Why GM May Not Be Dead

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For Wagoner, the next 18 months will define his stewardship, if not GM's future. GM, Delphi and the U.A.W. are locked in a complex feud over how to restructure the partsmaker, whose fate is tied to the automaker's. GM has agreed to take back as many as 5,000 Delphi workers, and thousands more are being offered buyouts. But Delphi chief Robert (Steve) Miller has asked the bankruptcy court for permission to void labor contracts, which would allow him to slash wages if the unions won't concede--a move that could spark a strike. He also wants more financial support from GM. Delphi workers, for their part, are furious that the firm wants to cut their wages 40% while company lawyers ask the bankruptcy judge to approve $60 million in bonuses for salaried staff--on top of $36 million already approved for top execs.

"It's not easy stuff to see your way through," Wagoner says. The situation is complicated by the fact that Miller wants better terms for supply contracts with GM, while GM claims it pays too much already. The judge heard arguments over the labor contracts last week and is expected to rule this summer. GM CFO Fritz Henderson said, however, he expects to reach a settlement with Delphi and the U.A.W. within 60 days. GM, meanwhile, is stockpiling parts in case of a strike. "The consequences of our not addressing this effectively are big," says Wagoner. "Nobody wins with a long strike."

Keeping the labor peace is critical for Wagoner since he will soon have bigger issues to face: reaching a deal with the U.A.W. for a master contract to replace the one expiring in September 2007. Under the current contract, GM can close factories but can't lay off workers; they go into a "jobs bank" and collect wages and benefits even if they sit around and play cards. Wall Street estimates the program costs $600 million a year. "Clearly, it's an area of uncompetitiveness," Wagoner says. It's sure to be on the agenda. So too will GM's unhealthy U.S. health-care bill: $5.3 billion last year. Wagoner and the U.A.W. have agreed on $15 billion in long-term savings on retiree health care, but Wagoner needs rank-and-file concessions, and union officials are talking tough. "It was probably the most difficult backward step for us to take in the history of our union," says U.A.W. chief Ron Gettelfinger, referring to the $15 billion "giveback."

Could it be that Wall Street is in overdrive about GM's brightening prospects? Certainly, the case for survival looks a bit stronger. Analysts were encouraged by GM's first-quarter sales of full-size SUVs. Even if gas prices continue killing the segment, the thinking goes, GM could pick up market share. They like York's presence on GM's historically wimpy board. Analysts also figure GM will pay whatever it takes to avoid a Delphi strike. With roughly 6,000 blue-collar workers expected to be left at Delphi, GM "could easily afford to compensate those employees to avoid a labor disruption," notes Prudential Financial analyst Michael Bruynesteyn. And labor bosses know a strike would be mutually assured destruction. Says industry analyst Cole: "Everyone is scared to death."