Bailout Watch 248: Pulling Together

There’s a small rash of stories spreading through the media with a single common thread: everyone’s going to pull together to get GM through until the government picks up the tab. So, is it feel-good holiday rumormongering, or something more? Let’s take a look. The first story comes from Automotive News [sub], and it quotes GM purchasing boss Bo Anderson as saying suppliers aren’t demanding cash. And why would they? It’s not like things are tight right now. “Our suppliers are behind us,”Anderson tells AN, “We keep our terms of payments. They are contractual, something we negotiate with suppliers, and we think it is important to be a prompt payer. We are doing our best to hold the current terms.” Doth the gentelman protest too much? “It is very important to be very transparent and be open about the changes we see in the workplace with production schedules, product delay and any product changeovers,” says Anderson, while acknowledging that supplier CEOs face difficult conversations with their nervous directors, who worry about GM’s ability to pay as it suffers a liquidity squeeze and delays in getting financial aid from Congress. But anyone who has watched supplier after supplier go bankrupt over the past several years knows that suppliers have little choice in these matters. The UAW though?

Another Automotive News [sub] story reports that the UAW is “facing deeper cuts to clinch auto rescue.” And the VEBA healthcare fund could be on the line. Crowe Horwath analyst Erich Merkle notes that “(Detroit automakers) have got to make some adjustments to the VEBA, because there is no way they can afford to make those payments.” Fitch Ratings managing director Mark Oline adds that “After the federal government, (VEBA) is a most likely source of liquidity to help tide them over.” There’s even talk of the UAW giving up its job bank programs. You know, for real this time. “I don’t think the UAW is going to be a challenge here,” IHS Global Insight analyst Aaron Bragman said. “You will see them come back with even more concessions, because they realize the alternative is that they are all out of a job.” Of course there are challenges. GM has already deferred $1.7b in VEBA payments and the fact the union and the automakers have had a federal court certify the VEBA agreement could make changes tough to implement. But the desperation of the situation seems to be setting in, and it seems the UAW could be ready to pull for the home team. Of course, the bailout is the glue that holds this all together. If it is denied, it’s back to the warpath.