GM faces strike deadline

DETROIT Mon Sep 24, 2007 11:02am EDT

United Auto Workers President Ron Gettelfinger holds a sign about health care as he rallies with UAW retirees before the start of contract negotiations between General Motors and the UAW in Detroit, Michigan July 23, 2007. The United Auto Workers union set a firm Monday morning deadline to reach a contract with General Motors Corp and threatened to send 73,000 GM factory workers on strike if no deal is reached. REUTERS/Rebecca Cook

United Auto Workers President Ron Gettelfinger holds a sign about health care as he rallies with UAW retirees before the start of contract negotiations between General Motors and the UAW in Detroit, Michigan July 23, 2007. The United Auto Workers union set a firm Monday morning deadline to reach a contract with General Motors Corp and threatened to send 73,000 GM factory workers on strike if no deal is reached.

Credit: Reuters/Rebecca Cook

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DETROIT (Reuters) - The United Auto Workers union set a firm Monday morning deadline to reach a contract with General Motors Corp and threatened to send 73,000 GM factory workers on strike if no deal is reached.

The strike deadline raised the stakes in the closely watched labor talks after a weekend of bargaining brought the two sides close to a historic cost-cutting deal for the automaker.

GM shares and bonds both shot higher on Monday morning in premarket trading as investors anticipated the automaker would reach an accord with the UAW and avoid a disruptive work stoppage.

Negotiations between GM and the UAW have hinged on a GM proposal to cut its nearly $5 billion annual health-care bill by establishing a trust fund for retiree-related costs.

But in setting a firm Monday strike deadline, the UAW said it was reacting to GM's reluctance to guarantee to preserve U.S. production jobs as it restructures.

"We're shocked and disappointed that General Motors has failed to recognize and appreciate what our membership has contributed during the past four years," UAW President Ron Gettelfinger said in a statement.

UAW members, Gettelfinger said, had made "extraordinary efforts" to help GM cut costs, including an earlier buyout program that cut more than 34,000 factory jobs from the automaker's payroll.

Chris "Tiny" Sherwood, president of UAW Local 652 in Lansing, Michigan, said the union's leadership had told him to be prepared to meet the pending strike deadline.

"They told me to walk them at 11 a.m. unless I hear otherwise," said Sherwood, whose local represents more than 1,500 GM workers who make three Cadillac models.

Both sides continued to talk in Detroit early Monday morning, extending a session that began on Sunday morning.

"We are fully committed to working with the UAW to develop solutions," GM spokesman Dan Flores said. "We will continue focusing our efforts to reach an agreement as soon as possible."

Harley Shaiken, a labor expert at the University of California-Berkeley, said the union had increased the pressure for a quick settlement with GM.

"This is not an idle threat," he said. "A strike deadline is not meant for show. But it is possible that this will be a long night with a handshake at the end of it."

RETIREE HEALTH PLAN AT ISSUE

GM and UAW negotiators had agreed during the weekend to the broad terms of a deal that would reduce GM's annual health-care bill, people briefed on the talks said.

Under that plan, GM would shift responsibility for retiree health care to a new UAW-aligned trust fund known as a voluntary employee beneficiary association, or VEBA.

Wall Street analysts have said establishing a VEBA could cut GM's annual costs by $3 billion in exchange for a one-off payment expected to top $30 billion.

Expectations for a cost-cutting labor deal have sent GM shares up almost 14 percent this month.

UAW local leaders said they had not been updated on the progress of talks since Sunday, leaving the intentions of the union's leadership unclear as the strike deadline approached.

At UAW Local 22, just a few miles from the center of downtown Detroit, preparations were under way for picket lines and a dramatic walkout. "If we are told to go on strike, we'll go on strike, it's as easy as that," local President George McGregor said.

Most analysts have seen a strike as a remote risk because of the weakened position of GM, which has seen its sales slip 7 percent this year and announced plans to close a dozen factories by next year.

"A token strike is possible, but we suspect the primarily motivation of the strike announcement ... may be to pressure GM to finalize lingering issues in the contract," JP Morgan analyst Himanshu Patel said in a note for clients issued on Monday.

"The fact that the UAW-GM talks have continued for so long past expiration is a broadly encouraging sign ... It suggests GM is fighting hard, but it may also signal that the UAW may not have many other viable options on its hands," he said.

GM shares rose 4 percent in premarket trading. GM's benchmark 8.375-percent bonds due in 2033 rose to 88.5 cents on the dollar, up from 87.25 cents on Friday, according to MarketAxess.

The outcome of the contract talks is seen as crucial to efforts by the three Detroit-based automakers -- GM, Ford Motor Co and Chrysler LLC -- to recover from combined losses of $15 billion last year and sales difficulties that have driven their share of the U.S. market below 50 percent.

GM, Ford and Chrysler are seeking concessions from the UAW to close a labor cost gap with Toyota Motor Corp and other Japanese automakers operating in the United States that they say amounts to more than $30 per hour for the average factory worker.

The union's previous contract expired September 14. The last UAW strike against GM was in 1998. That walkout at two GM parts plants in Flint, Michigan, shut down GM production and caused its sales to plummet.

The UAW has not called a national strike during contract negotiations since 1976.

(Additional reporting by Poornima Gupta)

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