GM cuts health costs, UAW gets jobs pledge

DETROIT — General Motors Corp. 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 today 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 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.

Wall Street applauded news of the deal, sending GM shares up 9 percent in afternoon trading.

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 this afternoon. GM lost production of around 25,000 vehicles due to the strike, according to CSM Worldwide Inc. Analysts had suggested a short strike could actually improve GM's outlook because it would cut back on inventory levels.

GM shares rose $3.14, or 9.1 percent, to $37.56 in afternoon trading. Standard & Poor's Ratings Services said it may raise GM's long-term debt rating, which is currently below investment grade.

"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.

The agreement is expected to set a pattern for contracts that now will be negotiated at Ford Motor Co. and Chrysler LLC. UAW President Ron Gettelfinger said he will decide this week which automaker will go next. The UAW may even conduct negotiations with Ford and Chrysler simultaneously, Gettelfinger said during an interview on "The Paul W. Smith Show" on WJR-AM.

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, 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 as he stood near a pile of strike placards at UAW Local 2250.

GM and the UAW said the tentative contract includes the health care trust but said they wouldn't release more details until the contract is ratified.

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."

Deutsche Bank auto analyst Rod Lache said the agreement to move retiree health care costs off GM's books could eventually reduce the labor cost gap by $18 an hour. GM would pay about 70 percent of its obligation, or nearly $36 billion, into the trust, called a Voluntary Employees Beneficiary Association, or VEBA, according to a person who was briefed on the contract and asked not to be identified by name because the contract details aren't yet public.

Gettelfinger said the UAW'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, that person said. Gettelfinger said job security was the major issue that caused the strike, but he wouldn't say today whether GM has promised specific future products to U.S. factories.

That person also said GM would hire temporary autoworkers 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 in order to make way for the new hires, GM would offer early retirement and buyout packages of $35,000 to workers now in the positions.

Hoselton said that agreement paves the way for a two-tier wage structure throughout the company and industry, something the automakers have been seeking.

Despite the agreement to lower wages for some workers, the agreement is a good one for the union and showed labor is still a force to be reckoned with, said Ross Eisenbrey, a labor expert and vice president of the left-leaning Economic Policy Institute in Washington D.C.

"It's really phenomenal: One of the most powerful multinational corporations in the world and it didn't run over the workers," he said. "It didn't because the union was there to keep it from happening. I'm really heartened by what I see as the union's success here."

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Associated Press Writer Christopher Leonard in Wentzville, Mo., and AP Business Writer Jeff Karoub in Detroit contributed to this report.

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