UAW Wins Right To Name One GM Board Member

The United Auto Workers union, in a key cost-cutting deal with General Motors Corp. (GM), has agreed to accept at least 17.5% of GM's stock, $6.5 billion in preferred stock, and representation on the company's board in exchange for concessions on future health-care obligations.

The UAW will also receive a $2.5 billion note that will be repaid in installments through 2017, and stock warrants for an additional 2.5% of the company. The $6.5 billion in preferred stock includes a 9% cash dividend that will pay out $585 million annually.

The details of the agreement, spelled out in an informational brochure obtained by The Wall Street Journal, come as GM moves toward a June 1 deadline on deciding on whether it will file for bankruptcy protection.

The agreement represents a significant change from the original outline of GM's government-led restructuring, which would have left the union's health-care trust holding a 39% stake in the company.

The outcome of another critical piece of GM's reorganization -- a $27 billion debt-for-equity exchange with bondholders -- is expected late Tuesday or Wednesday. GM has offered bondholders a 10% stake in the company in exchange for at least $24 billion in debt, but bondholders have complained, mainly because they were supposed to get a much smaller stake in the company than the UAW.

Because the UAW is taking 17.5% stake in GM, rather than GM's initial 39% offer, there is a chance the company could sweeten its deal to unsecured bondholders.

The offer to the bondholders is set to expire Tuesday night. It needs the approval of 90% of the bondholders to go through.

Securing a revised agreement with the UAW is an essential piece of the company's reorganization effort. The company has said it could file for bankruptcy protection by June 1.

The key issue facing the UAW is related to renegotiating GM's contribution to a Voluntary Employee Benefits Association, or VEBA, fund that the union will manage and use to cover the cost of health care for retired workers.

GM owes $20 billion in cash to the health-care trust. GM has already set aside $10 billion in assets for the VEBA, and that will be given to the UAW in January. That $10 billion, however, "have been negatively impacted by conditions in the investment market."

Because GM -- which has accepted $19.4 billion in government loans -- doesn't have the financial strength to meet its obligation, the Treasury Department has demanded that the UAW take half of what it is owed in company equity.

According to the UAW, Treasury officials "insisted" that retirees take immediate reductions in benefit levels. The UAW said that the government has committed to "providing massive additional financial support to assist GM in completing its restructuring," and avoid a liquidation of the company.

In order to win additional funding guarantees, however, the UAW was "was required to support a series of changes to retiree medical and VEBA agreements."

Thomas Summers, vice president of UAW Local 22 in Detroit representing thousands of GM workers, said having a stake in the company gives the union a great reason to ensure the auto maker's viability. "Right now it's about just that, it's about survival," he said.

Still, Summers said most of the workers he represents expect GM to file for bankruptcy any day now. "Let's not be naive about it," he said, "I think everybody's been preparing for it."

The UAW and GM have been renegotiating VEBA agreement, which was struck in 2007, in recent weeks. Instead of just getting common stock in GM, the UAW has been promised a variety of instruments designed to pay for the future medical expenses of hundreds of thousands of retirees.

In addition to renegotiating the VEBA, the UAW has agreed to additional buyout offers for the 60,000 people employed at GM factories in the U.S. GM aims to cut at least $1.5 billion in annual labor costs under the new agreement.

GM workers are slated to vote on the deal on Wednesday and Thursday. GM spent $8 billion on hourly labor costs in 2008, but needs to cut that significantly if it hopes to be competitive with Asian competitors building cars in the U.S., and remain viable at much lower auto sales level than normal.

Much of the UAW agreement mirrors concessions granted to Chrysler LLC last month, including a suspension of cost-of-living allowances, bonuses and some holidays, people familiar with the agreement said.

The agreement also includes a provision for future job buyouts, as well as to forbid strikes until 2015, these people said. Wages are expected to remain unchanged, but employees who are on temporary layoff will see a reduction in supplemental unemployment pay.