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UAW reaches tentative agreement with GM

As the ink dries on the new four-year contract between General Motors Corp. and the United Auto Workers, retirees, workers, Ford, and Chrysler are all anxious to see the details of what could be a watershed pact for the industry.
Ron Gettelfinger
UAW President Ron Gettelfinger meets with the media after announcing an agreement with General Motors early Wednesday in Detroit.Carlos Osorio / AP
/ Source: The Associated Press

As the ink dries on the new four-year contract between General Motors Corp. and the United Auto Workers, retirees, workers, Ford, and Chrysler are all anxious to see the details of what could be a watershed pact for the industry.

For retirees, there’s uncertainty about how the union will manage their health care. To the rank-and-file, there’s the hope that a two-day strike was enough to bring promises from GM to build new vehicles at their factories, keeping them employed for years.

Even GM executives must be wondering whether there’s enough cost savings to make them competitive with the Japanese.

“There is a lot of relief, but that’s coupled with anxiety to see details of the agreement,” auto worker Tom Brune said Wednesday as he stood next to a pile of strike placards at the union hall near a GM plant in Wentzville, Mo.

Union and company bargainers struck the tentative deal just after 3 a.m. Wednesday after bargaining for about 18 hours, but they gave few details. It still must undergo the scrutiny of local union presidents and a vote of GM’s UAW members, which is likely to take place this weekend.

The big detail that the company and union confirmed, though, was that the union will take money from the nation’s largest automaker to form a trust that would handle payments for retiree health care.

Several industry analysts said the agreement would shape contracts with GM’s Detroit-area competitors, Ford Motor Co. and Chrysler LLC. It’s also likely that the deal will frame other U.S. labor contracts, the analysts said.

“We view the tentative agreement and its apparent terms as a historic milestone toward the long-term improvement in fundamentals and survival at the North American automakers,” KeyBanc analyst Brett Hoselton wrote in a note to investors.

GM and the union praised the agreement, with the company saying it goes a long way toward cutting about a $25-per-hour labor cost gap between GM and Japanese automakers with U.S. factories. GM has said it pays workers $73.26 an hour in wages and benefits. The company lost $2 billion last year and is in the midst of a restructuring.

“This agreement helps us close the fundamental competitive gaps that exist in our business,” GM Chairman and Chief Executive Rick Wagoner said.

The deal allows GM to move its roughly $51 billion in unfunded retiree health care costs into an independent trust administered by the UAW. The union also agreed to lower wages for some workers. In exchange, the UAW won commitments from GM to invest in U.S. plants, bonuses and an agreement to hire thousands of temporary workers which will boost UAW membership, according to a person who was briefed on the contract. The person requested anonymity because the details haven’t been publicly released.

All through the negotiations, which formally began in July, retiree health care was the key issue. Neither the UAW nor GM gave details of the trust, called a Voluntary Employees Beneficiary Association, but another person briefed on the talks said GM agreed to pay the union about 70 percent of the total obligation, or around $36 billion. That person also requested anonymity because the details haven’t been publicly released.

Deutsche Bank auto analyst Rod Lache said the agreement to move retiree health care costs off GM’s books eventually could reduce the labor cost gap by $18 an hour.

UAW President Ron Gettelfinger said the union’s projections show the VEBA will secure retirees for 80 years.

GM currently has 340,000 hourly retirees and spouses. Gettelfinger said he recognizes some in the union are opposed to the VEBA, but the union has supported the idea for several years.

After ratification, the VEBA memorandum would have to be approved by the courts and would be reviewed by the U.S. Securities and Exchange Commission, GM said.

One of the people briefed on the contract said that because GM’s pension fund has more money than its expected obligations, both sides agreed to tap into it to fund the trust. Retirees also would get a pension increase, but it would be offset by an equal increase in health care contributions, the person said.

In exchange for their ratification, union members would get a one-time bonus of $3,000 and then bonuses of 3 percent, 4 percent and 3 percent of their annual pay each year for the last three years of the contract, said one of the people briefed on the contract.

GM also committed to future investments in U.S. plants, the person said. Gettelfinger said job security was the major issue that caused the strike, but he wouldn’t say Wednesday whether GM has promised specific future products to U.S. factories.

The person also said GM would hire temporary auto workers at full company wages and benefits. The company has approximately 6,000 temporary workers, the person said. Temporary workers who have been at the company for less than 90 days would be hired at a lower wage, the person said.

The pact also includes a lower wage structure for newly hired workers in certain non-manufacturing jobs such as sanitation workers, that person said. The person said to make way for the new hires, GM would offer early retirement and buyout packages of $35,000 to workers now in the positions.

Wall Street applauded news of the deal, sending GM shares up $3.22, or 9.4 percent, to close at $37.64. Standard & Poor’s Ratings Services said it may raise GM’s long-term debt rating, which currently is below investment grade.

Gettelfinger said he will decide this week which automaker will go next.

Neither Ford nor Chrysler would comment on the GM deal, and both said they had not heard from the union about the next round of bargaining.

At factories across the country, workers were awaiting details of the pact from the union, with many hoping that GM would guarantee a new car or truck for their factory.

One of those plants is the sprawling Lordstown, Ohio, complex near Cleveland where Chevrolet Cobalts and Pontiac G5s are made. GM plans to stop production of the cars after the 2009 model year and hasn’t said if Lordstown will get another vehicle to make.

Jim Graham, president of one of two UAW locals at the 3,200-worker complex, said that based on his experience, there won’t be any specific guarantees of products for plants until local negotiations on work rules and other issues are completed.

“I think it’s a bargaining chip for management locally, not just at Lordstown,” he said. “But we’ll get there. I’m very confident.”