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...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...
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...
...course, any number of developments could puncture Wagoner's tires: oil hitting $100 a barrel or a recession in which auto sales tumble. Moody's recently warned of further downgrades of GM's bond ratings, already below investment grade, after GM said it may have to renegotiate terms for $5.6 billion in credit. Should GM's unsecured debt fall below a CCC rating, the GMAC sale would be in jeopardy. "We have to get the GMAC deal closed," Wagoner says when asked what could derail a turnaround...
Skeptics also question GM's books. The Securities and Exchange Commission is investigating the way GM accounts for retirement benefits and transactions between GM and Delphi. GM took a charge of $800 million last year to pay for factory closures, but that may not reflect the final cost of workers' opting for the jobs bank instead of retiring; analyst Bruynesteyn figures GM will have to book another charge for that in 2007. GM's various cost-cutting moves should boost the bottom line, resulting in net income of $1.6 billion next year, Bruynesteyn estimates. Yet the healthier GM's finances...