Vol. 73/No. 23      June 15, 2009

Several days earlier the United Auto Workers (UAW) approved a major concessionary contract amounting to about $1.3 billion in annual cutbacks that include slashing benefits and freezing wages.

The company, in collaboration with the Obama administration, insists that this will be a quick bankruptcy, creating a much smaller, “new” GM based on half its previous car lines—Cadillac, Chevrolet, Buick, and GMC. The rest, dubbed “old” GM—including Pontiac, Saturn, Saab, and Hummer—will be shut down and liquidated in a process that could take years.

This is the third largest bankruptcy in U.S. history, Bloomberg reported. The company announced it was closing 11 plants and “idling” three more. It will also slash 21,000 jobs from the current union workforce at GM of about 54,000. In 1970 the company employed 395,000 workers.

Also impacted by the bankruptcy are some 300,000 employees at GM dealerships, many of which are slated to close, and hundreds of thousands of workers at auto parts companies and other GM suppliers, reports CNN Money.

The government is financing GM’s bankruptcy proceedings, providing it with nearly double the funds the company had requested. The U.S. Treasury is giving GM $30 billion, on top of the $19.4 billion in bailout funds the company has already received from Washington.

At the front of the line to receive $6 billion of these funds are GM’s “secured lenders,” the largest banks, including Citigroup and J.P. Morgan Chase.

The U.S. government will now own 60 percent of stock issued by the new GM, as it seeks to return the auto barons to profitability.

According to the union, 74 percent of GM’s production and skilled-trade workers approved the giveback contract. “This is a dramatic reduction of benefits,” amounting to a 25 percent cut, UAW president Ron Gettelfinger told the media.

The deal suspends cost-of-living increases, bonuses, and some holiday pay, and bans strikes over the next six years. The company is offering a new buyout offer to all those employed in GM’s U.S. factories. Retirement-aged production workers would get $20,000 and a $25,000 vehicle voucher.

The biggest cuts target health care for the 500,000 U.S. retirees and more than 150,000 of their family members. In place of providing the $20 billion GM owes to the union-managed retirees’ health-care fund, known as Voluntary Employee Beneficiary Association (VEBA), the company will give the fund $10 billion in largely worthless stock. In exchange the union trust fund gets a 17.5 percent “ownership” stake in GM and a seat on GM’s board.

In its 2007 contract the union agreed to GM’s demand to end its responsibility for covering health care for retirees by setting up the VEBA fund, a move the Wall Street Journal describes as “the largest UAW concession in history.”

VEBA takes over covering retirees’ health-care costs in 2010. GM is supposed to cover benefits for the rest of this year. It has announced the immediate elimination of vision and dental programs and coverage for some medications.  
 
 
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