DETROIT, Michigan (AFP) — The United Auto Workers said Friday its members ratified a deal to allow General Motors to radically cut costs and its debt load, clearing the way for a quick exit from an expected bankruptcy filing.
The deal, which will cut GM's labor costs by between one and two billion dollars a year, is one of the final pieces of what is expected to be a massive pre-packaged bankruptcy plan for the number one US automaker.
Union members took a huge risk by agreeing to accept stock instead of cash to pay for most of GM's obligations to a retiree health care fund.
The contract also includes a wage freeze, an end to bonuses, a 25 percent cut in retiree benefits and a no-strike clause which will require all disputes to be settled by a mediator through 2015.
The troubled automaker softened the blow by announcing plans to retool an idled US plant to build small cars which it had originally planned to import from China or Mexico.
Two other US assembly plants could also potentially be saved under the deal and union leaders said they would be pressing Ford and Chrysler to also build small cars in the United States.
GM praised the union leadership for an "innovative agreement that will enable GM to be fully competitive and has eliminated the gap with our competitors."
"We very much appreciate the support of our employees and retirees," Diana Tremblay, GM vice president of labor relations said in a statement.
"Their shared sacrifices will enable GM to become a stronger, more viable company that will continue to deliver world-class cars and trucks."
UAW president Ron Gettelfinger said the painful sacrifices were necessary in order to keep General Motors alive.
"This was a matter of salvation -- salvaging as much as we possibly could," Gettelfinger said at a press conference announcing the contract was ratified by 74 percent of union members.
"We are satisfied we've done the right thing here to give us a lifeline at General Motors to move forward until this company rebounds."
Union leaders agreed to a significantly smaller stake in the newly restructured General Motors in exchange for gaining job protections and other incentives.
The UAW will receive a 17.5 percent stake in the troubled automaker in exchange for forgiving much of a 20 billion dollar debt to a union-run retiree health care trust fund, known as a VEBA.
The US government is expected to invest an additional 30 billion dollars to help GM in addition to its 20 billion dollars in loans already provided, with most of the funds being converted to an equity stake of as much as 72.5 percent.
The US stake could be reduced by a share given to the governments of Canada and province of Ontario, expected to pitch in with around nine billion dollars.
Bondholders would get 10 percent of the common equity of "New GM" and warrants that give them the right to purchase another 15 percent of the reorganized firm.
The union trust fund will receive 6.5 billion dollars in preferred stock carrying a nine percent dividend valued at some 584 million dollars and warrants for another 2.5 percent stake.
GM also agreed to transfer 2.5 billion dollars in cash to the health care fund in three equal payments starting in 2013.
The new contract also includes another round of buyouts for GM's 60,000 US hourly workers.
Gettelfinger declined to comment on whether there was still a chance that GM could avert bankruptcy.
"We would prefer not to see this company go into bankruptcy," he told reporters.
"That's out of my control entirely. The only thing I focused on... was what we as union could do to make sure that we got an agreement in place and were prepared for whatever eventually happens here."
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