Municipal Bond Forum
On “Bullish on GM?” and “GM Considers Alliance”cont’d #3
Q
What everyone seems to be overlooking is the fact that the motor companies still need a contract with the remaining workers that doesn’t pay high school dropouts $150,000 a year to screw nuts onto bolts – or am I missing something? The legacy health costs are still a huge issue for GM and Ford. Eventually there will be an opportunity in these bonds, but I think it is still early. The fact that “analysts” are now recommending the company suggests to me that I am probably correct. I would appreciate your further thoughts on the points above.
A
James A. Klotz responds:
You are correct in thinking that a new contract will be signed with the UAW in 2007. One of the reasons that so many workers opted for the buyout is that they are aware that the new contract will provide dramatically less compensation for the workers who opted to stay. The buyouts and early retirement will also mean considerable savings on health care and future legacy costs. In our view, the last remaining challenge for General Motors is building automobiles that consumers will buy.
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