With Restructuring Deadline Looming, UAW Seeks To Protect VEBA in the Event of Chrysler Bankruptcy Filing
The Treasury Department and United Auto Workers have "an agreement in principle" that would protect the health care benefits and pension plans of Chrysler Group retirees if the company files for bankruptcy, according to people with knowledge of the negotiations, the New York Times reports. Chrysler must present the Obama administration with a plan by April 30 for becoming and remaining financially viable, in order to avoid bankruptcy and receive the remainder of a federal loan granted in December 2008 (Maynard/de la Merced, New York Times, 4/24).
The announcement by then-President George W. Bush last year that the government would provide $17.4 billion in short-term loans to automakers General Motors and Chrysler, came with caveats. The companies had to ask UAW to accept half of the their obligatory contributions to a voluntary employees' beneficiary association -- which provides health insurance for retired autoworkers and their spouses -- in newly issued stock, rather than cash. Last week, the union and Chrysler were reportedly close to such a deal (Kaiser Daily Health Policy Report, 4/17). Chrysler currently owes $10 billion to the VEBA (Whoriskey, Washington Post, 4/24).
The Obama administration would grant up to $6 billion in loans to Chrysler, in addition to the $4 billion already granted, if the firm can complete deals with UAW and its creditors by next week. However, the Treasury Department is directing Chrysler to have a Chapter 11 bankruptcy filing ready by next week in case the federal funds are denied, according to people familiar with the matter (Maynard/de la Merced, New York Times, 4/24).
The potential VEBA deal, under which UAW would accept half of the Chrysler's payments to the fund in company stock, would require that the firm pay $5 billion in cash to the fund, which "conflict[s] directly with the interests of the consortium of banks and hedge funds" that hold $6.9 billion in Chrysler's secured debt, the Times reports. The automaker needs these creditors to agree to reduce its overall debt, but the banks are reluctant in part because they believe they are being asked to sacrifice more than the union, according to the Times.
Reports published before the Treasury deal was suggested indicated that the union was willing to take steps to help the firm avoid bankruptcy. According to the Times, a bankruptcy filing "would jeopardize the union's painstaking efforts to get financing for a health care trust to cover the future medical bills of 81,000 union retirees and surviving spouses." UAW President Ron Gettelfinger said, "We are continuing to work toward an agreement that will be in the best interest of Chrysler workers, retirees and the communities where the company does business."
People close to the talks said Gettelfinger has asked administration officials to consider the harm done to individuals by bankruptcy proceedings. University of California-Berkeley labor professor Harley Shaiken said, "Ultimately, the union is very hostile to the idea of bankruptcy. They see all the uncertainty, all the risk, and the chance that they could lose big in court." However, creditors would prefer bankruptcy to further negotiations, as it would allow them to recover more of their loans. If Chrysler does file for bankruptcy, Italian automaker Fiat could complete its proposed purchase of the firm while it is under bankruptcy protection (Vlasic, New York Times, 4/24).
The Treasury Department also is working with GM to develop a potential bankruptcy case, with the terms of a potential Chrysler filing offering a "glimpse into the shape of a GM filing," the Times reports. GM faces a June 1 deadline for presenting the administration with restructuring plans (Maynard/de la Merced, New York Times, 4/24). GM owes about $20 billion to the VEBA (Washington Post, 4/24).