Transcripts

GM Drives Toward Bankruptcy

SUZANNE PRATT: General Motors is barreling towards bankruptcy tonight. The auto maker has scheduled a news conference for midday on Monday in New York City and is expected to announce it is going into Chapter 11. The company will restructure itself in a move that will cost taxpayers billions of dollars, turning what was once a hugely profitable company into a ward of the government. That process was helped along today when the United Auto Workers union said a majority of its members have agreed to a new contract that slashes GM's labor costs by more than a billion dollars a year. Stephanie Dhue reports.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The new union contract at GM freezes wages, ends bonuses and bans a strike for six years. But the largest savings come from a 25 percent cut in retiree health benefits. UAW President Ron Gettelfinger admits there were tough choices.

GETTELFINGER: This was a matter of salvation, salvaging as much as we possibly could for our retirees. I'm regretful that we had to do anything.

DHUE: With four retirees for every one active worker, supporting generous retirement benefits doesn't add up. Labor expert Charles Craver says retiree benefits are what keeps U.S. auto makers at a disadvantage to their foreign competitors.

CHARLES CRAVER, PROFESSOR, GEORGE WASHINGTON LAW SCHOOL: The biggest thing is Toyota and Honda don't have a huge health care issue and pension issue because one, to the extent that they are producing cars in Japan, they have national health care. Even in this country to the extent that they are paying health care, they don't have hundreds of thousands of retirees because they haven't been operating the plants in this country very long and they don't have a 30 and out retirement program like the UAW has because they don't have a union.

DHUE: What the UAW now has is a 17.5 percent stake in the new GM in exchange for part of the company's current $20 billion obligation to the retiree health care trust fund. Whether future obligations will be met depends more on auto sales than the union contract. GM's viability plan is based on industry sales of 10 million vehicles each year in the U.S. Sales now are running closer to nine million. To be healthy, analyst Itay McKelly says the industry needs to sell upwards of 11 million.

ITAY MICHAELI, AUTO ANALYST, CITI, SMITH & BARNEY: I think the labor contracts and all the restructuring are very positive and they do absolutely help, but at the end of the day when you think about how healthy the industry can be two to three years from now, the biggest driver of that or the answer to that question really is what is the level of demand for automobiles in the U.S.

DHUE: The agreements of labor, many bondholders and the backing of the U.S. government should accelerate GM's reorganization. Administration officials say GM could emerge from bankruptcy in 60 to 90 days. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.