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Bureau of National Affairs                                        
May 28, 2009

GM Exchange-Offer to Bondholders Fails;
Board to Meet on Company's 'Next Steps’

LANSING, Mich.--General Motors Corp.’s exchange offer to
bondholders resulted in “substantially less” in notes being tendered
than the 90 percent required to secure additional government
support, the company said May 27, making a bankruptcy filing a
near certainty.

GM said its board will meet to discuss the company's “next steps”
in light of its failure to exchange the $27 billion in notes for equity.
The exchange offer expired May 26.

On March 30, the Obama administration set a June 1 deadline for
GM to put in place a restructuring plan that included a debt
restructuring. (59 DER AA-1, 3/31/09). Chrysler LLC, given a May
1 deadline to restructure its operations, filed for bankruptcy April 30
in order to speed a merger with Fiat SpA (82 DER AA-1, 5/1/09;
see related report in the section).

UAW Agreement Gives VEBA 17.5 Percent Stake.
Meanwhile, United Auto Workers members across the country
were voting May 27 and 28 on changes to the union's contract with
GM intended to cut costs and help the company survive. Local
presidents and bargaining chairs voted unanimously May 26 in
favor of the agreement (99 DER EE-12, 5/27/09), which gives the
UAW a 17.5 percent equity stake in a restructured GM.

The UAW's share, which consists of common and preferred stock
and a warrant to buy an additional 2.5 percent stake in GM, will be
held by the union-run voluntary employees' beneficiary association,
and “does not translate into governance” of GM, said Harley
Shaiken, professor of labor studies at the University of California,
Berkeley.

The U.S. government will end up owning the majority of the
company, which “in effect, gives us an industrial policy,” Shaiken
told BNA May 27. “The question is, what will be the character of
that policy?”

The Obama administration's automotive task force has been
working with the company, the union, and bondholders on a way to
restructure GM, possibly through a bankruptcy reorganization. A
spokeswoman for the task force had no comment on the
government's plans May 27, and White House spokesman Robert
Gibbs said he would not comment on “day-to-day negotiations”
ahead of the “looming” June 1 deadline.

“I do think that the president strongly believes that, as he said in the
lead-up to the Chrysler deadline, that all the stakeholders involved,
the company, labor, management, bond holders, debt holders were
all going to have to make some sacrifices if we're going to see GM
continue,” Gibbs told reporters.

“The government is going to have a controlling stake in GM,” said
Berkeley's Shaiken. Rather than using that stake as a platform for
improving the country's manufacturing base, he said, the Obama
administration appears to be acting more like a private equity firm
that “seeks to get in, get its money back and get out as fast as
possible.”
“The government is at great pains to say they are not running GM,”
said Shaiken. “But in a way, that's a bit of a fiction, because their
presence is such that their broad policies define very definitely
what takes place on the ground.”

Those policies may at times be in conflict with its goal of bringing
GM back to profitability as quickly as possible, said Shaiken. Yet
by taking initiatives such as adopting new, tougher fuel-economy
standards, he said, the government “goes beyond” just shaping
what happens at GM.

UAW's Influence Shifts to Washington.
The UAW, Shaiken said, will in the future have more clout in
Washington than at the bargaining table. While new contracts at
both Chrysler and GM have no-strike provisions in them, he said,
the reality is that “these companies going forward are going to be
weak for some time,” and “the chances of the union striking are
very, very slim.”

The fact that the union was able to get GM to “backtrack” on a plan
to make a substantial number of cars overseas shows that the
union is sill “a major player,” he said. The new contract prevents the
company from adding shifts at overseas plants to make vehicles
destined for the United States in cases where U.S. facilities make
similar cars, and follows the UAW's vocal objection to a GM plan to
import more cars.

“The union was able to preserve a lot, in this environment, for
existing workers,” Shaiken said. “They were forced to give up
some things that were painful for retirees and new workers, but,
bottom line, they live to fight another day.”

Under the new agreement, workers at most GM facilities will be
offered buyouts, with incentives ranging from $20,000 to $115,000,
along with $25,000 vehicle vouchers, according to a summary of
the agreement posted on the websites of some UAW locals.
Hourly workers remaining with GM will not see their base pay,
health care, or pension benefits cut. However, they will have less
overtime, shorter breaks, and fewer holidays, and they will lose
perks such as tuition assistance and performance bonuses.

Under the new VEBA, retirees will no longer have access to vision
or dental benefits, and co-pays for prescription drugs will be higher.
The union said changes to the plan, including the new funding
structure for the VEBA, were necessary in order to maintain
government support.

Major Change in VEBA Funding.
Hailed as a way of capping costs for the automakers and paying
for retiree benefits, the trust was a major part of the UAW's 2007
collective bargaining agreements with GM, Chrysler LLC, and Ford
Motor Co. The union said the change in funding, which allows GM
to contribute stock instead of cash, was a necessary part of the
company's restructuring. Without the change, it said, GM could be
forced to liquidate, leaving no VEBA at all.

As it is, the new agreement gives the union “17 percent of a
worthless company,” said Lance Wallach, president and chief
executive officer of Vebaplan LLC, a benefits consulting firm in
Plainview, N.Y.. www.vebahealthcare.com.

“The VEBA's a great solution, but there'll never be enough
money in there to provide the health care that was promised
in the union contracts,” Wallach told BNA May 27. The UAW's
VEBAs were not properly funded to begin with, he said, and
the decline in GM's stock price since the fund was created
has not helped. “It's got eight years at most,” Wallach said.

----------------------------------------------------------------------

Lance Wallach, CLU, ChFC, CIMC, speaks and writes about
benefit plans, tax reductions strategies, and financial plans.
He has authored numerous books for the AICPA, Bisk Total tape,
and others. He can be reached at (516) 938-5007 or
lawallach@aol.com. For more articles on this or other subjects, feel
free to visit his website at www.vebaplan.com.

Lance Wallach, the National Society of Accountants Speaker of the
Year, speaks and writes extensively about retirement plans,
Circular 230 problems and tax reduction strategies. He speaks at
more than 40 conventions annually, writes for over 50 publications,
is quoted regularly in the press, and has written numerous best-
selling AICPA books, including Avoiding Circular 230 Malpractice
Traps and Common Abusive Business Hot Spots. He does
extensive expert witness work and has never lost a case.  Contact
him at 516.938.5007 or visit www.vebaplan.com.

The information provided herein is not intended as legal,
accounting, financial or any other type of advice for any
specific individual or other entity.  You should contact an
appropriate professional for any such advice.
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