September 20, 2011 / 4:13 AM / 7 years ago

GM labor deal creates jobs, holds line on costs

DETROIT (Reuters) - A tentative contract between General Motors Co (GM.N) and the United Auto Workers union would create more than 6,000 U.S. factory jobs, raise base wages for entry-level workers, and replace traditional wage increases with profit-sharing, union officials said on Tuesday.

United Auto Workers union member assembly worker Gary Phillips works on the assembly line of the Chevrolet Volt electric vehicle at General Motors Detroit-Hamtramck assembly plant in Hamtramck, Michigan July 27, 2011. REUTERS/Rebecca Cook

The union, confident that rank-and-file UAW members will support the GM deal, plans to resume negotiations with either Chrysler or Ford Motor Co (F.N) before GM workers complete a ratification vote expected by next Thursday, the officials said.

The framework for wages and benefits represents the first new contract for American auto workers since the Obama administration’s bailout of GM and Chrysler in 2009.

The proposed four-year deal has something for both sides. It preserves and adds U.S. union jobs, most at lower wages and bonus-based payments that do not add to the fixed costs blamed for pushing the industry to crisis.

GM emerged from bankruptcy saying it had cut costs to the point that it would break even at the trough of any recession. The proposed contract would not dent GM’s profitability on that basis, a person familiar with the terms said.

The talks in Detroit have played out at a time of increasing uncertainty about the strength of U.S. auto sales and the risk of another recession.

“Both sides got a lot of what they wanted, but not everything,” said Art Schwartz, a former GM labor official and now president of consultancy Labor and Economic Associates in Ann Arbor, Michigan.

“From the company’s perspective, they mostly kind of held on and changed the game from fixed increases to lump sums,” Schwartz said. “That’s something they wanted to do, and they were able to accomplish that.”

GM has reserved detailed comment on the pact until it is ratified. The union on Tuesday released highlights of the agreement.

UAW President Bob King said he would take the basic framework of the GM deal into talks with Chrysler Group LLC and Ford.

“We think it is a framework that will work for all three companies,” King said.

King and UAW Vice President Joe Ashton said the biggest win for the union was the pledge of new factory jobs at GM, the top U.S. automaker. Under the agreement, the number of U.S. factory workers at GM represented by the UAW could rise from 48,500 at present to more than 60,000 after four years, Ashton said.

“We’re bringing a lot of work that left this country back into this country,” King said.

BONUSES, BUT NO FIXED COST INCREASE

Shares of GM were down 1.3 percent at $22.75 in afternoon trade. Ford shares were down 3 cents at $10.51.

The contract highlights released by the union included areas where the UAW won more than GM had initially proposed.

Entry-level workers would receive base wage increases and improved health benefits, and all workers would receive a $5,000 signing bonus and other lump-sum payments of at least $6,500 over the life of the four-year contract.

But GM also made gains, analysts said. The contract does not saddle the company with a recurring wage increase for the veteran workers that make up 95 percent of its payroll.

The proposed deal also does not increase pension payouts, an important win for a company where retired workers outnumber the active payroll by 10 to one.

A person close to GM’s planning also said the automaker had not budged from the broad targets it had set for U.S. production heading into the talks.

GM also is offering payments of up to $75,000 to between 14,000 and 17,000 skilled workers if they retire by March. It is unclear how many workers might accept that offer, given the state of the economy, Ashton said.

Local leaders from the UAW unanimously supported the deal at a meeting in Detroit on Tuesday, sending the proposed contract to GM workers for a ratification vote the union expects to be completed by the end of next week.

As expected, the proposed contract includes commitments for new vehicles at GM assembly plants in Tennessee and Missouri and additional jobs at three Michigan powertrain plants.

The completion of the GM negotiations clears the way for King to turn to Chrysler, which is controlled by Italian automaker Fiat FIA.MI. Contract talks with Chrysler, the smallest of the Detroit automakers, broke off last week on the cusp of an expected agreement.

Chrysler Chief Executive Sergio Marchionne was scheduled to return to talks with King as soon as Tuesday.

The UAW’s four-year contracts with all three Detroit automakers expired last week, but terms were extended.

At stake are wages and benefits for about 112,500 unionized U.S. auto workers at GM, Chrysler and Ford, who have gone without a base pay increase since 2003.

The UAW has hoped to use new labor agreements with the Detroit automakers as a springboard to winning first-ever contracts to represent workers at U.S. factories operated by Japanese, Korean and German automakers.

GM shares have lost almost 39 percent of their value since the start of the year. Shares of Ford are down almost 37 percent.

Additional reporting by Kevin Krolicki and Ben Klayman in Detroit; Editing by Lisa Von Ahn, Matthew Lewis and John Wallace

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