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July 1, 2009 4:40 PM

Live Blogging the GM Sales Hearing: The Labor Issue

Posted by Zach Lowe

GMHearing When we got to the GM sales hearing Tuesday at bankruptcy court in lower Manhattan, we found about 100 protesters from the IUE-CWA and two other unions. Their beef? The "new GM," should a court approve its sale to a consortium headed by the Treasury Department, will not take on pension and health benefits for their retirees, leaving thousands without healthcare. 

Why no benefits? Because those people have never worked for "new GM," and nobody from those three unions will work for the new GM going forward, according to closing remarks from GM's lead attorney, Harvey Miller of Weil, Gotshal & Manges. Those retirees argue it's not fair for them to lose their health insurance while the United Auto Workers will get a significant equity stake in new GM plus ownership over billions in debt. 

But Miller says the distinction between the two labor groups is simple: "new GM" needs the UAW to function, and it doesn't need the other unions. "Unfortunately, the way the world is, these retirees are not contributing any benefits to the new GM," Miller told Judge Robert Gerber just now; in fact, the $300 million or so it would cost the new GM to support their pension and health plans would hurt the company and represent liabilities the purchaser (a.k.a. the Treasury Department) doesn't want to take on.

As for the 60,000 UAW employees who run GM's plants, "Without those employees, there is no business," Miller says. (He adds that the U.S. Treasury Department, as lead purchaser, coordinated with GM to offer the non-UAW retirees a deal under which they would take reduced benefits; they apparently rejected that deal.)

The proposed sales agreement "is not the result of any conspiracy" against the non-UAW unions, Miller says. It's simple, cold economics. 

Miller also addressed criticisms that the sales is really a so-called "sub rosa plan," essentially a Chapter 11 re-organization disguised and an asset sales process, which offers fewer protections to creditors and contractors than a traditional Chapter 11 reorganization. He backs his argument by citing the recent Chrysler case, in which opponents, including bondholders who stood to lose money and dealers who stood to lose their businesses asked argued that the quick sales process side-stepped traditional bankruptcy rules. 

Miller is telling Gerber that's happening here, and that purchasers in 363 sales have the right to decide--with some limits--which liabilities and obligations to take on and which to leave behind with the old company in bankruptcy. 

"These precise arguments were made in the Chrysler case," Miller said. 

Miller has just wrapped up, which means we're about to hear from parties...


Live Blogging the GM Sales Hearing

The Sales Hearing - 3:26 PM

Harvey Miller: "There is no Alternative" - 3:37 PM

GM: A $90 Billion Company? - 3:48 PM

Photo by Anthony Paonita

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