GM TO Raid VEBA For Cash?
We all know that GM is burning through cash faster than a well-oiled cash burning machine, but nobody seems to know where the next GM greenback fix is going to come from. Automotive News (sub) reports that a JP Morgan analyst thinks it could come from GM's VEBA contributions. The General has set aside some $14.5b for the UAW fund which was envisioned as a way for GM to get out from under its crippling benefit liability. But with cash tight and credit increasingly unavailable, the UAW may just have to loan that money back to GM to keep the lights on for another few years. Analyst Himanshu Patel reckons GM needs $10b to prevent a major cash crunch by 2009, and that GM could squeeze up to $6b from the UAW fund. "Why would the UAW agree to this? My short answer is they have to," Patel said, adding "the UAW now is extremely motivated to keep GM, Ford and Chrysler out of bankruptcy." Oh yeah, and GM would have to pay the UAW up to 12 percent interest on the friendly loan. It's a risky move though, given that nothing indicates that GM will ever be able to pay the money back. But then GM and the UAW are up the same creek with the same lack of equipment, so the partners in failure may have little choice to double down for another round. Unless of course there's some other white knight waiting to throw $10b into the giant sucking sound that is General Motors. Which there isn't.
More by Edward Niedermeyer
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I don't entirely understand who would agree to loan any VEBA money to GM (the leadership of the UAW or a vote from current/retired members). I tried to read the article, but I'm not registered. If it's up to workers/retirees, I don't see it happening. If I'm a worker/retiree, I'm clinging on to VEBA money (even if it's not much, it's something) and counting on Pension Benefit Guarantee Corporation for something of a retirement in the event of GM bankruptcy. Again, it's something. I don't think a lot of people realize PBGC, while a gov't entity, isn't a sure thing either. Fun link/read about it: http://www.frbsf.org/publications/economics/letter/2003/el2003-25.html Of course, UAW leadership might decline to loan GM money back... THAT would be a pretty colossal FU moment... and a sign of what the UAW felt might be inevitable anyway.
All this would not be a problem if GM sold more cars at a profit. But they don't. Here's a tip for the UAW, the company needs to profit to pay your people. No profit, no benefits, wages or anything else. Maybe if the UAW had GM's profits as a priority for all these years instead of being obsessed with getting the most out of GM they could, the VEBA deal would not be necessary. But for decades all we heard was the heartless company is screwing the workers and the bastards need to pay more. When the tit goes dry that's it.
You can bet that a sizeable chunk of that loan will go in Rick Wagner's, his cronies, and the boardmembers pockets. The great shame in all this is the lack of planning. The Japanese, Koreans, and Europeans all have small cars to offer. They are selling them faster then they can make them. Volume sales result in profit. One would think that a person compensated with millions of dollars each year would of at least had an inkling of foresight of this downturn of the economy. Apparently union members are not the only GM employees who sleep at work.
Can you say breach of fiduciary duty.