DETROIT (Reuters) - The United Auto Workers union and General Motors Corp (GM.N) struck a groundbreaking deal on Wednesday, ending a two-day strike by agreeing to create a health-care trust fund that will reduce the automaker’s costs.
The agreement allows GM to shift more than $50 billion of retiree health-care liabilities to an independent union-aligned trust — a breakthrough expected to allow Detroit automakers to cut in half a labor-cost gap against Japanese competitors.
News of the tentative four-year pact, which ended a nationwide walkout by 73,000 GM employees on Monday, sent GM shares up almost 9 percent to their highest level in 10 weeks.
GM plants went back into operation on Wednesday afternoon. The abbreviated shutdown cut some 25,000 planned vehicles, a brief work stoppage that analysts said may have been beneficial to the top automaker by allowing it to trim inventory levels.
UAW President Ron Gettelfinger, speaking to reporters at the union’s Detroit headquarters, said the first national strike against GM since 1970 had helped secure the tentative deal that will face ratification as soon as this weekend.
Gettelfinger said he was confident a majority of GM’s workers would vote in favor of the new contract.
The deal will provide job security for the union in exchange for reforms that will cut GM’s fixed costs and free up money for investment in new vehicles, people briefed on the deal have said.
Details of the pact were not made public by either side. The Detroit newspapers said the contract included sharply lower second-tier wages and signing bonuses in addition to the trust for health care.
“We feel very confident it will be ratified,” Gettelfinger said. UAW-represented GM workers “will be very, very pleased with the outcome of this negotiation and the job security that is associated with this,” he said.
Investor attention has shifted to Ford and Chrysler LLC, next on the UAW’s list for bargaining contracts to cover the US auto industry’s remaining 107,000-plus unionized workers.
Gettelfinger said the UAW would bargain with Ford and Chrysler at the same time on deals expected to be patterned after the GM agreement. Those talks could resume as soon as Monday, a person familiar with the process said.
GM said the new contract would make the company more competitive and allow it to maintain a strong production presence in the United States after a restructuring that has cut 34,000 factory jobs and shuttered a dozen plants since last year.
“There’s no question this was one of the most complex and difficult bargaining sessions in the history of the GM-UAW relationship,” GM Chief Executive Rick Wagoner said.
Analysts praised the deal as a crucial step to put GM on track to recover from losses of over $12 billion in the past two years and missteps that have cut the company’s U.S. market share nearly in half to 24 percent over the past three decades.
“My gut feel is they got to the right solution,” said Peter Jankovskis, chief investment officer of Oakbrook Investments in Lisle, Illinois.
Credit ratings agencies reacted positively to the deal. Standard & Poor’s said it could raise its long-term ratings on GM. Fitch said it was no longer considering downgrading the automaker and several of its suppliers.
GM has long argued it needs to cut spiraling health-care costs to compete. The company spent $4.8 billion on health care in 2006, enough to have launched six new vehicles or built four new plants from scratch, it said.
Analysts have projected the health-care trust to cover about 340,000 retirees could cut GM’s health-care spending by $3 billion annually.
Gettelfinger said the union expected the trust to provide steady funding for 80 years, based in part on financial advice the union received from investment banking firm Lazard Ltd.
That term would allow the fund to provide lifetime coverage for GM’s current pool of workers and retirees. New hires, who will be brought in at lower wages, would not have the same costly benefit package.
The new UAW-aligned trust, known as a Voluntary Employee Beneficiary Association, or VEBA, must receive court approval, and GM said the U.S. Securities and Exchange Commission would conduct a review of its accounting treatment.
The UAW has been quietly pushing for a VEBA at GM since 2005 on the view that it would shore up the union’s position in the event of a failure by one of the U.S. automakers, a person familiar with the process said.
Lazard has been advising the UAW on its talks with all three of the automakers.
John Wolkonowicz, a senior automotive analyst for consulting firm Global Insight, said the VEBA was a win-win.
“GM gets those costs off its book, (while the) union has those funds protected in case GM ever goes bankrupt and gets to control it,” he said.
Michael Robinet, an auto analyst at industry tracking firm CSM Worldwide, said the concessions could allow GM to slash by half a labor cost gap of up to $30 per hour that has hurt it in competition against Japanese rivals, led by Toyota Motor Corp.(7203.T)
GM shares rose almost 9 percent to $37.47 on the New York Stock Exchange, while Ford Motor Co (F.N) shares rose over 6 percent to $8.87. The price of GM bonds rose and the cost of protecting debt with credit default swaps fell sharply.
Talks between GM and the UAW had dragged on for 10 weeks and past the September 14 expiration of the old contract. The UAW went on strike on Monday, saying GM had failed to offer enough on job security.
On Wednesday morning, picket lines disbanded and factories prepared to go back into production after the tentative deal was reached in a marathon bargaining session that ended at 3:05 a.m. EDT (0705 GMT).
Three GM plants in Canada that were forced to shut their doors due to the strike should be up and running by the end of Wednesday, a spokesman for GM Canada said.
Auto parts suppliers that had made some temporary layoffs, including Delphi Corp DPHIQ.PK also were bringing workers back.
Additional reporting by Nick Carey and Poornima Gupta in Detroit; Ben Klayman and James Kelleher in Chicago; and Andrea Hopkins in Lordstown, Ohio