GM, UAW set stage to potentially transform U.S. auto landscape

Pact includes VEBA, signing bonus, two-tier wage plan

September 26, 2007, Detroit Free Press

By KATIE MERX, TIM HIGGINS, SARAH A. WEBSTER and JOE GUY COLLIER

FREE PRESS BUSINESS WRITERS

The UAW and General Motors Corp. reached a tentative agreement early today on a new, landmark contract for 74,000 autoworkers, ending the union's first nationwide strike against the automaker in 37 years.

UAW President Ron Gettelfinger announced the agreement at a 4 a.m. news conference at the union's national headquarters in Detroit. The most dramatic component of the deal, which could dramatically reshape the business model for Detroit's three automakers, is a plan to shift oversight of retiree health-care benefits to an independent health-care trust – known as a voluntary employee beneficiary association, or VEBA.

GM has agreed to pay up to $35 billion into the fund, one person familiar with the deal told the Free Press. Another cautioned that the number might be high. That figure roughly equals 70% of the value of the company's UAW retiree health care liability.

In addition, people familiar with the agreement described other highlights in the deal:

• Workers will receive no wage increases, but will each receive a $3,000 signing bonus, plus annual lump-sum bonuses of 3% or 4% for the final three years of the contract. The UAW also agreed to divert a portion of future wage increases to pay for health care for both active and retired workers, those sources said.

• GM will make more than 4,000 temporary workers permanent employees, a move that stands to increase UAW membership.

• The automaker will implement a two-tier wage and benefits scale for jobs that GM and the UAW have agreed are "non-core" production jobs. Those jobs are expected to include many positions in which workers do not have their hands on a vehicle in the assembly process. In addition, GM is expected to offer a targeted special attrition program to move workers in those non-core jobs off the active worker member rolls. Wages and benefits for second-tier workers will average $27 per hour, compared with the average $73 per hour of current workers, the sources said.

• Gettelfinger said the agreement includes modifications to the controversial jobs bank, which provides unemployed workers with full pay as they wait for job openings. The modification includes an expansion of the area in which workers would be required to move for a different assignment or lose their income. Currently, workers are not required to move for jobs farther than 50 miles from their previous plants.

New details about the VEBA emerged throughout the day.

The VEBA will be funded with cash, convertible preffered investments and the diversion of active employee cost-of-living allowances, the people familiar with the deal said. Cash will make up most of the funds, which will be paid into the independent trust over at least two years. The first payment will be made early next year, likely in January.

The transfer of retiree health care benefits from GM to the VEBA trust will need to be approved in the courts, which is expected to take several months.

Retirees will likely have to contribute more to the cost of their health care, in the form of higher premiums or copays.

That increased cost is expected to be offset by increased pension payouts to retirees, using the $17 billion in overfunding currently in the pension plan.

"I'm pleased to say we have a VEBA in place that will secure the benefits of our retirees and every seniority employee who is on the roles as of Sept. 14, and that stretches out in our projections for the next 80 years," Gettelfinger said. "I think our retirees will be exceptionally pleased with this contract."

Gettelfinger said projections showed that a VEBA would be solvent for at least 80 years. He also said the union will not manage the fund.

Gettelfinger said the tentative agreement accomplished the union's job security goals and should prevent the company and union from needing to make the same types of changes in the next contract, depending on the success of GM's products.

GM Chief Executive Rick Wagoner, in a statement, said the negotiation was "one of the most complex and difficult" in the history of the GM-UAW relationship, but said the deal paves the way for the automaker to significantly improve its competitiveness.

"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."

Analysts estimate that foreign automakers with U.S. manufacturing operations pay an average of $20 less to $30 less per hour than GM. The costs are said to put U.S. manufacturers at a $1,500 to $2,000 disadvantage to the foreign automakers.

The UAW struck GM plants across the United States at 11 a.m. Monday after nine days of talks following the previous contract's expiration on Sept. 14. Gettelfinger said workers would return to production lines this morning.

Outside the Romulus engine plant, about 10 workers picketing at one gate were happy to hear the news on the radio.

"It sounds good that this might be over with. We're happy with that," said Matt Cauley, 46, of Saline, a 28-year GM employee.

The workers said they believe the strike worked in their favor and showed the company how much they valued their jobs. Retirement benefits and job security were issues they hoped to learn more about in the new contract.

Gettelfinger said he believed active and retired union members would be surprisingly pleased with the agreement.

"We feel very good about this tentative agreement," Gettelfinger said. " We feel very comfortable it will be ratified."

The UAW plans to call its national council of local leaders to Detroit by Thursday afternoon or Friday morning to vote on the agreement. At that meeting, Gettelfinger and his negotiating team will share highlights of the deal with its leaders and they will vote on it. Should they approve it, the union will proceed with seeking ratification from its members this weekend.

"Without getting into the specifics of it … I think our retirees will be exceptionally pleased with this contract," Gettelfinger said. "And for our active membership, there will be … changes, but I think overall they will be very pleased with the outcome of these negotiations and the job security that's associated with it."

Gettelfinger did say the controversial jobs bank will remain in the new contract, but "with some modifications."

The impact of the strike, which involves 73,000 GM workers, began to ripple across the auto industry Tuesday with some Canadian GM plants idling, auto dealers missing service parts and suppliers laying off workers.

Workers on the picket line this morning as the deal was announced were relieved, but wanted information.

"I want to see the details," said Steven Cichone, who had just finished a shift picketing at GM's Hamtramck assembly plant when the deal was announced. The 10-year GM employee said he would be pretty happy as long as there's no pay cut.

The UAW began talks in July with GM, Ford Motor Co. and Chrysler LLC. The union on Sept. 13 designated GM as the lead company for talks -- or the strike target -- and extended contracts with Ford and Chrysler indefinitely.

The deal with GM is expected to set a pattern for the other two companies. Gettelfinger indicated in a radio interview this morning that the union may conduct simultaneous talks with Ford or Chrysler next.

Contact KATIE MERX at 313-222-8762 or http://www.freep.com/apps/pbcs.dll/article?AID=/20070926/BUSINESS01/70926007/0/mailto:kmerx@freepress.com.