GM bankruptcy plan would use stock worth 39% of firm to fund half of VEBA obligation

General Motors and United Auto Workers on Thursday agreed to a tentative deal that would allow the automaker to use company stock to fund half of its obligation to a retiree health care fund, the Washington Post reports (Cho et al., Washington Post, 5/22).

According to the terms of temporary loans granted by the government in 2008, GM must present a plan for restructuring its finances by June 1 or else enter bankruptcy protection (Krisher, AP/Philadelphia Inquirer, 5/22).

UAW in 2007 agreed to establish a voluntary employees' beneficiary association, totaling $35 billion, that would cover health care costs of retired GM workers and their spouses starting in 2010. GM so far has paid about $15 billion into the fund (Kaiser Daily Health Policy Report, 5/15). Under the potential deal, GM would fund its remaining $20 million obligation to the VEBA with $10 billion in cash paid over time. The rest would come in the form of company stock that would give UAW as much as a 39% stake in the restructured firm (Merx/Green, Bloomberg, 5/21). The deal is similar to one at Chrysler, in which UAW agreed to accept 55% of Chrysler's stock in exchange for about $6 billion of the $10.6 billion the automaker owed to the VEBA (AP/Philadelphia Inquirer, 5/22).

Under the GM deal, the union also would get a seat on the company's board (Stoll/Terlep, Wall Street Journal, 5/22). Retirees would lose coverage of dental care and some prescription drugs, according to people with knowledge of the talks (Bloomberg, 5/21).

UAW officials on Tuesday will meet in Detroit to discuss terms of the agreement and are expected to give their approval. The plan would then be presented to the union's 60,000 GM workers for ratification (Wall Street Journal, 5/22).