Nov. 24 (Bloomberg) -- General Motors Corp., in danger of running out of cash this year, will seek to negotiate a cut in debt levels and new union work rules to help boost its chances of winning federal loans, people familiar with the plan said.

The largest U.S. automaker also may ask to delay a $7 billion payment to a union retiree health fund, drop more brands and rework an accord with GMAC LLC to prove it can survive and repay the government, said the people, who asked not to be named because details haven’t been presented to Congress.

Chief Executive Officer Rick Wagoner is under a Dec. 2 deadline set by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid to show how he’ll reshape operations as a condition of a $25 billion industry rescue. Congress may vote on the package on Dec. 8.

“A financial restructuring, along with government loans, is an alternative to bankruptcy,” said Robert Schulz, a Standard & Poor’s credit analyst in New York. “It doesn’t fix the economic environment, though, and it’s the economic conditions that are causing their cash burn.”

Directors met by phone today and are scheduled to do so again on Nov. 26 and Nov. 28, and then gather Nov. 30 and Dec. 1 to review the plan, the people said. Detroit-based GM expects to have a 10- to 12-page public report for a Dec. 5 congressional hearing and an 80-page semi-private report with background material, the people said.

Wagoner would have to persuade debt holders to go along with paring GM’s debt and the United Auto Workers to amend its 2007 labor contract, making it likely that any debt and union accords won’t be done by Dec. 2, the people said.

2-Day Grilling

Lawmakers grilled Wagoner during two days of testimony last week before deadlocking over how to let GM, Ford Motor Co. and Chrysler LLC tap $25 billion in low-interest borrowing amid U.S. sales that may slump next year to the lowest since 1991.

Pelosi and Reid agreed to a second lame-duck congressional session and instructed Wagoner and fellow CEOs Alan Mulally of Ford and Robert Nardelli of Chrysler to prepare specifics on how they’ll navigate past the crisis.

While Republican critics such as Senator Richard Shelby from Alabama have said the auto chiefs were “arrogant” last week and that management changes might be needed, neither the government nor GM’s board has signaled Wagoner will need to leave to get an agreement, people said.

Reducing Debt

GM now has $43 billion in debt, and will need to reduce that total significantly, even after a government loan that may be $12 billion, the people said. Analysts have said any increase in GM’s debt load will make it uncompetitive.

“They are trying to make sure every stakeholder takes a hit,” said Mitchell Stapley, who oversees about $22 billion as chief fixed-income officer at Fifth Third Asset Management in Grand Rapids, Michigan, and says he sold auto debt about 18 months ago. “The market is already giving you the haircut. This kind of casts it in stone.”

Should GM exchange debt at levels less than the original value, S&P would consider those issues in default, Schulz said. S&P would then consider a new GM rating based on the replacement debt, he said. GM is now rated CCC+, or seven levels below investment grade.

GM’s 8.375 percent bonds due in July 2033 fell 3 cents to 14 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The yield rose to 59.37 percent.

The shares gained 53 cents, or 17 percent, to $3.59 at 4:01 p.m. in New York Stock Exchange composite trading. They have plunged 86 percent this year, the steepest drop among the 30 companies in the Dow Jones Industrial Average.

Cash Burn

After burning through $6.9 billion in cash last quarter, GM said Nov. 7 that it had $16.2 billion as of Sept. 30, raising the prospect of falling short by year’s end of the $11 billion minimum needed to pay monthly bills. GM has said a bankruptcy filing would be a “disaster.”

GM said separately today that its nine-year marketing accord with Tiger Woods, the world’s top-ranked golfer, will be discontinued next month by mutual agreement. Woods is interested “in growing his own Tiger brand, and we have been looking for marketing savings,” said Pete Ternes, a GM spokesman.

The restructuring plan to be presented to Congress may call for rescheduling the cash payment due in 2010 to the UAW trust fund for retirees’ medical bills, possibly to allow the government debt to be repaid first, the people said.

UAW’s Role

Such a move would require the consent of the UAW, as would GM’s bid to adjust work rules such as the so-called jobs bank that determines how union workers are paid when factories are idled or closed. Changes to the health fund also would need approval in federal court.

UAW President Ron Gettelfinger testified last week in favor of federal loans for the industry. Still, he has said previously he expects GM and the other automakers to make the trust-fund payments as required under the union’s 2007 labor contracts.

With the Hummer unit already being marketed to prospective buyers, GM will examine the viability of its seven remaining U.S. brands and the geographic distribution of its 6,468 U.S. dealers to cut overlap and boost the profits of the franchise system, the people said.

GM, Cerberus

GM also will work with Cerberus Capital Management LP, which controls the 51 percent of GMAC that GM doesn’t own, to help ensure the lender’s conversion to a bank-holding company to tap the $700 billion bailout fund for the U.S. financial system, the people said. GM needs a stronger GMAC able to make auto loans, they said.

GM expects to comply with agreements that federal debt be senior to other borrowing and that the government gain equity and oversight into the company along with Chrysler and Dearborn, Michigan-based Ford in exchange for aid, the people said.

Pelosi and Reid told the automakers in a Nov. 21 letter that they must provide “a forthright, documented assessment” of their operating cash positions, short-term liquidity needs “and how they will meet the financing needs associated with the plan to ensure the companies’ long-term viability.”

Ford is studying what information it needs to provide, Mike Moran, a Washington-based spokesman, said today in an interview.

A Chrysler spokeswoman, Shawn Morgan, had no immediate comment on the Auburn Hills, Michigan-based automaker’s plans.

To contact the reporter on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net

Last Updated: November 24, 2008 16:13 EST