GM-UAW strike 'landmark deal'
Union will ask Ford, Chrysler to accept same settlement
By James R. Healey and Sharon Silke Carty
USA TODAY
September 27, 2007
Battered Detroit automakers have a chance to compete better against foreign-brand rivals under a four-year contract between General Motors and the United Auto Workers that got a tentative OK Wednesday.
The agreement, which ended a 41-hour strike against GM, shifts $51 billion in potential health care liability off of GM's balance sheet, puts new workers on a lower pay scale, freezes wages but guarantees bonuses, promises to keep investing in U.S. production and limits how long idled workers get nearly full pay in a so-called jobs bank.
"A landmark deal," says David Cole, chairman of the Center for Automotive Research. "It represents a new business model between labor and management."
Ford Motor and Chrysler said they were reviewing the settlement and wouldn't comment on how hard it would be to meet the same terms. Both said they were happy to see the strike settled. It was the first nationwide UAW strike since a 1976 action against Ford.
Union members have acknowledged they must make concessions to ensure the survival of Detroit automakers, who reported combined losses of $16.1 billion last year. Instead of taking their usual combative approach, UAW leaders "truly recognize that they have a dog in this fight, and that's historic," says Van Conway, auto consultant at Conway MacKenzie & Dunleavy.
UAW President Ron Gettelfinger says the union will use the customary pattern bargaining, meaning it will ask Ford and Chrysler to accept substantially the same deal.
They'll agree, says Tom Mobley, professor at Farmer School of Business at Miami University in Ohio. "All three of them have been involved in buyouts and trying to get (retiree) health care off the books."
Ford and Chrysler have relatively fewer retirees than GM, so they won't benefit as much from shifting responsibility for retiree health care to an independent entity partly directed by the UAW.
But both benefit from cuts in the jobs bank and a two-tier system that has a lower pay scale for new workers than current employees.
"GM succeeded in closing a good portion of the employment-cost gap against the Japanese Three building cars in the U.S.," says David Healy, analyst at Burnham Securities, referring to Toyota, Honda and Nissan.
Investors liked the deal, and the optimism spilled onto Ford. GM shares closed Wednesday at $37.64, up 9.4%; Ford at $8.88, up 6.5%. Chrysler is privately owned.
Analysts expect GM to contribute to the new funding entity about 70% of the $51 billion it potentially owes for retiree health care, or about $36 billion. That improves GM's credit rating because it means GM is less likely to go broke. A better credit rating means GM pays lower interest rates when it issues bonds, cutting borrowing costs.
GM doesn't have that much cash and might have to issue bonds to help raise enough, Healy cautions, partly eroding the savings.
Nevertheless, the agreement could be a catalyst for Detroit automakers. Cole says they "were on a one-way street heading the wrong way. This gives them the chance to turn it around."
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Print | posted on Thursday, September 27, 2007 1:19 PM