UAW will butt heads with GM first

NEW YORK (CNNMoney.com) -- The United Auto Workers union has tapped General Motors as its target to try to reach the first contract agreement among the traditional Big Three automakers, a position that gives the nation's No. 1 automaker a strategic advantage over its rivals but raises the risk it could be hit with a strike.

An industry official with knowledge of the talks confirmed GM (Charts, Fortune 500) was chosen as the target Thursday afternoon. Other officials confirmed that the union's talks with Ford Motor (Charts, Fortune 500) and Chrysler Group have taken a back seat as the union gave those automakers an extension in contracts that had been set to expire at 11:59 p.m. ET Friday.

That extension is indefinite, although it can be ended with three days notice from either the union or management. But that is unlikely as the union now concentrates on reaching a deal with GM ahead of the other two.

While there are risks to being the target, GM investors reacted positively to the news. Shares of GM gained 1.2 percent in Frankfurt trading early Friday. Ford shares were also higher.

These negotiations are aimed at reaching a new contract deal that is seen as crucial to the company's efforts to stem ongoing losses and improve their competitiveness with nonunion rivals from Asia and Europe.

It is possible that the union could give an extension to GM as well if progress has been made before the Friday night deadline. Up to this week it has been widely assumed in the industry that either a strike or a management lockout was unlikely, even if a deal was not reached by Friday.

But the threat of a strike seemed to rise Thursday. Workers at a Cadillac assembly and stamping complex in Lansing were readying their union hall to be the area's strike headquarters and are putting together picket signs, Chris "Tiny" Sherwood, president of UAW Local 652, told Associated Press Thursday.

Before Thursday, officials on both sides had reported that bargaining was progressing. Sherwood, who has been in touch with a member of the union's national bargaining committee, said he was told the talks took a turn for the worse Wednesday night.

"Apparently from last night until this morning, everything's changed," said Sherwood. "I've never been asked to get my hall ready for a strike in the last four contracts."

Union officials at several other plants who asked not to be identified because they are not authorized to speak about the talks said they, too, were holding strike meetings and getting their membership ready in case the international union calls for a walkout.

Sherwood said his talks with union officials in Detroit give him the impression that this is more serious than usual. "If it's window dressing, they're sure not acting like it," he said.

But auto experts still said they think a strike is unlikely, even if there is not an agreement by Friday's deadline.

"Tensions (are) always mounting as we get to the deadline, but this is standard operating procedure," said auto industry consultant John Casesa, who termed the union's preparations mere saber-rattling. "It is standard operating procedure to say, 'We are prepared to go out if we have to go out.' I don't think it means anything -- I really don't."

GM has 73,454 UAW members still on jobs after buyouts over the last two years that cut more than 30,000 jobs and closed several GM plants.

Ford has 58,300 UAW members after its own round of buyouts, and Chrysler has about 49,000, although it is starting plans to cut union jobs there as well. Chrysler also was sold last month by German automaker DaimlerChrysler (Charts) to private equity group Cerberus Capital Management.

Automakers generally prefer to be the target of talks as a way of having their issues addressed first at the bargaining table. Since the union tries to have all three contracts follow the same pattern, the company that gets the first deal has a better chance of having its negotiating goals addressed in the contract.

By picking GM, the union has chosen not only the largest U.S. automaker, but also the one that is by far the healthiest financially. GM is far more advanced in its turnaround plans that aim at ending years of losses in its North American auto operations. Ford and Chrysler are still losing money in those core operations, although Ford reported a profit for the corporation as a whole in its second quarter.

GM also has had stronger sales than its its U.S. rivals this year, although a much better than expected sales month in August still left GM with year-to-date U.S. sales far below a year ago. It's difficult to tell whether the strike preparation talk is just union drama before the deadline or it's actually serious strike talk, said Harley Shaiken, a professor at the University of California at Berkeley, who specializes in labor issues.

"There's a fine line between theater and substance in negotiations," Shaiken told AP. "Given the stakes, given the complexity, given the tension, you've got a temporary derailment. It's unclear whether it's more serious than that."

David Cole, chairman of the Center for Automotive Research in Ann Arbor, said he still does not think either side has the stomach for a strike. "I would expect some tension down near the end. At some point in any of these negotiations, you get to a point where there's some tough talk. It just normally arrives a lot earlier than this," he told AP.

New contracts were reached with the auto companies without strikes in 1999 and 2003. There were strikes at individual GM plants during contract talks in 1996, but there hasn't been a nationwide strike during negotiations since 1976. In 2003, the union settled with all three companies without choosing a strike target.

Sherwood said they would find out if the strike threat was real sometime Friday night. In the meantime, local union officials were awaiting further instructions.

All three automakers are seeking relief from promises made in earlier contracts to provide health care coverage to their retirees and family members, a cost not born by nonunion rivals such as Toyota Motor (Charts) and Honda Motor (Charts).

There are more than 500,000 retirees and surviving spouses between the three U.S. automakers, and the estimated costs for the companies exceeds funds they've set aside to make those payments by nearly $100 billion, according to an estimate from rating agency Standard & Poor's.

The companies would like to set up union-controlled trust funds to assume the responsibility of those health care costs going forward. They have proposed putting a combination of cash, stock and debt into those funds to cover the costs, although the funds would likely start out with a discount to the estimated $100 billion liability.

The Wall Street Journal reported Thursday that UAW President Ron Gettelfinger had told union negotiators he could support the idea of those union controlled funds in principal, although many details about the amount of assets in the funds, the mix of assets and whether the companies would have any "backstop" liability if the funds ran short of the assets would still need to be worked out.

--staff and wire reports