GM trades jobs for concessions in UAW contract

DETROIT Fri Sep 28, 2007 6:52pm EDT

United Auto Workers (UAW) union members picket outside the General Motors Flint Assembly Plant in Flint, Michigan September 25, 2007. General Motors Corp would be able to buy out as many as 24,000 UAW workers and replace them with lower-paid hires under a tentative contract agreement, the Wall Street Journal reported on its Web site on Friday. REUTERS/Rebecca Cook

United Auto Workers (UAW) union members picket outside the General Motors Flint Assembly Plant in Flint, Michigan September 25, 2007. General Motors Corp would be able to buy out as many as 24,000 UAW workers and replace them with lower-paid hires under a tentative contract agreement, the Wall Street Journal reported on its Web site on Friday.

Credit: Reuters/Rebecca Cook

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DETROIT (Reuters) - General Motors Corp. agreed to keep 16 union-operated plants through 2011 in exchange for a cost-saving deal on health care and other concessions, according to the terms of the top U.S. automaker's tentative labor contract with the United Auto Workers union.

Under the deal, GM would shift a retiree health care obligation, estimated at over $50 billion, to a new trust in exchange for initial payments of $30 billion, a step analysts have said could save the automaker some $3 billion per year.

In another cost-cutting move, GM will offer more buyouts to UAW workers, creating room for new hires at reduced wages and benefits.

But GM promised to keep all 16 of its U.S. assembly plants through the four-year contract and spelled out ambitious investment plans for 12, including some that were at risk of closing.

The UAW's national council unanimously endorsed the contract at a meeting in Detroit on Friday, sending the deal to 73,000 GM workers for ratification in a series of votes expected to conclude by October 10.

"We are very, very pleased about the outcome of those discussions," UAW President Ron Gettelfinger told reporters.

Some analysts said the agreement's details raised questions about what GM had traded away in exchange for the ground-breaking deal to establish a health-care trust.

"I think they may have overpaid with job security," said Erich Merkle, an analyst at IRN Inc, who said it was hard to see how GM could justify keeping all the U.S. plants open.

But David Cole, chairman for the Ann Arbor-based Center for Automotive Research, said the concessions GM had won could amount to as much as $2,000 per vehicle.

"Once you back off these costs, it creates room for new investment," Cole said. "It really reverses the spiral."

GM and the UAW struck a tentative deal on Wednesday, but details had not been public until the union distributed the contract's highlights to its members on Friday.

The contract highlights show some wins for the UAW after 10 weeks of negotiations that culminated in a two-day strike this week -- the first national strike against GM since 1970.

UAW CLAIMS JOB SECURITY WIN

Union negotiators, who said they called the strike to win job security guarantees from GM, won commitments to keep U.S. assembly plants open and limit the jobs that can be performed by lower-cost new hires to "non-core" positions.

The new workers will be paid hourly wages starting below $15, half of the current UAW average. They also will have a cheaper health care plan and pension.

GM also promised to make 3,000 temporary workers permanent and detailed plans through 2011 and beyond for assembly plants such as Lordstown, Ohio, that had faced an uncertain future.

GM also said it would build its new electric vehicle, the Chevy Volt, at an assembly plant in Detroit beginning in 2010.

After losing more than $12 billion in the past two years, GM argued that it needed to cut the nearly $5 billion per year it spends on health care to compete against Japanese rivals led by Toyota Motor Corp.

Under the health-care deal, seen as the centerpiece of the contract, GM will establish a Voluntary Employee Beneficiary Association, or VEBA, that will take over responsibility for paying out health care benefits for retirees in 2010.

GM will transfer $24.1 billion to the fund in January and has pledged "backstop" funding valued at another $1.6 billion if the fund runs short of money to pay out benefits.

In addition, GM will issue a $4.37 billion convertible debenture for the trust. If the value of GM stock rises above a set but unspecified level, the trust would be able to convert the note into stock and sell the shares, the UAW said.

That funding -- a hybrid between common stock and the cash proceeds of new debt -- marked a compromise between GM, which had sought to transfer shares, and the union, which had initially insisted on cash, Cole said.

"This is one of the things that GM wanted badly," he said, adding that the convertible note would align the interests of the union and the automaker's other shareholders.

Gettelfinger repeated that the union was confident the VEBA would provide secure funding for 80 years based in part on advice from its financial adviser Lazard Ltd.

The new round of GM buyouts follows a similar program in 2006 that cut GM's factory payroll by over 34,000 in exchange for payouts of up to $140,000 per worker.

Gettelfinger also said he would like GM's contract to set a pattern for Ford Motor Co. and Chrysler LLC contracts. The union will restart talks with those automakers next week.

(Additional reporting by Ben Klayman in Chicago and Poornima Gupta in Detroit)

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