GM & UAW Reach Tentative Deal to End Strike

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Researched by Industrial Info Resources (Sugar Land, Texas)- General Motors Corporation (NYSE:GM) (Detroit, Michigan) and the United Auto Workers (UAW) (Detroit, Michigan) have reached an agreement on a new four-year contract that has effectively ended the two-day strike that affected some 80 GM facilities across the United States, returning 74,000 workers to their jobs. The agreement still must pass the muster of the UAW’s membership, but that does not appear to be a stumbling block at this point. The voting on the agreement should take place over the weekend with the contract being officially ratified by October 1.

Although the exact terms of the contract are still under wraps, sources close to the negotiations have indicated that all of the key points were addressed. The official unveiling of the exact terms will occur after the contract has been ratified by the UAW rank and file.

The agreement will also form the basis for UAW negotiations with GM’s Detroit-area competitors: Ford Motor Company (NYSE:F) (Dearborn, Michigan) and Chrysler LLC (Auburn Hills, Michigan). Those talks will continue in the near future.

One of the largest issues, from GM’s point of view, that was addressed in the contract is the unfunded retiree health-care costs. The union will take money from GM to form an independent trust called the Voluntary Employees Beneficiary Association (VEBA), which will be administered by the UAW and replace the existing pension system. Anonymous sources have placed GM’s contribution to this fund at $36 billion, about 70% of the total obligation. Union projections indicate that the VEBA will secure retirees for 80 years. Now that the VEBA plan is in place, it still needs to be approved by the courts and reviewed by the Securities and Exchange Commission.

GM’s goal in this round of contract talks was to reduce its labor-cost gap with Japanese rivals by about $25 per hour. Before these talks, GM maintained that its labor costs averaged $73.26 an hour in wages and benefits.

In addition to creating VEBA, the union also agreed to lower wages for some workers. Newly hired workers would start at a lower wage structure in certain non-manufacturing jobs, such as sanitation workers. GM also agreed to hire temporary auto workers at full company wages and benefits. Temporary workers who have been with the company for less then 90 days would be hired at a lower wage.

GM also committed to future investment at U.S. facilities rather then facilities outside the country. This was a point of contention for the union, as it was worried about jobs moving to Mexico where labor costs are cheaper. GM has more than $300 million worth of capital and maintenance projects that are expected to begin construction in the fourth quarter of 2007 or beyond in the U.S. This should increase as a result of the new contract and the guarantees GM has given to the union.

Once the contract is ratified, GM will begin to move onto the next phase of its restructuring plan. It still has several plants that will close in the next 18 months, per its announced restructuring plan. As an added motivation to union workers to ratify the contract, GM has offered a one-time bonus payout of $3,000 and then bonuses of 3%, 4% and 3% of annual pay each year for the last three years of the contract if the deal is ratified as is.

This is but one step in many still to come for the nation’s leading automaker as it tries to regain what has been lost in the past 20 years. Coming off a year highlighted by a $2 billion loss, as well as the announced future plant closings, GM has a lot of work to do if it is going to regain its market share that has been taken by the foreign automakers. In July, the Detroit 3 saw their market share drop below 50% for the first time in history, and although they managed to move back above 50% in August, that was mainly due to a one-time sell off of automobiles to rental companies, an area that all of the Detroit 3 are trying to move away from. 2008 will be a very crucial year for GM and its rebuilding plans, but now that the union negotiations are behind it, it has four more years to right the ship before it goes through this process again.

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