UAW To Accept Up To 20% Of GM Stock; Agrees To Concessions On Retiree Health Care Obligations, Labor Rules

Main Category: Health Insurance / Medical Insurance
Also Included In: Seniors / Aging
Article Date: 28 May 2009 - 4:00 PDT

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United Auto Workers leaders on Tuesday agreed to accept up to 20% of General Motors stock, as well as concessions on labor rules and retiree health care obligations, as the automaker faces a June 1 deadline to restructure or seek bankruptcy protection, the Detroit News reports (Aguilar/Shepardson, Detroit News, 5/27). Under the deal, the voluntary employees' beneficiary association would receive 17.5% of common GM stock, $6.5 billion of preferred shares, a $2.5 billion note and warrants equal to 2.5% of GM's stock (Reuters/USA Today, 5/27). In addition, the VEBA would receive $585 million annually in interest income on its preferred stock (Detroit News, 5/27).

Another concession included in the tentative deal is the elimination of dental, vision and some prescription drug coverage for hourly retirees (Shepardson/Aguilar, Detroit News, 5/26). UAW also would hold a seat on the GM board of directors (Cho et al., Washington Post, 5/27).

Because of a proposed deal announced earlier this month, the Treasury Department and UAW, together, are to own 89% of GM's stock, meaning that if the UAW-GM deal is approved, the Treasury would own about a 70% share of GM's stock (Detroit News, 5/26). Current bondholders would hold about a 10% stake in the company (Washington Post, 5/27). The remaining 1% would be held by existing shareholders (Detroit News, 5/26).

The total 20% is about half of what was anticipated (Higgins, Detroit Free Press, 5/26). The "significant concessions" made by UAW, which was eligible to receive up to 39% of GM's equity through the VEBA, "could mean that [GM] is attempting to appease unsecured bondholders, who charged that the UAW was getting a better deal," according to the News (Detroit News, 5/27). UAW said the revised agreement with GM was necessary for the automaker to survive, but the deal will leave hundreds of thousands of GM retirees paying higher out-of-pocket medical expenses, the Wall Street Journal reports (Stoll et al., Wall Street Journal, 5/27).

UAW members are scheduled to vote on the agreement on Wednesday and Thursday (Detroit News, 5/26). However, "[e]ven with UAW approval, GM is still likely to file for bankruptcy, since bondholders are unlikely to swallow deep concessions," according to the News (Detroit News, 5/27).

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