GM-UAW reach deal to end strike

Marathon bargaining session strikes agreement to end two-day strike at No. 1 U.S. automaker; union to assume more than $50 billion in retiree health care costs.

By Chris Isidore, senior writer

NEW YORK ( -- Negotiators from the United Auto Workers union and General Motors reached a tentative agreement on a groundbreaking deal early Wednesday to end a two-day strike by 73,000 workers, according to the union and the company.

Terms of the agreement were not immediately available, but the statement from the company said the deal includes the establishment of a union-controlled trust fund that will assume responsibility for future retiree health care costs from GM (Charts, Fortune 500), the nation's No. 1 automaker.

UAW members are due to be back on the job at GM by Wednesday afternoon, after the nation's No. 1 automaker and union reached a tentative agreement to end a two-day strike. This file photo shows a GM assembly line in Arlington, Texas.
UAW members are due to be back on the job at GM by Wednesday afternoon, after the nation's No. 1 automaker and union reached a tentative agreement to end a two-day strike. This file photo shows a GM assembly line in Arlington, Texas.
Dan Maloney (facing) of the UAW negotiating committee hugs another union negotiator, Alfonso Guzman, after the union's tentative agreement with GM was announced  early Wednesday morning.
Dan Maloney (facing) of the UAW negotiating committee hugs another union negotiator, Alfonso Guzman, after the union's tentative agreement with GM was announced early Wednesday morning.

Getting agreement for that shift of costs, estimated at more than $50 billion, was the key bargaining goal of the talks for GM.

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

UAW President Ron Gettelfinger announced the deal to a cheering crowd at UAW headquarters in Detroit just after 4 a.m. ET. He said the deal had been reached at 3:05 a.m. He termed the strike to be in recess, saying members could go back out if they vote "No" during the ratification process due to start this weekend.

But he said the tentative deal had the unanimous support of both the union's leadership and its negotiating team and he expected no trouble winning ratification.

"I think our retirees will be exceptionally pleased with this contract," Gettelfinger said. "For active members, there will be some changes. I think overall they will be very, very pleased with the outcome of these negotiations and the job security associated with it."

Only active members vote on ratification of the contract.

Asked what he thought broke the logjam in negotiations, he responded: "I would think it was 11 a.m. Monday," which is the time that the strike started.

"We successfully resolved a lot of difficult issues," said the union president. "We feel very good about this tentative agreement. I think the strike probably helped our side more than theirs."

Shares of Dow component GM jumped 4.2 percent in mid-morning trading following the announcement.

While Gettelfinger would not discuss any terms of the agreement, he had said shortly after the strike began that the union was open to setting up the trust funds with assets provided by the company.

But Gettelfinger said Monday the union needed job guarantees for its members before it could agree to the cost savings sought by the company to return its operations to profitability. On Wednesday, he termed the job guarantees won by the union as "outstanding."

But details of such guarantees, and whether they are in the form of promises to invest in U.S. plants and build new vehicles at domestic plants, or the type of income guarantees that were present in past contracts, were not immediately known.

The company said the shedding of retiree health care costs will be a major step in its effort to close the competitiveness gap with nonunion automakers such as Toyota Motor (Charts) and Honda Motor (Charts).

But it will not come cheap for GM. The automaker will have to pay tens of billions of dollars of cash, stock and debt into the trust fund to cover those future costs.

Details of how much of each kind of asset it will place in the trust fund is another key detail that was not immediately available.

GM spokesman Tom Wickham said the plan was to try to restart production at the 80 plants and parts distribution centers that had been shutdown by the strike by the second shift of the day Wednesday. That shift starts in the afternoon at most locations.

Gettelfinger said some skilled trades people at the plants might be called in for at least part of the morning shifts in order to get the plants ready to resume operations.

"Depending on the notification process, we could be back within hours," said UAW Local 652 President Chris "Tiny" Sherwood, just before the announcement, when asked about his 3,000 members returning to work at a GM plant in Lansing, Mich.

The quick restart of operations is important for the resumption of normal operations at GM. Its base of suppliers only have limited space to store the parts and components they have been producing for GM.

Without an agreement Wednesday, many of the suppliers' production lines which kept operating on Tuesday would have had to start shutting down on Wednesday.

Most analysts had been expecting the strike to be a short one, and there was general agreement that a short strike would have little impact on GM's finances. But experts had been counting on GM and the other U.S. automakers to win significant savings in retiree health care costs.

Those savings that are apparently included in this deal are seen as a key to helping the U.S. industry return to the profitability it needs to invest in the development of new cars and trucks that can attract American consumers once again..

"If it takes a couple of day strike to get the landmark agreement the two sides are talking about, that's a pretty small cost to pay," said John Casesa, managing partner for consultant Casesa Shapiro Group on the first day of the work stoppage.

All three UAW-represented automakers have been struggling with ongoing losses and declining market share in recent years. Collectively they have seen their market share fall to only about half of U.S. sales, as they closed plants and offer large buyout packages to UAW members in an effort to get their capacity in line with reduced demand for their products.

In July, the domestic brands of GM, Ford and Chrysler had less than half of U.S. auto sales for the first time in history, although a good sales month by GM in August got them back over the 50 percent market.

GM itself has seen its share fall from just under a third of the U.S. market as recently as 1995 to just under a quarter of the market so far this year. The automaker fell below 30 percent of U.S. market share in 1998, the year a strike at two UAW locals in Flint, Mich., shutdown most of its North American operations for seven weeks. It has never gotten back above that benchmark. It is unlikely to have lost any sales from this short strike, though.

But GM lost nearly $13 billion on its core North American auto operations in 2005 and 2006 combined, as it paid more than 30,000 UAW members up to $140,000 each to leave the company.

While GM has seen strong sales in its overseas operations lift it to record global sales levels, the continued struggles in its home market caused it to lose its ranking as the world's largest automaker to Japanese rival Toyota in the first quarter.

Still it is farther along in its turnaround efforts than its U.S. rivals. GM North America returned to the black in the second quarter; it had been expected to lose money once again for the full year in 2007, even without costs associated with the strike.

These negotiations were also crucial for future of the UAW, which has seen its membership fall sharply in recent years.

As recently as 1994, it had nearly a quarter-million members working at GM alone. But plant closings and the spinoff of GM's parts unit Delphi have shaved its membership working at the company by 70 percent since then.

Today, the number of UAW retirees and surviving spouses collecting benefits from the big three automakers - about 540,000 - outnumbers active members working at the three automakers by three to one.

Next up for the union is talks with U.S. rivals Ford Motor (Charts, Fortune 500) and Chrysler. More than 100,000 UAW members are still on the job at those two companies under contract extensions, granted just before their previous deals expired Sept. 14., while the union concentrated on reaching a deal with GM. The union should be able to return to the table with at least one of those two automakers by the end of the week, Gettelfinger said.

Shares of Ford also gained 3.1 percent in mid-morning trading following news of the GM deal. Chrysler doesn't have any publicly traded shares since it was sold by German automaker DaimlerChrysler (Charts) to private equity firm Cerberus Capital Management in August. Shares of DaimlerChrysler, which still owns about 20 percent of Chrysler, were up 0.2 percent in Frankfurt.

Gettelfinger couldn't say which of the other two companies the union would seek a deal with first, but he expected to be able to conclude negotiations with the other companies fairly quickly, using the GM deal as a pattern for those talks.

Those companies are likely to seek the same kind of relief from retiree health care. Between them, they on the hook for nearly $50 billion in such costs, according to estimates from Standard & Poor's. Top of page