tossed General Motors Corp. and Chrysler LLC a $17.4-billion lifeline, but one with many strings attached. That included a push for a more competitive labor contract between the UAW and Detroit’s automakers. Any new union deal with GM and Chrysler, experts have said, would require a similar new deal with Ford Motor Co., which isn’t immediately seeking federal funds.

Wow. The administration negotiated a deal with the automakers that includes terms that apply to the unions. But the unions where not included in the negotiations.

I can see why they did not want the unions there, as their differing desires with the automakers and the administration would have greatly complicated the negotiations. But leaving them out gives the union a reason to try and bust the whole thing from the start.

http://money.cnn.com...0402_FORTUNE5.htm
General Motors Corp. (GM) Chief Executive Rick Wagoner on Monday defended the United Auto Workers and said he remains hopeful the company and union can strike a deal to lower labor costs.

Wagoner, during a radio interview in Detroit, said the union "took a lot of bullets" in the midst of high-profile talks over an aid package for Detroit's struggling auto makers.

"People were trying to score political points rather than fix the issues we were facing," Wagoner said.

It looks like the automakers are going to try and blame everything on the administration. No surprise there.

Jay
Expand Edited by jay Dec. 22, 2008, 04:00:13 PM EST
New It looks to me like it was doomed from the start.
GM and Chrysler seem to be saying (by accepting this) that they'll agree to anything to get their hands on the money. The conditions on the loan seem to me to be so draconian that they're guaranteed to force the companies into bankruptcy (more likely liquidation) if they stand without change.

http://www.nytimes.c...auto.html?_r=1&hp

The loan deal also requires the companies to quickly reduce their huge debt obligations by two-thirds, mostly through debt-for-equity swaps, and to reach agreements on wage and benefit cuts with the unions by Dec. 31.


http://finance.yahoo.com/q/ks?s=gm

GM has $45B in debt. Its Book Value per Share is -$98. Does anyone really think they're going to be able to convert that to equity in 3 months in a way that doesn't cripple the future of the company? That they can renegotiate their labor contracts (which as you point out also affect Ford) in less than 2 weeks?

This "plan" by Bush seems designed to wreck what's left of GM, Chrysler and the unions (and the dealer network, suppliers, rust-belt cities and towns, etc., etc.) while hiding behind a fig-leaf of a "bailout loan". "Hey, we gave them the money and some reasonable conditions to protect the taxpayer. It's not our fault - it's their fault. And Obama's and the Democrat's fault, too, of course."

It seems to me that this "plan" has got to be changed to have any chance of success.

Cheers,
Scott.
New Bloomberg story this morning.
http://www.bloomberg...g&refer=worldwide

The loans are “going to get us through this rocky period,” Wagoner told Detroit radio station WJR yesterday. “The funding that we received is what we asked for.”

He spoke before GM fell 97 cents, or 22 percent, to $3.52, the biggest decline since Nov. 10. The drop was the most among the 30 stocks on the Dow Jones Industrial Average. The shares traded in Europe declined a further 4 percent to $3.38 as of 10:42 a.m. today in Frankfurt.

Shareholders may be “wiped out” by the restructuring needed for the bailout, analyst Christopher Ceraso of Credit Suisse AG said yesterday. He cut his rating to “underperform” from “neutral” and slashed his target price in half to $1.

Credit-Default Swaps

The upfront price on GM credit-default swaps rose 2 percentage points yesterday to 81 percent, according to CMA Datavision. That’s in addition to 5 percent a year, meaning it would cost $8.1 million initially and $500,000 a year to protect $10 million of GM bonds for five years.

[That means it costs $10.6M to protect $10M in GM bonds over 5 years. Plus the time value of the money.]

GM’s 7.7 percent note due April 2016 lost 2.1 cents to 16 cents on the dollar, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority. The yield was 56 percent.


It's not looking good...

Cheers,
Scott.
New The automakers are probably banking on that
It seems to me that this "plan" has got to be changed to have any chance of success.

The automakers are probably banking on renegotiating after Obama takes office. They just need to look like they are trying to squeeze cash for a few weeks out of the current White House.

Jay
     Auto bailout negotiated without UAW - (jay) - (3)
         It looks to me like it was doomed from the start. - (Another Scott) - (2)
             Bloomberg story this morning. - (Another Scott)
             The automakers are probably banking on that - (jay)

Do not meddle in the affairs of dragons, for you are crunchy and good with ketchup.
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