The United Auto Workers union (UAW) could become General Motors' biggest shareholder under a deal to transfer the carmaker's healthcare obligations to a huge union-managed trust.
The two sides agreed last week to set up the trust, known as a Voluntary Employees' Beneficiary Association, or Veba, as part of a new four-year labour contract.
According to a union information booklet, GM's $29.9 billion (€21 billion) contribution to the Veba will include a $4.4 billion note convertible into GM shares. At GM's prevailing market value of almost $21 billion, the note would translate into an equity stake of more than 17 per cent.
The convertible bond will give the union a direct interest in GM's turnaround plan, and the potential for playing a key role in the carmaker's direction. GM and the UAW declined to comment further.
GM shares have almost doubled from their low of $18.40 in late 2005, when the carmaker was struggling to avoid bankruptcy protection. Its biggest shareholder at present is State Street, the Boston-based financial services group, with a 13.1 per cent stake.
The Veba is expected to be set up formally in 2010. GM has also agreed to contribute up to $1.6 billion more if healthcare costs accelerate more than expected over the next two decades.
GM's goal in the contract talks was to close the cost gap with its Asian rivals. Besides transferring more than $50 billion in healthcare liabilities to the Veba, GM secured union agreement for a two-tier wage system, under which thousands of non-production workers can be hired at wages of $14-$16.23 an hour, little more than half the current rate.
In exchange, GM has provided greater job security for union members by assigning specific projects to 16 US plants. A facility in Detroit has been earmarked to build the forthcoming Chevrolet Volt electric car, heralded by GM as a major breakthrough in "green" technology.
The contract also reveals previously undisclosed plans for a small, rear-wheel drive vehicle, code-named Global Alpha, with production starting in 2011.
The union's 73,000 GM members are expected to ratify the contract by October 10th. Its national council approved it on Friday. - ( Financial Times service )
