Deal lightens GM's payload

DETROIT -- General Motors won its struggle to unload $51 billion in retiree health costs and improve competitiveness in the latest round of contract talks with the United Auto Workers, but not without a short-lived strike that wrung promises out of GM to keep jobs at U.S. plants.

The two sides tentatively agreed Wednesday to a groundbreaking agreement that allows GM to move its 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 who will boost UAW membership, according to people briefed on the contract. The sources requested anonymity because the details haven't been publicly released.

"This begins to solve the significant legacy cost for the domestic auto producers which has just put them at such a comparative disadvantage to the foreign competition," said David Sowerby, a portfolio manager at Loomis Sayles & Co. in Bloomfield Hills, Mich.

Wall Street applauded news of the deal, sending GM shares up more than 9 percent.

The union said the agreement with the nation's largest automaker was reached shortly after 3 a.m. The UAW canceled its two-day strike about an hour later and workers were back in GM's 80 U.S. facilities Wednesday afternoon. GM lost production of around 25,000 vehicles due to the strike, according to CSM Worldwide. Analysts had suggested a short strike could actually improve GM's outlook because it would cut back on inventory levels.

GM shares rose $3.22, or 9.4 percent, to $37.64. Standard & Poor's Ratings Services said it may raise GM's long-term debt rating, which is currently below investment grade.

The GM contract will be reviewed by local UAW presidents this week and will be subject to a vote of GM's 74,000 rank-and-file members. Voting is expected to begin this weekend, UAW President Ron Gettelfinger said. If members vote against the agreement they could go back on strike, but Gettelfinger said he's confident it will be ratified.

"We're very comfortable with this agreement and we're happy to be able to recommend it to our membership," Gettelfinger said.

Tom Brune, who works at a GM plant in Wentzville, Mo., said he was happy to go back to work.

"There is a lot of relief, but that's coupled with anxiety to see details of the agreement," Brune said.

GM said the contract will make it significantly more competitive. The company, which lost $2 billion last year and is in the midst of a restructuring, went into the negotiations seeking to cut or erase what it said is about a $25-per-hour labor cost disparity with the U.S. employees of Japanese competitors. GM has said it pays workers $73.26 an hour in wages and benefits.

"This agreement helps us close the fundamental competitive gaps that exist in our business," Chairman and Chief Executive Rick Wagoner said. "There's no question this was one of the most complex and difficult bargaining sessions in the history of the GM-UAW relationship."

GM would pay about 70 percent of its obligation, or nearly $36 billion, into the health-care trust, called a Voluntary Employees Beneficiary Association, or VEBA, according to a source briefed on the contract and who asked not to be identified by name because the contract details aren't yet public. After ratification, such a trust would need governmental approval.

GM won the right to pay newly hired employees less than existing workers, sources said, and the UAW agreed to forgo a base wage increase.

New hires who do not perform key manufacturing tasks would see wages drop in half from the $28 per hour the average assembly worker receives now, Detroit's newspapers reported Wednesday. Buyouts and early retirements could be offered to make room for new hires.

Workers would receive $3,000 signing bonuses and lump-sum payments for the last three years of the four-year contract, but no wage increases. Workers also would forgo cost-of-living adjustments in exchange for no increase in medical premiums.

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

A controversial "jobs bank" that pays idled workers nearly full wages and benefits would remain, but workers would be required to take available jobs from a wider area than they are now.