GM talks progress, board reviews plan

General Motors Corp and the United Auto Workers union made progress in concession talks and bondholders offered proposals to slash GM's debt on Monday, a day before the automaker must detail a new survival plan.
GM is seeking concessions from the UAW and creditors under the terms of its $13.4-billion federal bailout and faces a Tuesday deadline to submit a restructuring plan to U.S. officials showing how it can cut costs and pay back the loans.
GM was not expected to reach detailed agreements by the deadline but talks with both key groups made progress in the final day, people briefed on the discussions said.
In preparation for the submission of the plan, GM's board convened via a conference call on Monday to review a draft of the document, a person familiar with the matter said.
Facing the same Tuesday deadline, GM's smaller rival Chrysler LLC was locked in nonstop negotiations with the UAW that were making progress after stalling out over the weekend, people briefed on those parallel talks said.
In a potential breakthrough, representatives of GM bondholders outlined proposals on how to swap some $28 billion in debt for equity in a document submitted to the automaker, according to a person with knowledge of those talks.
GM has not accepted those proposals which were designed to discourage bondholders from dropping out of the deal in order to maximize its chances for success, the person said.
The debt swap is a crucial element in the restructuring plan for GM, which has received $9.4 billion in government aid and has been pledged $4 billion more by Tuesday. [nN16324404]
Without a framework deal on how to cut GM's crippling debt load, analysts have said the Obama administration would confront a political and economic dilemma in the coming days.
A bankruptcy for GM could cost tens of thousands of jobs and topple suppliers and dealers just as the White House is focused on trying to pull the economy from a deeper recession
But expanded aid could cost taxpayers billions of dollars more and risk a stronger bailout backlash by voters.
U.S. Rep. Thaddeus McCotter, a Michigan Republican, told Reuters progress in GM's talks with its bondholders appeared to have spurred progress in its talks with the UAW, which is also being pressed to forgive debt.
"They will get this done," said McCotter, who sits on the House Financial Services Committee that heard testimony from automakers as part of the bailout debate."
U.S. Rep. Sander Levin, a Michigan Democrat, said the automakers remained focused on "how to make this work without bankruptcy."
"We've looked at it hard and my personal opinion is bankruptcy would be a failure," Levin told Reuters.
The UAW and GM declined to comment on the state of the negotiations which were playing out just blocks from GM's Detroit headquarters.
'SCORCHED EARTH'
Even before GM's plan was finished, the automaker's European labor unions predicted it was doomed. European labor leaders urged a spin-off of the Opel and Vauxhall brands rather than the deep cost cutting they said GM was seeking under the plan, internally dubbed GM's "Renaissance" project.
"The implementation of the 'Renaissance' project in Europe will ultimately lead to a collapse of Opel/Vauxhall," the statement said. "This means scorched earth will be left in Europe with major conflicts all the way to the end." [nLG698215]
The signs of progress in the GM talks came after the White House announced that a task force would review the plan. That group will be headed by U.S. Treasury Secretary Timothy Geithner and White House economic adviser Lawrence Summers.
In addition, Ron Bloom, a restructuring expert who has advised the United Steelworkers, was also named as an adviser to the Treasury on the crisis. Bloom is considered an expert on the retiree health care issues central to the UAW-GM talks.
GM and the UAW agreed to create a retiree health-care fund as part of their landmark 2007 labor agreement. But the steep slide in auto sales in 2008 overwhelmed GM's attempts to raise cash, leaving it unable to fund its commitment.
Now the UAW is owed roughly $20 billion and faces pressure to take half of that in equity. That would give the UAW a significant stake in GM, and union officials have said they could seek a board seat.
The stakes are high for the UAW, which saw its active membership drop below 500,000 last year for the first time since 1941.
GM's bondholders are being pressured to cut $28 billion in unsecured debt by two-thirds although some have challenged that proposed payout ratio.
Analysts believe more federal funding will be needed. GM had originally asked for $18 billion -- suggesting they still have an immediate need for another $5 billion.
Brad Coulter, director of the Detroit-based turnaround firm Okeefe & Associates, said the final price tag for a GM bailout could approach $50 billion if the market remains depressed.
Chrysler, controlled by private equity firm Cerberus Capital Management LP, has been granted $3 billion and is seeking an additional $4 billion in aid.