DETROIT – A historic contract with the UAW expected to save General Motors Corp.(GM) billions of dollars passed a hurdle on Friday when union local leaders from across the U.S. approved the pact.
The president of a UAW local in Lansing said that local leaders unanimously approved the contract, which would give the union control of retiree health costs.
"It had more than I thought we'd get," said Chris "Tiny" Sherwood, president of a UAW local in Lansing. "I think the membership will buy it."
Now that local union leaders have been briefed on the deal, they'll take it back to the 74,000-strong membership for a vote, which likely will run into next week.
UAW President Ron Gettelfinger said he expects it to pass, although some members have concerns about its terms.
If the company's UAW members ratify the deal, its provisions likely will save the company about $3 billion per year which it can pump into the development of new products, according to several industry analysts.
The savings estimates, made largely on news reports since the contract provisions haven't been released, show that the biggest savings would come from shifting the cost of retiree health care from GM to a union-run trust called a Voluntary Employees Beneficiary Association, or VEBA.
GM says it now pays about $3.3 billion per year for retiree health care, most of it for retired hourly employees and their spouses. That cost will be erased with the new contract, but those savings will be offset by other terms in the deal, such as a provision to hire temporary workers and pay them at the full-time rate.
Shelly Lombard, senior high-yield credit analyst at New York-based bond research firm GimmeCredit, estimated the VEBA alone would save GM $3 billion per year. But she said the savings could be larger because the contract will in some way modify the jobs bank, under which the company pays laid-off workers most of their salaries.
The contract also includes lower wages for some new hires and offers early retirement and buyout packages to entice higher-paid workers out of those positions, according to a person who was briefed on the contract but requested anonymity because the details haven't been released.
GM shares rose 69 cents to $37.15 in afternoon trading.