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AP reports that new UAW contract won't raise costs significantly for GM

DETROIT — The new four-year contract between General Motors and the United Auto Workers union will bring only a minimal increase in fixed costs for the automaker, the Associated Press reported. In response to the report, GM's shares rose 44 cents, or nearly 2 percent, to close at $23.05 Monday, though they are about 30 percent below the initial public offering price of $33 per share in November.

The tentative agreement, reached late Friday, includes a $5,000 signing bonus for workers and the possibility of sweeter profit-sharing checks for GM's 48,500 factory workers. But most aren't likely to see a pay raise.

Because fixed costs were contained, GM still will be able to break even in a depressed U.S. auto sales market of about 10.5 million, the Associated Press reported, saying its source asked not to be identified because terms of the deal haven't been released to union members.

Union leaders from factories across the nation will be in Detroit today to hear UAW president Bob King and other leaders explain the contract terms. Workers must vote on the deal before it can take effect. Voting will take place in the next week or so.

Despite the GM pact's minimal increase in recurring costs, Chrysler CEO Sergio Marchionne said Monday that his company may not aim for a similar deal. The UAW is still negotiating with Chrysler and Ford.

"Let's try not to compare such two different realities," Marchionne said at an event in Turin, Italy, according to LaPresse news agency. He said he didn't yet know the details of GM's contract but is "optimistic" that Chrysler will reach an agreement soon.

People briefed on GM's agreement said it includes a $2- to $3-per-hour pay raise for entry-level workers over the life of the contract and guarantees of more union jobs. GM now has about 2,400 workers making the entry-level wage of $14 to $16 per hour, about half of what longtime UAW workers get.

Also, a former Saturn assembly plant in Tennessee will be reopened under the deal, the people said, and new products have been promised to plants in Michigan and Missouri.

A plant in Wisconsin, which stopped producing trucks in 2009, will remain idled but won't close.

Citi analyst Itay Michaeli wrote in a note to investors Sunday that the deal appears to fall in line with earlier expectations and shouldn't meaningfully affect GM's stock price.

Michaeli wrote that, based on what he has heard so far, it appears the new deal won't change much for the Detroit automaker or meaningfully alter its break-even point.

"Thus, we view the contract as a neutral to the stock, particularly in today's volatile macro environment," Michaeli wrote.

If approved, the GM contract could serve as a template for the UAW's negotiations with the other two U.S. automakers. These are the first labor negotiations since GM and Chrysler Group LLC received government bailouts to make it through bankruptcy protection in 2009.

GM pays about $56 per hour including wages and benefits, which is less than what Ford pays but far higher than other companies like Chrysler and Hyundai.

AP reports that new UAW contract won't raise costs significantly for GM 09/19/11 [Last modified: Monday, September 19, 2011 9:59pm]
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