The United Auto Workers union has ratified a package of concessions designed to reduce General Motors Corp.’s labor costs, completing a key piece of the automaker’s massive restructuring effort.
UAW President Ron Gettelfinger said at a news conference Friday that 74 percent of GM’s 54,000 U.S. production and skilled-trade workers voted in favor of the deal, which took effect Friday afternoon.
Workers at GM’s Wentzville assembly plant OK’d the changes to the contract with a 59 percent approval rate, said Tom Brune, the sourcing representative for UAW Local 2250, which represents more than 1,700 hourly workers at the full-size van plant.
UAW leaders last week agreed to the revised contract that freezes wages, ends bonuses, eliminates noncompetitive work rules and ends the possibility of a strike until the next contract expires in 2015 payday loans. The UAW said the cuts would save GM $1.2 billion to $1.3 billion a year.
The agreement also gives a union-run retiree health care trust 17.5 percent ownership of a postbankruptcy protection GM, with a warrant to buy another 2.5 percent. The stock will come in exchange for part of the company’s $20 billion obligation to the trust.
Post-Dispatch reporter Angela Tablac contributed
to this report.
If President Obama has his way, health care reform will be finalized this year. Key Senate and House committees are planning to mark up legislation in June, and the House is aiming to vote on the issue by August.
And while the specifics of how to fix the nation’s health care system are far from final, the debate over how to pull it off will turn on a key question: How to pay for it.
The total cost of overhauling health care is estimated at over $1 trillion, and the administration has made it clear that it doesn’t want the overhaul to add to the already giant federal budget deficit.
Senate Finance Committee Chairman Max Baucus, D-Mont., one of the leading legislative players on the issue, last week laid out the likely elements in any health reform package. He also identified some of the main options for how to pay for it.
A system overhaul will guarantee coverage for most of the 47 million people currently uninsured, Baucus said at a Kaiser Family Foundation forum. And there’s a good chance that a government-funded public health plan option will be added to the mix of plans offered by private insurers, Baucus said.
The final legislation is also expected to lay out requirements for minimum benefits; prohibitions against denying someone coverage due to a pre-existing condition; and guarantees for affordable, quality health care, he said.
House Ways and Means Chairman Charles Rangel, D-N.Y., another key player, echoed what Baucus outlined at a National Coalition on Health Care conference on Wednesday.
In terms of reimbursing doctors and hospitals, the focus for insurers is likely to shift from paying for the volume of services provided to reimbursements based on positive health outcomes.
When it comes to paying for all those changes, it’ll be all hands on deck. Consumers, employers, health care providers and others in the industry will be asked to contribute. "We’ll pay for it in a balanced way," Baucus said.
But "balanced" may not guarantee bipartisanship support in the House and Senate. In fact, deciding exactly who pays what - and figuring out how much reform costs can be taken care of through greater efficiencies and increased competition - will be among the hardest issues on which to find consensus.
Here are some of the leading ideas that could most directly affect health consumers’ wallets:
Tax part of employer contributions to health insurance: Right now, if you get your health insurance at work, any money your employer contributes to pay for premiums is tax-free income to you.
It’s the costliest tax benefit the government offers, reducing federal tax revenue by $226 billion last year, according to the Joint Committee on Taxation. And it’s a break that many officials, including Obama, say they are reluctant to change.
But tax and health care experts agree it’s not only a costly incentive but one that offers the biggest tax break to high-income workers and to employees with the most expensive plans, which include union workers easy cash advance. Plus, they say, divorcing consumers from the true cost of their health care encourages them to buy more care than they might need and that, in turn, contributes to growth in costs.
Baucus has said lawmakers are considering limiting - but not eliminating - the tax-free exclusion in some way.
Limits might be based on the cost of a plan, an employee’s income or some combination of the two. Another option would be to convert the exclusion to a tax credit or deduction. Lawmakers are also considering whether to grandfather in existing plans that unions won through collective bargaining agreements.
How much revenue can be raised is entirely dependent on the option chosen. There are no official estimates available from the Congressional Budget Office yet, but the Tax Policy Center estimates that capping the exclusion at the average cost of health insurance in 2009 ($5,370 for individuals; $13,226 for families) and adjusting that cap for inflation every year could raise $848 billion in revenue over 10 years.
Impose Medicare tax on state and local government employees: Currently the wages of some state and municipal employees are not subject to the 2.9% Medicare payroll tax that other workers and their employers pay. Lawmakers may decide to subject all such employees to the tax.
Tax sugary and alcoholic drinks: One option under consideration would standardize and increase the federal tax on alcohol. Another would impose a new federal tax on beverages sweetened with sugar, high-fructose syrup or other ingredients. Diet sodas and other artificially sweetened beverages, however, would not be taxed.
Change or eliminate Flexible Spending Arrangements: Currently, employees get a tax break for money contributed to FSAs. The amount they may contribute is unlimited, although the employer may set a limit. And the money may be used for a host of health-related expenses that insurance doesn’t cover, as well as for dependent care expenses.
Lawmakers are considering either limiting how much money may be contributed or getting rid of the accounts entirely.
Modify Health Savings Accounts: Individuals with high-deductible health insurance policies may set up HSAs to which they and their employers may contribute money tax-free. Earnings on those contributions are tax-free, as are withdrawals used for qualified medical expenses.
Lawmakers may opt to limit the amount of money that may be contributed to HSAs or to boost the penalty for making withdrawals for non-medical expenses. They also may require third-party certification that the withdrawals were used for qualified expenses.
PORTLAND, Ore. – Costco Wholesale Corp.'s fiscal third-quarter profit fell 29 per cent because of softer sales and a litigation charge for the warehouse club operator.
Costco has been one of the more resilient retailers during the recession as shoppers came to its membership clubs for deals on food and everyday items. But Costco said Thursday that its total sales slid during the quarter because of the stronger dollar's impact on foreign sales and a continued slump in spending on higher-ticket discretionary items.
Costco's management said falling prices on its goods and the lacklustre consumer appetite shaped the quarter – with soft sales of items like jewelry but strong sales of fresh fruit and other consumables, following trends from earlier quarters.
Richard Gallanti, Costco's chief financial officer said the situation is "a little bit of a challenge profitability wise, but (the company is) still driving business and driving frequency and loyalty."
Costco management did not, given the uncertainty of the economy, issue any earnings guidance.
In the third quarter, Issaquah, Wash.-based warehouse club operator earned $209.6 million, or 48 cents per share, for the quarter ended May 10. That's down from $295.1 million, or 67 cents per share, a year earlier.
Included in those results was a $34 million, mostly non-cash, pre-tax charge during the quarter related to a settlement of a class action lawsuit over its membership renewal policy affordable car insurance. Increased employee health care costs also weighed on its quarterly performance.
Revenue dropped five per cent to $15.81 billion from $16.61 billion.
Analysts polled by Thomson Reuters expected profit of 53 cents per share on revenue of $16.16 billion. Analysts' estimates generally exclude one-time items.
Shares fell $1, or about two per cent, to $47.83 in early afternoon trading.
Costco's same-store sales slipped seven per cent for the quarter, with U.S. same-store sales off 5 per cent and international same-store sales down 12 per cent. Excluding the impact of lower gas prices and the stronger dollar, same-store sales rose two per cent.
Same-store sales, or sales at stores open at least a year, are a key indicator of retailer performance because they measure growth at existing stores rather than newly opened ones.
Lazard Capital Markets analyst Todd Slater, who has a "Hold" rating on Costco shares, said its stock remains fairly priced. But with the company's declining sales and margins, and heavy presence in parts of the country hit by the declines in the housing market, he doesn't see anything on the immediate horizon to drive the stock.
Costco continued to see strong membership renewal rates during the quarter for access to its clubs, but new memberships sign-ups were down, which Galanti attributed to slowed store openings.
The highest home loan rates in more than two months drained demand for refinancing last week, dragging total U.S. mortgage applications to the lowest level since early March, the Mortgage Bankers Association said on Wednesday.
Refinancing has been the lifeblood of a renewed push for mortgage funding much of this year, and even that has lost steam despite borrowing costs staying relatively low, according to the industry group’s data.
The average 30-year mortgage rate rose 0.12% point to 4.81%, above a low of 4.61% two months ago though down more than a percentage point from a year ago.
Many homeowners are waiting for kinks to be worked out of refinance programs from the government as well as government-controlled Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).
The hope is that once the hurdles in the refinance process are surmounted, consumers can return to slicing monthly housing costs and stimulating the recessionary economy by spending some of those savings.
Total U.S. mortgage applications fell 14.2% in the week ended May 22 to 786.0 on a seasonally adjusted basis, 37% below its recent peak of 1,250.6 in early April.
Many consumers are holding out for even lower rates and prices. Caution about making such a big purchase if jobs are at risk has also kept many buyers sidelined.
"People are calling but not necessarily willing to act," said Brad Sherman, vice president of residential lending at Nationwide Mortgage Services in Rockville, Maryland. "We keep hearing stories that housing prices are continuing to fall and people are nervous to commit new money" to buy when it could soon cost less.
The Mortgage Bankers Association’s measure of demand for loans to buy homes rose by 1% to 256.6 last week, but has shown scant momentum during the keenly watched spring sales season.
In the meantime, those waiting for lower rates likely also saw home values slide versus the size of their loan, possibly to levels that kept lenders from approving a refinancing payday loans for bad credit.
"As far as refinancing goes, people are counting on some of these Fannie Mae and Freddie Mac programs to fully kick in, and there are some problems with them that they haven’t yet ironed out," Sherman said.
Requests for loans to refinance slumped 18.9% last week to 3,890.4, about 43% below the 6,813.5 peak in early April. Refinancings accounted for just over 69% of all applications, after hovering closer to 75% in recent weeks.
Affordability remains at record highs, but some key obstacles remain before the housing crisis becomes history.
Fixed mortgage rates still remain near record lows. The average home price nationwide has been slashed by more than 32% from the 2006 highs, according to the Standard & Poor’s/Case-Shiller indexes.
The market may be on the doorstep of stabilization, according to some housing analysts, but a recovery won’t be forthcoming with unemployment rising and foreclosures still setting records.
"We’ve seen traffic on our site grow every single month since the beginning of the year so there’s a huge amount of pent-up demand, particularly from first-time home buyers," said Pete Flint, San Francisco-based chief executive of Trulia, a real estate Web site.
But there will be bargains for the next few years, curbing the urgency to purchase immediately, he said.
"The housing market is not going to recover until foreclosures stabilize and reduce," which is unlikely in the short run, Flint said. "I would feel a lot more hopeful for the housing market when I see some positive signs in the employment statistics."
The U.S. unemployment rate of 8.9% in April was the highest in more than a quarter century and is widely expected to climb.
General Motors Corp said on Wednesday that a crucial bond exchange proposal failed to gain enough support and that its board of directors would meet to review the automaker’s options, clearing the path for what would be the largest U.S. industrial bankruptcy ever.
GM said in a statement that an offer to exchange $27 billion in bond debt for a 10 percent stake in a reorganized company by a midnight deadline had fallen far short of its debt reduction target set in consultation with the Obama administration.
The company said in a release that “substantially less” than the 90 percent threshold had been tendered and none of the exchange offers would be accepted.
The exchange had been seen as GM’s last hope to cut debt outside the kind of government-financed bankruptcy that has been underway for its smaller rival Chrysler since the end of April.
The automaker’s board could meet as soon as Wednesday to review options for the automaker, which has been kept in operation since the start of the year with $19.4 billion in emergency federal loans, representatives said.
GM’s bond exchange offer had been dogged by criticism since it was launched a month ago that it was an unfairly low payout made at the direction of U.S. officials more sympathetic to the competing claims of GM’s unionized workers and retirees.
GM shares, which could be worthless if the automaker files for bankruptcy, were down 10 percent at $1.29 in premarket trading. The shares have traded in a 52-week range of $18.18 to $1.00.
BLAME THE BONDHOLDERS?
Analysts said GM’s bondholders had tipped the company toward a near-certain bankruptcy that would rank as one of the largest and most complex reorganizations in U fastcash.S. history.
“I think the exchange offer was really a transparent attempt to blame bondholders for the bankruptcy rather than to accept responsibility for years of mismanagement and failure to anticipate things that should have been understood,” said Richard Tilton, a restructuring analyst at Covenant Review.
“I think the task force made that hurdle so high, they wanted them to go into bankruptcy. They see that as the solution,” independent auto industry analyst Erich Merkle said on Tuesday.
GM is widely expected to file for bankruptcy by June 1, the deadline set by President Barack Obama for the company to demonstrate its viability or seek refuge in bankruptcy court.
“GM today stands at the very brink of bankruptcy,” the United Auto Workers said in a document released on Tuesday that detailed terms for the sweeping concession agreement now before rank-and-file members for votes Wednesday and Thursday.
Ratification, which is widely expected, is a priority of the Obama administration’s autos task force, which wants GM to sew up big-ticket cost-cutting and other deals and demonstrate stakeholder unity ahead of any Chapter 11 filing.
Any major changes in the ownership structure of a new GM appeared unlikely as the government is ready to increase its planned stake — and its risk — from 50 percent to as much as 70 percent in order to further cut the company’s debt, the Wall Street Journal said on Tuesday.
Lehman Brothers Holdings Inc’s U.S. estate administrators will ask a federal judge on Tuesday to approve a framework for coordinating bankruptcy proceedings for the bank’s subsidiaries worldwide, putting them at odds with its administrators in the UK, the Wall Street Journal said.
Lehman’s UK estate administrator PricewaterhouseCoopers (PwC), who represents the bank’s main European arm, maintains the estate is governed by local rules and the interests of its own creditors, according to the paper.
A global protocol is “unnecessary, insufficiently tailored and unacceptably burdensome,” the paper quoted Tony Lomas, a PwC partner, as saying payday loan.
Lehman’s London-based estate held about a third of the firm’s estimated $630 billion in assets before it filed for bankruptcy in September 2008, the paper said, adding that the estate holds data essential to insolvency proceedings among other smaller European subsidiaries.
Lehman’s U.S. administrators and PwC could not be reached for comment.
(Reporting by Ajay Kamalakaran in Bangalore; editing by John Stonestreet)
India’s Bharti Airtel Ltd and South Africa’s MTN Group restarted merger talks to create a major emerging markets telecoms group, a year after previous talks broke down over who would control a merged entity.
Bharti said the potential value of what is a complex deal in which both firms pay cash and stock for stakes in each other, was more than $23 billion.
“The broader strategic objective would be to achieve a full merger of MTN and Bharti as soon as is practicable to create a leading emerging market telecom operator, which today would have combined revenue of over $20 billion and a customer base of over 200 million,” the companies said in separate statements.
Bharti, India’s leading mobile operator, said it would be the primary vehicle to expand in India and Asia, while MTN would drive growth in Africa and the Middle East.
That would make it the world’s biggest non-pharmaceutical deal so far this year, according to Thomson Reuters data. It would also be India’s biggest cross border deal, almost twice the size of Tata Steel Ltd’s near $13 billion acquisition of Britain’s Corus in 2006.
A combination of MTN, worth $27 billion at Friday’s close, and Bharti, valued at $34 billion, would be among the top 10 global industry players based on subscriber numbers. Bharti has nearly 100 million mobile subscribers and MTN, sub-Saharan Africa’s biggest mobile operator, also has about 100 million.
Sanjay Chawla, a telecom analyst at Anand Rathi Securities, said that based on Friday’s close, Bharti was valued at 11 times enterprise value to EBITDA, while MTN was valued at 5 free instant credit reports.5 times.
“Compared to last year, the deal structure looks reasonable and, to that effect, the completion risk is low,” Chawla said.
“Plus (MTN) is a free cash-flow positive, dividend-paying firm. Therefore, it’s a cheaper asset and looks to be a pretty good deal for Bharti,” he added.
Bharti called off talks with MTN last year after the South African firm proposed a new structure that would have seen Bharti become an MTN unit.
MTN then held talks with Bharti rival Reliance Communications, but these also failed.
“I doubt if the merger plan by the two firms that went awry last year will come back to haunt them. One wouldn’t go back a second time unless one is sure,” said Rajesh Jain, chief executive at Mumbai-based Pranav Securities.
Bharti shares rose more than 8 percent in early Monday trade, but later pared gains and were down 0.5 percent at 0720 GMT (3:20 a.m. EDT). MTN shares jumped more than 14 percent.
COMPLEX DEAL
The firms said MTN would take a 25 percent interest in Bharti for $2.9 billion plus new shares equal to about 25 percent of the current shares on issue. MTN shareholders would take another 11 percent of Bharti.
From remote grasslands to the heart of the capital, Mongolians cast their ballots on Sunday to elect a new president residents and investors hope will facilitate the country’s efforts to tap its vast mineral wealth.
The tight race between incumbent Nambariin Enkhbayar of the ruling Mongolian People’s Revolutionary Party (MPRP) and opposition Democratic Party (DP) candidate Tsakhiagiin Elbegdorj is seen as a barometer of how soon the country will be able to reach a deal with foreign investors on a landmark mining deal.
Any repeat of the type of unrest and ensuing legal struggles that followed last year’s parliamentary elections, in which five died, could postpone approval of a draft investment agreement on developing the pivotal Oyu Tolgoi copper and gold project.
“It’s a beautiful day today, and I hope it’s also going to be a very good election. I firmly believe in the bright future of our people and the prosperity of our country,” Enkhbayar said after voting in a university gymnasium in the capital Ulan Bator.
Coming at a time when the young Central Asian democracy has been hit hard by falling mineral prices, the election pits Enkhbayar’s pledge to beef up the rule of law against Elbegdorj’s promises of change and fighting corruption. Both are dangling payouts from mining revenues and further help for students.
“The most important thing the new president needs to do is develop the country, to pull us out of poverty,” said Davaadorjiin Suvdaa, a 56-year-old retired worker.
A win by Elbegdorj could complicate policy making on mining, given his track record of anti-foreign and populist inclinations, analysts say.
Voters turned out in droves in the capital, many dressed in traditional long silk cloaks known as deels, in a sign of their respect for the largely ceremonial head of state and symbol of national unity cash advance loans.
Polling stations close at 10 p.m. (10:00 a.m. EDT) and the latest survey put the two parties in a statistical tie. A result could be known later on Sunday or early Monday but it also could take several days if it is a tight race.
SEEKING STABILITY
In the country’s vast windswept grasslands, many nomadic herders traveled dozens of kilometers on horseback and motorbike to the nearest polling stations.
“Stability is the most important thing to me,” said Sandagyn Bayarmaa, 46, who lives with her husband in a round felt tent and herds goats and sheep like much of the population.
The countryside is the traditional base of support for the MPRP, the reincarnation of the party that ran Mongolia as a Soviet satellite through much of the last century, while Elbegdorj draws largely on urban voters.
Exit polls are banned, but if voter turnout is high, meaning around 80 percent, that will probably bode well for challenger Elbegdorj, said Luvsandendev Sumati, director of the Sant Maral Foundation, a group that does polling and surveys.
“What might change the election outcome is only feet,” Sumati said. “The MPRP and their candidates were always better organized so their supporters are voting in an organized manner. But Democratic Party supporters, they are rather those who think, ‘Well, should I go or not?’”
The United Auto Workers union has reached a deal with the Treasury Department and General Motors on changing its labor contract with the troubled automaker, one of the key obstacles that needed to be cleared for GM to potentially avoid being forced into bankruptcy in the next two weeks.
The union did not disclose any details of the agreement, but the deal is expected to be similar to previous pacts with Ford Motor (F, Fortune 500) and Chrysler LLC. The union would likely accept GM (GM, Fortune 500) stock rather than cash to cover future retiree health care costs at the company.
"Today’s announcement is a positive development in GM’s effort to restructure and become a strong, viable company going forward," an administration official said in a statement.
A GM spokesman had little comment other than to confirm the deal. Like the union, GM declined to share details about the agreement.
GM has proposed a restructuring plan that would leave the UAW trust funds that cover those health care costs with up to a 38% stake in the company. Treasury would hold a majority stake in GM under this plan.
The deal still needs to be ratified by rank and file union members at GM before it can take effect. And even if it is approved by UAW members, that will not be enough to keep the nation’s largest automaker out of bankruptcy court.
The biggest hurdle for GM will be to get creditors holding $27 billion of its bonds to accept a debt-for-stock swap that would leave them with only 10% of the company. GM has until May 26 to reach an agreement with bondholders and a government-imposed deadline of June 1 to issue a new restructuring plan.
GM Chief Executive Fritz Henderson has repeatedly said that the difficulty in reaching an agreement with bondholders makes a GM bankruptcy filing "probable."
The union has already agreed to a number of changes in contracts with all the major automakers, including the elimination of the so-called "jobs bank," a program that guaranteed members close to a full salary during the life of the contract if they were laid-off and their unemployment benefits ran out health insurance plans.
GM, Ford and Chrysler had previously promised lifetime health care coverage for about 650,000 U.S. employees, retirees and their family members.
But the cost of providing the coverage had become a major competitive disadvantage compared to the nonunion U.S. plants operated by Asian rivals such as Toyota Motor (TM) and Honda Motor (HMC). According to some estimates, the health care expenses added about $1,500 to the cost of producing every vehicle.
So in its 2007 labor deals with GM, Ford and Chrysler, the UAW agreed to have the responsibility for that health care coverage shifted to trust funds administered by the union.
The companies were to each contribute billions in cash and other securities into the funds during 2008 and 2009 so the funds could start paying the benefits in 2010. GM was due to put about $20 billion into the fund.
But the sharp plunge in auto sales in 2008 and soaring losses at GM and Chrysler left them without enough cash needed to pay into the trust funds.
That was one reason why GM and Chrysler were forced to turn to Treasury for cash infusions to stay in business. Ford has so far avoided a federal bailout due to a stronger cash position.
Chrysler filed for bankruptcy last month, despite reaching a deal with the UAW that is expected to give it about a 55% stake in Chrysler.
UAW President Ron Gettelfinger recently said the union intends to sell the shares in GM and Chrysler that it will receive as soon as possible, rather than hang onto its large stakes in both companies.
Congress on Wednesday sent to President Obama a bill that makes it tougher for credit card issuers to raise fees and interest rates.
The move caps a years-long crusade by consumer groups and Democrats to rein in what they say are abusive practices that prey on consumers. The approval came despite strong objections by banking industry advocates, who say it could result in tightened credit to Americans.
The House voted 361-64 in favor and also approved by 279-147 an unrelated measure allowing people to carry guns into national parks.
The Senate passed the credit card bill, along with the unrelated gun measure, by a 90-5 vote on Tuesday.
President Obama will sign the bill on Friday, a White House spokeswoman told CNN.
The credit card rules would take effect in February. The bill is moderately tougher on banks and card issuers than are new Federal Reserve rules set to take effect July 2010.
The legislation makes it harder for people under age 21 to get credit cards. It would also ban rate hikes unless a consumer is more than 60 days late — and then restore the previous rate after six months if minimum payments are made.
"Over the past three years as I have labored on this bill, the need to stop credit
card abuses has become ever more apparent with every passing billing cycle," said the bill’s House sponsor, Rep. Carolyn Maloney, D-N.Y., on Tuesday.
The bill marks a major loss for the banking industry.
Financial services representatives have decried the bill, saying it would exacerbate the credit crisis and force banks to drop some risky credit card holders. The American Bankers Association said the legislation would prompt banks to reinstate annual fees and higher interest rates for all card holders, an outcome that would penalize those with good credit who pay their bills on time.
Some House members voiced those concerns Wednesday faxless payday advance.
"At a time when Americans are struggling to pay their mortgages, groceries and health care costs, why would we want to make credit more expensive and less available?" said Rep. Jeb Hensarling, R-Texas.
The credit card legislation has been a long work in progress. The House passed a bill in 2008 and again earlier this year. The legislation, which stalled in past years, was propelled by public outrage and pressure by President Obama.
Maloney added that she thought it was "unfortunate" that the measure to allow concealed weapons in national parks remained as part of the credit card measure. She and several other Democrats voted against the gun measure.
In recent months, credit card companies have been raising fees and interest rates. From November 2008 to February 2009, rates increased from an average to 13.08% from 12.02%, according to a Federal Reserve Board report.
At the same time, more people are not able to make their credit cards payments and are walking away from debt, according to a Federal Reserve report.
However, Treasury Secretary Tim Geithner said Monday he was not concerned about a consumer debt "bubble."
"Americans are going to be reducing how much they borrow, improving their balance sheets, saving more," he said. "Banks are still going to have losses they’re going to have to adjust to. And that’s what’s going to make the process of repair here longer …. But that’s a necessary, healthy process of adjustment for us to go through."
-CNN senior White House correspondent Ed Henry contributed to this report.
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