In the months leading up to last year's bankruptcy filing by parts maker Delphi, General Motors said it wasn't interested in bailing out its troubled suppliers. GM executives probably knew that was wishful thinking.

After a weekend of round-the-clock talks, sources say that GM (GM) has just about completed a deal with the United Auto Workers union to give early buyouts to its own workers and some at Delphi, GM's former parts unit. The deal is a big step toward avoiding a strike at Delphi that would quickly shut down GM.

Delphi and the UAW would still have to work out a deal to handle wages and benefits for its existing workers and retirees before Mar. 31, when Delphi could file a motion in bankruptcy court to change the union contract. But if the early retirement deal can get enough Delphi workers to retire or go back to GM, Delphi could reduce wages by hiring new workers at a previously agreed upon lower wage. It all depends on how quickly GM and Delphi can get workers to retire, says Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich.

THE PRICE OF PEACE. The move could cost GM $4 billion to $5 billion in buyout costs and add about $5 billion in retiree liabilities to its balance sheet, says Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich. But the deal could help avert a strike that would also shut down GM, and could save the auto maker money in parts costs in the long run.

Details have not been released, but sources close to the discussions say GM has identified 70,000 workers among its workforce of 110,000 and Delphi's 24,000 employees that can retire in the next two years. GM could offer early buyouts, starting at $35,000, to many of those workers to get them off its payroll and that of Delphi. Officials from GM and Delphi could not be reached. A union spokesman says the UAW had no agreement to announce yet.

The potential deal would add to GM's costs for retirees, however. More that half of Delphi's workers would be eligible to retire under GM's pension plan, putting the auto giant on the hook for their benefits.

IN A BIND. What does GM get? It's basically goodwill money that keeps the union happy and makes it certain that GM plants and production lines stay open. Analysts have worried that a long strike at Delphi would shut GM down, possibly forcing it into bankruptcy (see BW Online, 03/16/06, "GM's Dwindling Options").

The UAW has had GM in a bind. When GM spun out Delphi in 1999, the auto maker guaranteed the UAW that it would cover some of the employees' pensions, and GM granted workers the rights to take jobs at GM if the auto maker had openings.

In turn, Delphi's strategy was to let GM take workers who earn $24 an hour back to its plants, and then cut its own wage costs by replacing them with new hires making $14-to-$18 an hour and with fewer benefits. But GM's market share kept falling, and the company wasn't able to rehire Delphi workers.

PLAYING CHICKEN. So when Delphi Chairman and CEO Robert "Steve" Miller took the company into bankruptcy last year, he threatened to use bankruptcy court to cut wages to as low as $10 an hour. Since Delphi workers figured they could make $10 an hour almost anywhere, they refused to take the pay cut and threatened a strike.

That's when GM stepped in. The auto maker first hoped to avoid being part of the bailout. But UAW leaders had other ideas, and used the threat of a strike to bring GM to the table.

The potential deal wouldn't be a slam-dunk for GM, however. The only way it will work, McAlinden says, is if in addition to a buyout offer, there are some measures in place to force workers to retire (see BW Online, 3/14/06, "GM and Ford: Roadmaps for Recovery").

COSTLY FIX. For some factory hands, sticking around for another couple of years until they would can retire is more lucrative than even a $100,000 buyout plan. Here's why: GM pays workers most of their salary while they are on layoff. So they could make that $100,000 in less than two years on paid furlough.

But if GM cut payouts for the JOBS bank -- that's Detroit parlance for the paid layoff program -- or forces workers to move even to out-of-state plants instead of getting laid off, there is more incentive to leave. Right now, GM can't make workers move more than 50 miles for another job. Says McAlinden: "Without some hammers in place, GM won't get the retirees they want" (see BW Online, 2/7/06, "At GM, the Kerkorian Effect Already").

Another challenge for GM and Delphi is trimming the workforce at a rate fast enough to cut costs, but not so quickly that they don't have experienced workers to build parts and assemble cars. "We make 20,000 parts a day," says Skip Dziedzic, president of UAW Local 1868, which represents employees at a Delphi catalytic-converter plant in Milwaukee. "If half the people leave, how will they make the parts?"(see BW Online, 12/12/05, "What if GM Did Go Bankrupt?").

It will take time, and it will cost money. Just like most of GM's fixes.

GM shares rise on hopes of UAW deal
Tuesday March 21, 11:05 am ET


DETROIT (Reuters) - General Motors Corp. (NYSE:GM - News) shares rose more than 5 percent on Tuesday amid hopes that the automaker is nearing a union deal that would offer buyouts to thousands of factory workers.
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An agreement with the United Auto Workers union would also involve employees of bankrupt former GM subsidiary Delphi Corp. (Other OTCPHIQ.PK - News), which plans to ask the court to void its labor contracts if it does not reach a deal with its unions by the end of this month.

A deal would help avoid a strike at Delphi, which could cripple GM and force it to burn through billions of dollars a week, analysts have said.

Shares of the world's largest automaker were up 79 cents, or 3.8 percent, at $21.64 in morning New York Stock Exchange trade after rising as high as $21.98 earlier in the session.

"My guess is the stock is rallying on hopes that a deal with the UAW is very close," Burnham Securities analyst David Healy said.

The stock, which lost more than 50 percent of its value last year, has risen 12 percent this year.

Representatives of all three parties met through the weekend and Monday, discussing terms of a deal that focuses on early retirement for many union workers, according to a source familiar with the talks.

GM, which lost $10.6 billion in 2005 and is struggling to bring its costs in line with its slide in market share, plans to cut 30,000 jobs and close 12 plants through 2008.

When the automaker spun off Delphi in 1999, it pledged to cover union pension and health-care benefits if they were terminated by Delphi.

GM's 8.375 percent bonds due in 2033 rose to 75.5 cents on the dollar on Tuesday, up from 74.75 cents on Monday, according to MarketAxess.

GM, UAW talks seen progressing toward buyout deal
Tuesday March 21, 3:34 pm ET
By Kevin Krolicki


CHICAGO (Reuters) - General Motors Corp. (NYSE:GM - News) and the United Auto Workers union on Tuesday were making progress toward a deal that would offer incentives to thousands of factory workers to take an early retirement, people familiar with the negotiations said.

Representatives of GM, its bankrupt former subsidiary Delphi Corp. (Other OTCPHIQ.PK - News) and the UAW met through the weekend and on Monday in Detroit and were back at the bargaining table again on Tuesday, the sources said.

Union leadership has called on locals to confirm the number of factory workers already eligible to retire with 30 years of service and those just short of that experience level, one official said.

Those numbers would be key to the cost of any deal to GM, which last week estimated that its exposure to Delphi would be between $5.5 billion to $12 billion.

Indications of progress in the crucial negotiations sent GM's shares up more than 4 percent to $21.78 on Tuesday.

Local UAW officials said they were waiting to hear the terms of the proposed retirement incentives, which analysts have seen as a major step toward avoiding a strike at Delphi that could cripple GM.

GM, which has lost market share to Japanese rivals and faces high fixed costs, plans to shut all or part of 12 plants and cut 30,000 jobs by 2008.

For its part, Delphi, which filed for bankruptcy in October, has said that it must slash wages, benefits and jobs to reorganize its U.S. operations.

Delphi has said it will ask a federal bankruptcy judge to void its existing contract if no deal to reduce its costs has been reached by month end.

The UAW has said such a move could prompt a walkout, a labor disruption that analysts say would effectively shut down GM's auto production and derail its turnaround efforts.

By offering buyouts to UAW workers, GM would reduce its own operating costs and create some space on its payroll for some Delphi workers to return.

When GM spun off the auto parts supplier in 1999, it did so with a promise to cover the pension and health care benefits of union employees and to allow eligible workers to return to open positions at GM.

GM has about 105,000 blue-collar workers represented by the UAW, while Delphi has about 24,000.

Robert Betts, president of UAW Local 2151, which represents workers at a Delphi factory in Coopersville, Michigan, said that about 9,000 union workers at Delphi were currently eligible for retirement.

However, the discussions are more complicated because of the still unresolved questions of how many Delphi workers would return to GM and how many plants Delphi would continue to run, he said.

Chris Sherwood, president of UAW Local 652 in Lansing, Michigan, said that of the 5,200 workers in his local, about 1,600 were currently eligible to retire. That share would rise to about half of the membership if those just a few years short of retirement were included, he said.

"Those are the ones that would really take it," Sherwood said, referring to those near retirement.

Early retirement incentives would not have to be ratified by rank and file workers, but were expected to be reviewed at union council meetings in early May, UAW officials have said.

Delphi's participation in the early retirement program would have to be cleared by federal bankruptcy court.

Analysts have suggested that Delphi could lower its labor costs by getting a large share of its current work force to retire or return to GM and then rehiring as needed at lower wages and with reduced benefits.

JPMorgan analyst Himanshu Patel said in a note on Tuesday that he estimated the auto parts supplier was looking to cut about 20,000 of its 34,000 hourly workers.

An estimated 70,000 UAW workers are eligible for retirement over the next two to three years, making them potentially eligible for the buyout terms being negotiated.

(Additional reporting by David Bailey in Chicago and Jui Chakravorty in Detroit)

Delphi management made no attempt to save the company (workforce reduction through attrition, buyouts, early retirement, profit based bonuses, etc....), gave themselves huge bonuses, gave the union an impossible "take-it-or-leave-it" offer, then forced General Motors to come in and clean up their mess under the risk of facing bankruptcy themselves.

Everything GM negotiators are doing to get an agreement with the UAW could have been done by Delphi some time ago.

Everytime I hear "We don't have enough engineers to get product out quick"...I wonder how many engineers GM is paying now in the pension fund that are still working age.

While true, if this was a UAW ran club they would have split this one Hostess into 3 different jobs.

1) Greeter - says hello to you at the door.
2) Sitter - takes you to your seat.
3) Drink person - get's you your first drink.