DETROIT (Reuters) – Talks between the United Auto Workers and General Motors Corp central to a turnaround plan for the struggling automaker have broken down over the issue of retiree healthcare costs, a person briefed on the talks said on Saturday.
A parallel set of talks between Chrysler LLC and the UAW over similar concessions were continuing over the weekend but little progress had been made, a person briefed on those negotiations said.
The breakdown of talks at GM and the stalled negotiations at Chrysler come with just three days remaining until both automakers must submit new restructuring plans to the U.S. government as a condition of the $17.4 billion in federal aid that has kept them both operating since the start of the year.
"It doesn't seem like the stakeholders are really prepared to give a whole lot," said independent auto industry analyst Erich Merkle. "It's a high-stakes game of poker right now."
If GM cannot win agreement from the UAW and creditors to reduce its debt, analysts say the Obama administration will face a politically tough choice: either pump billions of dollars more into the struggling automaker or steer it toward bankruptcy as some critics of the bailout have urged.
UAW negotiators walked away from talks being held near GM's Detroit headquarters on Friday night because of differences over how to pay the health care costs of retirees, the person familiar with the talks said.
Under Chief Executive Rick Wagoner, GM has resisted suggestions that it would be better able to restructure under a court-supervised bankruptcy.
Wagoner and other executives have argued that consumers would shun GM cars and trucks if it were in bankruptcy, sending already weak sales into an irreversible tailspin.
But in recent weeks, senior executives at the automaker have become more open to the prospect of a bankruptcy filing, a person involved in the talks said.
GM declined to comment directly on the state of negotiations with the union. "We are committed to meeting the terms of the bridge loan and executing our restructuring plan," GM spokeswoman Renee Rashid-Merem said.
Chrysler said it was also committed to meeting the terms of the federal bailout, which requires both automakers to reduce labor costs and the amount owed to a UAW-affiliated fund.
"We continue to engage all of our stakeholder groups as we work through this process," Chrysler said in a statement.
UAW representatives were not immediately available.
HEALTH CARE COSTS KEY
The UAW is owed some $20 billion by GM, money pledged to a healthcare trust for retirees. The union faces demands that it surrender its claim to half of that amount in exchange for stock in a recapitalized GM under the terms of the federal bailout for the automaker.
GM and the UAW agreed to create the retiree health-care fund as part of a 2007 labor agreement the automaker hailed at the time as a way for it to shift a crippling liability from its balance sheet.
But the steep slide in U.S. auto sales in late 2008 overwhelmed GM's attempts to cut costs and raise cash on its own, leaving it unable to survive without federal loans and unable to fund its commitment to the union trust fund.
For his part, UAW President Ron Gettelfinger has balked at saddling retired workers with additional risk by taking devalued GM stock instead of cash.
GM's bondholders, who are being asked to write off some $18 billion in debt in exchange for GM stock, have also held out for better terms, people briefed on the talks have said.
GM has received $9.4 billion from the U.S. government and has been pledged another $4 billion if it can show it can be viable at a time when U.S. auto sales are near 30-year lows.
The Wall Street Journal reported on Saturday that one scenario being considered by GM would put its viable assets, including international operations, into a single company. Other assets would be sold under the protection of a bankruptcy court, the newspaper said.
A bankruptcy filing would allow GM to rework its contracts with creditors, the UAW, dealers and its suppliers.
But it would also mean even steeper job losses. GM, Chrysler and Ford Motor Co have cut 250,000 jobs since the start of the decade and are looking to cut more.
A bankruptcy by one of the U.S. automakers could also trigger a wave of failures among parts suppliers. That industry is seeking $18.5 billion in federal aid and has warned that 1 million jobs could be lost if the industry collapses.
Chrysler has been given $4 billion in emergency funding from the U.S. Treasury and is seeking another $3 billion.
Chrysler has said it will present two restructuring plans. One will show its prospects as a stand-alone company now owned by private equity firm Cerberus Capital Management.
A second scenario will show Chrysler's prospects under a tie-up with Italy's Fiat SpA. Fiat has agreed to take a 35 percent stake in Chrysler in exchange for access to its small-car technology and development efforts if the U.S. automaker can be made viable.
(Additional reporting by Jui Chakravorty in New York and David Bailey in Detroit; editing by Todd Eastham)