GM, UAW Strike a Deal
September 26, 2007

By Michelle Krebs and Joe Szczesny

The United Auto Workers (UAW) union announced in the wee hours of the morning that a tentative contract, which includes a union-managed health-care trust fund, had been reached with General Motors. The agreement ends a strike that started Monday and puts GM's 73,000 U.S. workers back to work job beginning late Wednesday.

Both sides say the accord should help narrow the yawning gap in labor costs between GM and Asian rivals building cars in the United States.

The key to the tentative agreement is the transfer of a substantial chunk of GM's legacy costs for retiree health care to a Voluntary Employee Benefit Association, or VEBA. In exchange for agreeing to the VEBA, the union elicited from GM some guarantees regarding future models, like the Chevrolet Volt, being built in the U.S.

"Transformational" Contract?

Is this the transformation contract GM had hoped for? That will be revealed in the coming days.

Neither side is providing specific details of the contract. Those will be outlined by UAW President Ron Gettelfinger to local union officials on Thursday and Friday. The local officials, in turn, will explain the details to their memberships. Ratification votes could take place as early as Sunday.

Forecasting firm Global Insight said what's known so far suggests "the landmark transformational agreement" that GM had been seeking.

UAW President Ron Gettelfinger said at a press conference after the settlement was reached at 3 a.m. Monday that he was satisfied the trust will have sufficient resources to last for 80 years.

"We feel very good about this agreement," Gettelfinger said. "I think this strike helped our side."

For its part, GM issued a statement from CEO Rick Wagoner that said: "The national agreement paves the way for GM to significantly improve its manufacturing competitiveness, providing the basis for maintaining and strengthening its core manufacturing base in the United States."

He added: "This agreement helps us close the fundamental competitive gaps that exist in our business. The projected competitive improvements in this agreement will allow us to maintain a strong manufacturing presence in the United States along with significant future investments."

VEBA Locks the Deal

The linchpin to the deal is the VEBA. The trust will take over responsibility for retiree health claims, which now cost GM $3.3 billion per year. Retired hourly workers account for three-quarters of the annual cost.

Gettelfinger said he was satisfied the trust will have sufficient resources to last for 80 years and said he was looking forward to selling the deal to union members.

GM offered few details of the settlement but the automaker is expected to transfer enough cash into the new trust to cover about 70 percent of the current health-care liabilities of nearly $50 billion, sources said. GM's current labor costs are $73.26 per hour, according to the company's annual report. 

The cost is $25 to $30 per hour more than the labor costs of Asian rivals such as Toyota and Honda that have plants in the U.S. The creation of the VEBA could eliminate as much as one-half to two-thirds of the gap virtually overnight.

Job Security for VEBA

The VEBA clearly was horse-traded for job security, the official issue over which the union called a strike.

Gettelfinger said the new agreement includes the job security guarantees sought by the union. He predicted GM's employment level should remain constant over the four-year term of the contract.

Gettelfinger offered no specifics about the guarantees but they are expected to include firm commitments to build future GM products, including the Chevrolet Volt, in the United States.

"There's no question this was one of the most complex and difficult bargaining sessions in the history of the GM/UAW relationship," said Wagoner in his statement.

Posted by Michelle Krebs at 3:05 AM under Featured , GM | Comments (1) | digg this | Seed Newsvine