- The Washington Times - Tuesday, February 17, 2009

General Motors Corp. and Chrysler LLC will present the Treasury on Tuesday with plans to regain financial health, but the Detroit automakers - encouraged by Democratic allies in Washington - have made little headway since Christmas in reducing their huge debts and labor costs.

The Bush administration last year made strict demands in exchange for $13.4 billion of loans, including a two-thirds reduction in debt. However, House Democrats, who secured sweeping victories in the November elections with the help of the United Auto Workers union, are signaling a much softer approachand the Obama administration announced Monday night it would release another $4 billion loan for GM even before receiving the restructuring plan.

In a letter Friday to the automakers, House Speaker Nancy Pelosi, California Democrat, and Financial Services Committee Chairman Barney Frank, Massachusetts Democrat, said their priority is for Detroit to “preserve” middle-class jobs and the industry’s generous health and pension benefits, while accepting more rigorous fuel-efficiency standards.

Auto analysts say any formula that discourages the industry from making necessary cuts that quickly respond to a nearly 40 percent drop in auto sales in the past year will draw out the crisis and lead to billions of dollars more in taxpayer loans.

Yet six weeks of on-and-off talks with unions and bondholders have produced no concessions. The United Auto Workers as recently as Friday walked out of negotiations with GM and said it was rejecting a management proposal to cut contributions to a retiree health care trust. Bondholders also have held out against demands for drastic debt reductions, citing the need for worker concessions.

Obama officials insist they will take a tougher line and demand a restructuring of the companies in exchange for loans. The White House recruited a corporate restructuring specialist with successes at negotiating concessions from labor unions to join a panel of White House economists and agency leaders that will determine the terms of any further loan deals with the auto companies. But the White House also is signaling that keeping the companies operating will be a priority.

“We’re anxious to take a look at the plans, understanding that it is extremely important to have a strong and viable industry,” White House spokesman Robert Gibbs said. “Obviously, that is likely to require some restructuring to ensure its viability.”

Mr. Gibbs said the choice of Ron Bloom, a United Steelworkers union adviser and former vice president at Lazard, a Wall Street firm, will bring “vast credibility” to the administration’s effort to restructure the auto firms. He will be a senior adviser to Treasury and will work with a White House task force that includes representatives from the departments of Treasury, Labor, Transportation, Commerce and Energy and the Environmental Protection Agency.

Mr. Bloom has distinguished himself in corporate restructurings by helping to wrestle down health care costs - the biggest labor cost problem at GM and Chrysler.

The Treasury’s Dec. 19 loan agreements called on GM and Chrysler to make half their contributions to union-run health care plans in stock rather than cash, but the union has rejected the idea repeatedly in negotiations.

Mr. Bloom helped negotiate terms of a Goodyear Tire & Rubber Co. health care fund and helped steelworkers negotiate an agreement with Goodyear in 2003. He also has advised the UAW on GM’s requests for health care concessions.

GM last week announced that it will cut nonunion salaried worker positions by 10,000 worldwide. The company has steadily laid off hourly workers at U.S. plants as sales have plummeted from more than 16 million in past years to less than 10 million since the credit crisis struck last fall. January sales of cars in China outpaced sales in the United States for the first time.

GM Chief Executive Rick Wagoner said the salaried job cuts, which were accompanied by pay cuts for remaining salaried workers and did not include the generous buyout packages of past downsizings, are “indicative of the kind of things we need to do to get this viability plan in shape and respond to these tough market conditions.”

Chrysler, like GM, has secured no concessions from its workers’ union, although since getting loans in December it has made a deal with Italy’s Fiat for a joint venture that eventually could make the privately held company more viable.

Analysts say that given the little progress in negotiating with workers or creditors, the companies have hypothetical restructuring plans that may be accompanied by requests for more loans.

“For GM, we think there is a good chance it will not meet deadlines on negotiating concessions with unions and creditors,” said Efraim Levy, an analyst with Standard & Poor’s Equity Research. “Still, we expect the Obama administration to give GM the benefit of the doubt, and either extend the deadline or show flexibility toward the demonstration of progress.”

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