Struggling US automaker General Motors appears unlikely to reach key agreements ahead of a March 31 deadline after its union and bondholders went public with a spat over concessions.
"We don't think GM will be able to meet certain objectives by the deadline," Standard & Poor's Equity Research Services analyst Effraim Levy wrote in a research note Tuesday.
The United Auto Workers union and bondholders are "playing cat and mouse about accepting equity in lieu of cash until they see what the other stakeholders get," Levy said.
GM is under pressure to hammer out a deal with its union and bondholders to reduce operating costs and trim benefits as part of its bid to restructure under the government's multi-billion-dollar bailout package.
Levy said he expects the union to reach an agreement by the deadline but noted "resistance from GM bondholders with nearly 30 billion dollars in debt (principle amount) to swapping that debt for GM shares worth about one-third that amount."
But a union source close to the talks told AFP that negotiations with GM are being held up by a lack of sufficient sacrifices on the part of bondholders.
The source also warned that "time is an issue" and noted it takes about seven to 10 days to get an agreement ratified by members.
The disagreement went public last week when the UAW's legislative director, Alan Reuther, complained in a letter to legislators that bondholders were demanding additional sacrifices from retirees that go "beyond those called for by the terms of the loan agreements."
The ad hoc committee of GM bondholders responded with a statement suggesting the pensioners were at the root of GM's problems.
They stepped up their offensive Sunday with a letter warning the presidential task force on the automotive industry that the government's proposal would not be accepted by a sufficient number of bondholders.
"The result of such a failed exchange would likely be a bankruptcy that would have dire consequences for the company, the tens of thousands of hard-working Americans that GM employs and the economy as a whole," the committee wrote.
GM is currently funding its operations with a 13.4-billion-dollar loan and has asked the US Treasury for another 16.4 billion dollars to weather a collapse in auto sales amid a deepening economic crisis.
GM spokesman Tom Wilkinson declined to comment on the letter or the status of negotiations "except to say that GM remains committed to concluding its balance sheet restructuring on an expedited basis."
While the Treasury has used the specter of a GM bankruptcy to try to pressure bondholders to reach a deal, industry observes said it was unlikely that the government will let the largest US automaker fail.
Steve Rattner, the lead advisor to the auto task force, appeared to back off the March 31 deadline in a series of recent interviews in which he criticized bondholders for being "difficult" and warned that GM and Chrysler could need "considerably more" aid than they have already asked for.
Ford, the third automaker in Detroit's "Big Three," said it will attempt to weather the economic storm without government bailout funds.
On Thursday the Treasury released five billion dollars to prop up auto suppliers in a move that was interpreted as a sign that the administration was not prepared to force GM into bankruptcy.
"It wouldn't make any sense to help the suppliers and not help the automakers," said US congressman Thaddeus McCotter of Michigan.
But government support and a thoughtful restructuring plan may not be enough to save GM if auto sales do not improve soon, warned Rebecca Lindland, an analyst with IHS Global Insight.
"The threat of GM going bankrupt still is very real," she said in a telephone interview.
"We can continue to throw billions of dollars at those companies, but until the American consumer starts spending again it's not going to help."