DETROIT – Members of the United Auto Workers union overwhelmingly ratified its new labor agreement with General Motors, getting the auto maker over a major hurdle in its restructuring plan. UAW President Ron Gettelfinger said the plan was passed with 74 percent support.

GM is racing to restructure by June 1 under close watch of the Obama administration. It is widely expected the company will follow rival Chrysler into bankruptcy protection on Monday under a plan that would give the U.S. government a 72.5 percent stake. The U.S. will boost its support for GM by as much as $50 billion and keep it closely held for up to 18 months.

The government’s plan also calls for paying off in full GM’s secured lenders, banks including Citigroup Inc. and J.P. Morgan Chase & Co. that are owed about $6 billion, The Wall Street Journal reported. That would remove one potential obstacle to a speedy bankruptcy reorganization.

Under the new UAW terms, the union’s health-care trust would own 17.5 percent of a reorganized GM, in exchange for retiree health-care concessions. An earlier revamping worked out by the Treasury Department and GM would have given the union 39% and the government 50 percent.

The union – concerned about GM’s prospects – sought the lower stake in exchange for preferred shares that provide annual income, as well as a $2.5 billion note from GM, said people familiar with the situation.

The change leaves room for GM to sweeten its stock offer to bondholders to reduce the company’s $27 billion in unsecured debt. A debt-for-equity swap is another measure required by the Treasury before Monday, or else the company will be forced to file for bankruptcy, a fate most participants in the talks believe is likely.

GM’s largest union also acceded to more worker buyouts and rules changes. For its part, GM agreed to take back five car-parts plants from Delphi Corp., a former subsidiary that is in Chapter 11, and use an idled GM plant to make small and compact cars.

The UAW and people close to the Obama administration’s negotiations with GM said Tuesday that GM will need “significantly more capital” to continue operating, despite the UAW cuts. The Treasury plans to back GM with up to $50 billion in financing that will cover everything from $7.6 billion GM requested last week to the $6 billion to pay off GM’s secured lenders. It will also cover debtor-in-possession financing for GM and exit financing for when it is ready to emerge from bankruptcy.

In return, the Treasury could demand up to 70 percent of the company’s equity, said people familiar with the matter. The funds would, in effect, be a big bet by the government that GM will be successfully reorganized.

The size of GM’s forthcoming debtor-in-possession loan remained in question, partially because it is difficult to handicap how long GM would remain in bankruptcy. Chrysler LLC filed for bankruptcy May 1 and is likely to emerge as early as next week, a person familiar with the matter said Tuesday. GM’s bankruptcy is expected to take longer.

Any DIP financing would include the$7.6 billion that GM told the Treasury last week it would need to operate after June 1. The money will fund GM during bankruptcy as well as fund a so-called Newco, the reorganized GM made up of surviving brands including Chevrolet, Cadillac, Buick and GMC, said these people.

The money is needed to pay GM operating costs and fees to attorneys, advisers and others. It also may be needed to back the assets GM leaves behind in bankruptcy as a “Badco” or “Oldco.” Those assets will be sold or liquidated.

The government decided to buy out secured lenders at about face value, said people familiar with the matter. It hopes to have GM emerge with just $10 billion to $12 billion in debt, instead of the $40 billion it had envisioned.

The UAW deal is yet another wrinkle in GM’s attempt to reorganize. Initially, the UAW was offered 39 percent of the company’s equity in exchange for renegotiating a $35 billion health-care trust. Now, GM plans to give the UAW $10 billion in already-set-aside assets, a $2.5 billion note, a $6.5 billion preferred-equity stake and 17.5% of GM’s shares with the option for up to 20 percent over time. In addition, the UAW will get a seat on GM’s board. Concerned that GM’s viability was based on an increasingly unlikely U.S. auto-sales rate of 10 million vehicles a year, the UAW instead sought the preferred stock that will pay out a $585 million annual dividend.

“The fear at the UAW was that ownership in GM could eventually be worth very little,” said a person involved in the talks.

But the union’s pact comes at a price. While union workers won’t see their hourly pay cut, the UAW has agreed to reduce retiree health-care immediately, and trim many fringe benefits enjoyed by active workers for decades. Much of the agreement mirrors concessions the union granted Chrysler last month, including a suspension of cost-of-living allowances, bonuses and some holidays.

The union also agreed to allow the company to make additional buyout offers to the 60,000 people employed at GM’s U.S. factories, and it agreed not to strike before 2015, said people familiar with the terms.

GM aims to save $1.5 billion annually in active-worker costs under the new agreement. GM spent $8 billion on hourly U.S. labor costs in 2008, but needs to cut that if it hopes to be competitive with Asian competitors building cars in the U.S., and remain viable at a much lower auto-sales level than had been the norm.

While the UAW billed the revised retiree trust fund agreement as necessary to GM’s survival, it will leave hundreds of thousands of retirees paying higher out-of-pocket medical expenses. For decades, these retirees paid only minor charges.

While the UAW is among GM’s most powerful creditors, there are several other lenders to which GM aims to give equity. The main uncertainty appears to be how much of the increased government stake will go to boost the offer to bondholders and how much will go to the Canadian government, which is expected to chip in to help GM through the bankruptcy process. In the case of Chrysler, the U.S. and Canadian governments plan to end up sharing a 10 percent stake.

The Treasury is portraying itself as an unwitting majority-owner-in-waiting of GM – the only lender able and willing to put forward the huge sums necessary to rescue the company, but a player that has no intentions of directly guiding the company once it emerges from bankruptcy. “We are reluctant, involuntary shareholders in this case,” said one person involved in the discussions.

Treasury officials refused to comment publicly about the negotiations.

a>>