GM Strikes 3-Year Deal With UAW : Labor: Tentative pact includes 3% pay raise, higher pensions and fully paid health care.
General Motors Corp. and the United Auto Workers union reached a tentative agreement Sunday on a new three-year labor contract that offers higher wages, richer pensions and fully paid health care benefits.
UAW officials said the proposed agreement, under negotiation since June 23, is similar to its new contracts with Ford Motor Co. and Chrysler Corp.
That could raise a few eyebrows on Wall Street, where analysts said GM’s financial troubles have made it difficult for the world’s largest auto maker to be as generous as its two cross-town rivals.
Under the proposed contract, which still needs to be ratified by 241,000 hourly workers at GM, wages would rise by 3% in the first year, followed by lump-sum bonuses equal to 3% in each of the next two years.
According to union sources, the final sticking point--pension benefits--was resolved after GM agreed to accept the formula set by Ford. The Ford pact raises monthly pension benefits by 13% to $2,030 for workers with 30 years of service by 1996.
In an effort to protect its battered balance sheet, GM had proposed an alternative to the pension hikes that would have awarded workers with lump-sum payments in the final year of the contract.
But union officials were apparently wary of the proposed plan because it could swell GM’s huge underfunded pension liability.
In return for agreeing to the higher pensions, GM will be able to cut payroll costs faster by moving laid-off auto workers to jobs at different plants, UAW officials said.
Under the old, 1990 contract, GM was prohibited from moving workers more than 50 miles from their home plant. The rule forced GM to shell out $3.4 billion in job security payments to thousands of laid-off workers who turned down jobs at open factories.
Lehman Bros. auto analyst Joseph Phillippi called the concession a “huge” advantage for GM because it will encourage many GM workers to retire.
“If you tell a guy who has 30 years in, that we’re going to move your plant locus 100 miles, he’ll say ‘the hell with it, I’m going to retire,’ ” Phillippi said.
Phillippi said an estimated 30,000 GM workers will have 30 or more years by the end of the contract and be eligible to retire.
In addition, the UAW agreed to reschedule two weeks of vacation time to fit into GM’s summer shutdown in August. The move saves the auto maker about $200 million a year.
Under the old contract, workers were free to take their vacation whenever they wanted, forcing GM to pay unemployment benefits during the annual shutdown. Because the vacation is now scheduled during the shutdown, GM will not have to fork over unemployment benefits.
Analysts disagreed on how much GM gained from the pact.
“GM is in the the process of a very, very painful transition, and this is probably the best contract they could get,” said Sean McAlinden, research scientist at the University of Michigan’s Office For the Study of Automotive Research in Ann Arbor, who noted GM has other non-labor problems to fix.
“Don’t forget, what got GM in trouble wasn’t its labor contract,” McAlinden said. “They made a lot of cars that people don’t want to buy. And that’s something they still have to fix.”
Because of its huge debts, GM simply can’t afford to sign essentially the same contract as did Ford, said Arvid Jouppi, analyst at Keane Securities Co. Inc. “I’d say GM is now slightly more vulnerable to having its credit rating lowered,” Jouppi said. GM is in the midst of a massive restructuring program, including dozens of plant closings and job cuts to reverse $17 billion in losses that its core North American operations have incurred since 1990.
