GM (GM): UAW Takes Paper Instead Of Cash, Bets The House

The UAW took what it could get in its negotiations with GM (GM), and that was not much. The union will end up owning 17.5% of GM’s shares to fund retirement and pension obligations to it members.

According to The Wall Street Journal, “The UAW also receive a new note, payable in cash, for $2.5 billion. That note will be paid out in three installments taking place in 2013, 2015, and 2017.”

Given GM’s sales problems and the state of the domestic auto market the odds are not terribly high that the company will pay the note or that the shares will ever have any substantial value. The $6.5 billion in preferred shares that will go to the UAW will yield $585 million, a burden that GM will not be able to afford if its US market share continues to drop. At the end of the first quarter it was about 18%.The Treasury apparently strong armed the union into taking a relatively poor deal. The Journal also reported that UAW retirees were required to take a substantial cut in benefits.

At this point, the UAW has been virtually ruined as a viable organization. It will be able to blame the government for the last stage of its fall, but that won’t do much to pay the health-care bills of its members.

Douglas A. McIntyre