GM Reaches Agreement With UAW

The United Auto Workers (search) and General Motors Corp. (GM) agreed to a new labor contract on Thursday, ending intense talks over union concessions to help Detroit's Big Three compete with foreign automakers who are steadily capturing U.S. market share.

GM and its former auto parts unit Delphi Corp. (DPH) were the last holdouts in the negotiations after the UAW announced tentative contracts earlier this week with Ford Motor Co. (F), the Chrysler unit of DaimlerChrysler (DCX), and auto parts supplier Visteon Corp. (VC).

The four-year deals call for the closure or sale of up to 10 U.S. plants and thousands of job cuts, as the Big Three struggle against declining market share, falling prices and billions of dollars in health care and pension costs.

"In the last five days we have successfully concluded negotiations with five of the largest manufacturers in the world," UAW President Ron Gettelfinger (search) told a news conference. "That's five for five."

The GM deal wraps up what one union observer said was the quickest set of talks between the once militant UAW and the automakers since World War II. Talks began in mid-July and intensified in the week ahead of a midnight Sunday deadline, when the previous contracts expired.

The speed "indicates two things; stability, in the labor relations dimension of the industry, and ... both sides are making it plain they want to work together to make the industry more competitive," said Harley Shaiken, a labor professor at the University of California-Berkeley.

The grim backdrop to the contracts includes market share for Detroit's automakers that hit a record low in August and incentives averaging about $4,000 per vehicle.

Chrysler reported a surprising operating loss of $1.1 billion in the second quarter, and Ford has lost nearly $6.5 billion over the past two years. GM has been more profitable, but its earnings stem more from loans and its giant finance arm than from cars and trucks.

Terms of the four-year contracts, which cover more than 760,000 current and retired workers and their spouses, are subject to rank-and-file approval. They include wage and pension increases for the UAW's hourly workers that are not as great as those negotiated in the 1999 contract, company and union sources say.

They also establish a two-tier wage system at parts suppliers Delphi and Visteon, under which the companies will be allowed to hire new workers at lower wages than existing employees, the sources said.

The system, which labor experts have warned could sow discord in UAW ranks, breaks with a long-standing insistence on equal pay for equal work at one of America's most powerful trade unions.

UAW workers will largely retain the generous health care benefits that they had under their last contracts, which were signed in 1999 when the Big Three were all coming off record profits. But their co-payments for name-brand prescription drugs will double to $10 from $5 and annual wage hikes were limited to 5 percent over four years, compared to nearly 13 percent in the previous deal, union sources said.

According to an official union document obtained by Reuters, hourly UAW workers will see key pension benefits rising between 9 percent and 11 percent over the next four years, compared with previous increases of 17 percent to 19 percent.

"I think anybody looking at those (pension) numbers would think this is a favorable outcome for the Big Three," analyst Darren Kimball of Lehman Brothers told Reuters.

He added, however, that the new contracts appeared to fall short of the "great equalizer" Detroit needs to level the playing field with companies like Japanese juggernaut Toyota Motors Corp., the world's most profitable automaker by far.

"The agreement ... will enable us to work together effectively to address what I think is pretty clearly a challenging set of competitors," said GM Chairman Rick Wagoner (search), as he joined Gettelfinger in announcing Thursday's agreement.

Hours after he spoke, and in line with the partial lifting of a ban on plant closings under the new UAW contract, a union local president told Reuters GM would close an aging Baltimore assembly plant in 2005. The move will affect about 1,100 workers while helping to boost productivity at the world's largest automaker.

GM has been the hardest hit by mounting pension and health care costs, particularly for retired workers and their spouses. GM has as many retirees as all the current hourly workers at GM, Ford and Chrysler combined, while German and Asian competitors have hardly any retired workers at their North American plants.

"Last time I looked I think Honda (Motor Co.) had 42 employees who were retired," David Healy, an analyst with Burnham Securities, said of the U.S. operations of Japan's No. 2 automaker behind Toyota.

Though analysts all seemed to think the new UAW contract promised more peace than prosperity for the Big Three, their shares posted gains in Thursday's trading on the New York Stock Exchange.

Ford led the pack by closing up 24 cents, or 2.09 percent, at $11.73. U.S. shares of DaimlerChrysler ended up 37 cents at $38.54, meanwhile, and GM closed up 27 cents at $41.96.