General Motors Corp. took a giant step toward narrowing the competitive gap with Japanese automakers by agreeing Wednesday to a historic, cost-cutting contract with the United Auto Workers.
The tentative deal on a new, four-year UAW pact heralds a new era for GM in its epic struggle to keep pace with surging Toyota Motor Corp. and other foreign rivals.
But the landmark agreement won't cement GM's long-awaited turnaround if the automaker can't win back consumers and stem a decades-long slide in its U.S. market share.
The deal struck Wednesday cuts as much as 80 percent out of the $25-an-hour gap in labor costs between Detroit's Big Three automakers and Japanese manufacturers, according to people close to GM.
"Two words were used in this announcement -- competitive and investment," said Harley Shaiken, a labor expert at the University of California, Berkeley. "That's the framework of this contract."
The agreement came in dramatic fashion at 3:05 a.m. after 11 days of marathon bargaining and a two-day national strike that sent 73,000 UAW members from the factory floor to the picket line.
GM and the UAW said they had agreed on a precedent-setting contract that shifts $50 billion in retiree health care obligations from the company to a union-run trust and establishes a two-tier wage system in GM's U.S. plants.
"This agreement helps us close the fundamental competitive gaps that exist in our business," GM Chairman Rick Wagoner said in a statement.
For UAW members, the deal includes a $3,000 signing bonus as well as lump-sum payments equal to 3 percent, 4 percent and 3 percent of base annual wages in the second, third and fourth years of the contract.
Beyond that, the contract offers assurances from GM that it will continue to invest in its U.S. factories and maintain union jobs.
UAW President Ron Gettelfinger had called the national strike against GM on Monday because the union felt stonewalled on the critical issue of job security.
Gettelfinger declined to discuss details of the contract at an early-morning media briefing Wednesday, but described the job guarantees as "outstanding."
"We successfully resolved a lot of difficult issues," he said. "We feel very good about this tentative agreement. I think the strike probably helped our side more than theirs."
The strike at 82 GM facilities -- the first national walkout at the automaker in 37 years -- officially ended with the announcement of the deal. Workers began returning to the plants beginning with second shifts Wednesday afternoon.
Strike pushed talks
GM lost minimal vehicle production during the strike, although the walkout forced work stoppages at some major suppliers such as Delphi Corp. and Lear Corp.
But the two-day walkout had a big impact on the contract talks conducted at the GM-UAW Center for Human Resources in Detroit.
After tense negotiations last weekend produced an impasse on job security and other issues, the strike was said to jump-start the talks in the final hours leading up to the agreement.
The contract, which is expected to go to a ratification vote by UAW members this weekend, will likely set a pattern for Ford Motor Co. and Chrysler LLC.
The retiree trust is at the core of the agreement. GM will infuse the fund with about $35 billion -- around 70 cents on the dollar -- in return for erasing retiree obligations from its books. The arrangement is expected to translate into a significant increase in GM's credit ratings, resulting in a corresponding decrease in borrowing costs.
On Wall Street, getting the health care trust was seen as a coup for GM, and a key factor in the automaker's surging share price.
GM shares have soared 29 percent since Sept. 10. On Wednesday, the stock closed at $37.64, up $3.22, in trading on the New York Stock Exchange.
"This is exactly what we were hoping for," said Brad Rubin, an analyst with the investment firm BNP Paribus. "We're content that GM got what they intended to get."
Two-tier wages a milestone
For its part, the UAW managed to get the automaker to give significantly more than the 65 cents-on-the-dollar contribution that GM originally sought.
In turn, the union gave ground on issues that have been virtually untouchable in past contract years, including two-tier wages and the controversial jobs bank program that gives laid-off workers pay and benefits.
Agreeing to two-tier wages is an important milestone in reducing costs -- and a move that the UAW had long resisted.
"This is concessionary bargaining of historic importance," said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass. "The leadership of the UAW understands that there are some pretty dark clouds on the horizon."
While the union made job security a top priority in negotiations, GM stopped short of guaranteeing that specific new products will be assigned to union-staffed plants.
In his statement, Wagoner said that the contract allows GM to "maintain a strong manufacturing presence in the United States along with significant future investments."
But GM's commitment to invest in its struggling U.S. operations comes with the caveat that the union must agree to flexible work rules in local plant-level negotiations, according to people close to the negotiations.
Local agreements can boost productivity by cutting job classifications and eliminating some restrictions on non-union labor in the plants. Those changes could potentially save GM an estimated $1 billion in annual operating costs, said David Cole, chairman of the Center for Automotive Research in Ann Arbor.
Between the VEBA, two-tier wages and local-level work-rule changes, GM stands to significantly reduce the cost advantages enjoyed by non-union plants operated in the U.S. by Toyota, Honda Motor Co. and Nissan Motor Co.
But cost-cutting alone won't return GM to prosperity. Some analysts said the success of the labor pact will only ratchet up the pressure on GM to improve the quality and designs of its cars and light trucks.
GM's U.S. market share has fallen to less than 25 percent from a high of 46 percent in 1978. Even with a competitive labor deal in hand, the automaker needs new models that recapture consumers who have migrated to Toyota and Honda.
"GM has more control over their destiny -- which is good and bad," said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates. "You're either going to make the big mistake, or you're going to be the hero."
UAW to explain pact
The next few days will have the union scrambling to educate their members on one of the most complex labor agreements in history.
The deal is widely expected to win ratification, though not by the wide margins of past contracts, industry analysts said.
Some union dissidents, however, are vowing to fight the VEBA because GM stock is likely to be a key part of its funding. "Don't gamble retirement security on the stock market," read one posting on the Web site of the group Soldiers of Solidarity.
Gettelfinger will present the terms of the contract to the UAW-GM national council of local leaders on Friday, with a vote by the rank and file targeted for this weekend.
After ratification, UAW bargainers are expected to move swiftly to negotiate a similar agreement with Ford and Chrysler.
Dozens of GM workers interviewed Wednesday seemed confident the contract would pass. Many, however, were confused by the retiree trust arrangement and cool to the concept of two-tier wages.
"From what we're hearing, it looks good for both ends," said Leslie Harmon, a 55-year-old machine tech at the GM Powertrain plant in Ypsilanti.
But Harmon doesn't see annual bonuses as a fair replacement for raises. "No matter how you look at it, we had to give up a lot," he said. "If we give up raises and see management get bonuses down the line, that's a problem."
Contract is critical step
For GM management, getting a breakthrough UAW contract was a critical step in its long-awaited turnaround -- and a much-needed boost to the automaker's faltering image as an American corporate icon.
A year ago, GM was teetering on the brink of disaster, losing $12 billion in 2005 and 2006 combined. Moreover, the automaker had suffered through embarrassing accounting errors and an unsuccessful challenge by billionaire investor Kirk Kerkorian to form a global alliance with Renault Motor Co. and Nissan.
No one was under more pressure than Wagoner, whose job appeared in jeopardy until receiving a public vote of confidence from the GM board in mid-2006. Since then, he has presided over a massive restructuring of GM's North American operations and now a watershed UAW contract.
By picking GM as the lead company to negotiate a pattern deal for Detroit's Big Three, Gettelfinger also tackled GM's problems head-on.
In the tough negotiations after the current contract expired Sept. 14, Gettelfinger stood firm in his demands for job security for union members. When talks stalled on the issue, the union president called a risky nationwide strike that could have backfired.
Instead, the strike refocused bargaining. In less than two days, GM and the union had a deal that could change the competitive landscape of the domestic auto industry for years to come.
One worker said the deal brought relief -- at least for now.
"We had to give up a lot this time, but I'm still employed. A lot of people in Michigan can't say that," said Darrell Clank, a line worker at GM's Detroit-Hamtramck Assembly facility. "But what about next time? Will we have to give even more?"
"General Motors and the UAW have reached a tentative agreement on a new national labor contract, covering approximately 74,000 represented employees. The agreement is subject to UAW member ratification.
"The tentative agreement includes a memorandum of understanding to establish an independent retiree health care trust, as well as other changes to the national agreement. Following ratification, implementation of the memorandum of understanding is subject to approval by the courts, and satisfactory review of accounting treatment with the Securities and Exchange Commission.
"'There's no question this was one of the most complex and difficult bargaining sessions in the history of the GM/UAW relationship,' said Rick Wagoner, GM Chairman and CEO. 'I'd like to thank UAW President Ron Gettelfinger, UAW Vice President Cal Rapson and their bargaining team for their leadership and hard work in negotiating the agreement.'
"The national agreement paves the way for GM to significantly improve its manufacturing competitiveness, providing the basis for maintaining and strengthening its core manufacturing base in the United States.
"'This agreement helps us close the fundamental competitive gaps that exist in our business,' Wagoner said. 'The projected competitive improvements in this agreement will allow us to maintain a strong manufacturing presence in the United States along with significant future investments.'"
"UAW negotiators reached a tentative agreement with General Motors at 3:05 a.m. on Wednesday morning, September 26th.
"The strike by union members was recessed at 4:00 a.m., and workers will report for work beginning with second shift today. Certain skilled trades workers may be notified to report to work earlier by management at their facilities.
"We're proud of this tentative agreement and we look forward to getting into the field and discussing it with our membership," said UAW President Ron Gettelfinger.
"The UAW International Executive Board and the UAW GM National Negotiating Committee -- made up of elected representatives from UAW GM locations throughout the country -- have unanimously recommended ratification of the agreement.
"'We reached this agreement because of the extraordinary solidarity of our membership, and through a tremendous amount of hard work by the committee they elected to negotiate a new contract,'" said UAW Vice President Cal Rapson, director of the union's GM Department.
"Details of the agreement are being withheld pending ratification."