Bloomberg News

UAW Says GM to Invest $2.5 Billion in New Four-Year Contract

September 20, 2011

(Updates stock price in the 16th paragraph.)

Sept. 20 (Bloomberg) -- The United Auto Workers, seeking ratification for a tentative contract agreement with General Motors Co., said the largest U.S. automaker will invest $2.5 billion through four years.

The accord calls for GM to provide $5,000 lump-sum signing bonuses and boost wages for entry-level workers, the Detroit- based UAW said today in a briefing with reporters. GM will invest $419 million to reopen an assembly plant in Tennessee to make two midsize cars and hire 1,710 people, as the Detroit- based automaker adds or retains 6,400 jobs, the union said.

UAW President Bob King said the agreement achieves some of the union’s major goals in talks with the largest U.S. automaker, which emerged from U.S.-backed bankruptcy in 2009. Along with the plant in Tennessee, GM pledged to add or retain jobs at six other factories and base its profit-sharing arrangement on a greater portion of the automaker’s earnings.

“This contract really shows the auto industry is back,” King said today.

The $5,000 signing bonus for each worker is less than the $8,000 to $10,000 that four people familiar with the negotiations said the UAW sought at the bargaining table. They asked not to be identified because the deliberations were private.

Entry-Level Workers

Starting pay for new workers will increase to at least $14.78 an hour and the maximum rises to $19.28, the UAW said today. The lowest wage in the 2007 agreement was $14 an hour and could climb to $16.23.

There’s no limit to the number of workers who can be hired at that level, said Joe Ashton, the union’s vice president for GM relations. In 2015, the second tier would be capped at 25 percent, King said.

“We would love to see it at 40 percent because that would mean our workforce would have grown,” he said. About 4 percent of GM-UAW workers are paid the entry-level wage now, he said.

Chief Executive Officer Dan Akerson said when talks began in July that the Detroit-based automaker wanted to manage costs while giving UAW represented workers “opportunity to share in the success of the company going forward.” GM reported $6.36 billion of profit in the first half and $6.17 billion last year.

GM expects the union to hold ratification votes within 10 days, according to a Sept. 17 statement.

The automaker will base annual profit-sharing checks on its earnings in North America instead of just the U.S., the UAW said today. The profit-sharing plan equates to about $1,000 per $1 billion in North American profit.

Union workers will also get $1,000 a year in cash payments during the next three years to protect them against inflation. If they meet quality targets, they will be paid $250 a year.

Sharing Profits

The UAW continues to negotiate with GM over a plan to divert 10 percent of workers’ profit-sharing payments to the union’s retiree health-care fund, Ashton said. The additional funds are intended to improve coverage for retirees. GM has questioned the legality of the diversion, Ashton said.

“There are some legal questions about that,” Ashton said. “We’re still negotiating with GM on that.”

Last year, UAW members would have received profit sharing of about $5,000 on average instead of $4,300, people familiar with the talks have said. The agreement requires a minimum profit in North America of $1.25 billion to produce a payout and caps distributions to workers at $12,000, the UAW said.

GM fell 62 cents, or 2.7 percent, to $22.43 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have lost 32 percent since GM’s initial public offering in November.

Buyout Offers

The UAW said GM will offer $10,000 buyouts for eligible employees who retire within two years, as well as $65,000 bonuses to skilled-trades workers who leave between Nov. 1 and March 31.

The automaker, in addition to the Tennessee investment, will add union jobs by making midsize pickups at a factory in Wentzville, Missouri, and boosting output in Michigan at two powertrain plants and a casting factory. GM also committed to continue assembling pickups in Fort Wayne, Indiana, which will get a $230 million investment.

Employees who were moved from a shuttered factory get return-home rights and will receive $30,000 relocation payments, the UAW said.

Ratification Expected

“The economic gains for the membership are good,” Art Reyes, president of UAW Local 651 in Flint, Michigan, said in an interview. “I’ll recommend it to the membership.”

The tentative agreement will be put to a vote by UAW members who King has estimated each gave $7,000 to $30,000 in concessions since 2005. Analysts Himanshu Patel of JPMorgan Chase & Co. and Brian Johnson of Barclays Capital said ratification was likely in separate research notes published yesterday.

Contracts covering 113,000 workers at GM, Ford Motor Co. and Chrysler Group LLC were set to expire Sept. 14 before being extended. Fiat SpA-controlled Chrysler is pushing for a smaller signing bonus than GM accepted, about $3,500, two people familiar with the talks said yesterday.

The UAW typically uses its first accord with GM, Ford or Auburn Hills, Michigan-based Chrysler to set a pattern for pay and benefits at the other two. Union negotiators will seek a deal with Chrysler next and then go to Dearborn, Michigan-based Ford, three people familiar with the talks have said.

Framework Pattern

“There is a general framework pattern we’ll go to Ford and Chrysler with,” King said today. “I’m confident we can put an agreement together for both.”

UAW members agreed to a no-strike pledge at GM and Chrysler as part of their 2009 bankruptcies. Unsettled disputes are to be decided through binding arbitration.

Ford didn’t receive a U.S. bailout and UAW members there, going against the wishes of union leaders, rejected a strike ban and arbitration.

King, 65, has pledged to organize a foreign automaker this year to expand the UAW’s bargaining power beyond GM, Ford and Chrysler. He said the agreement with GM will help that effort.

“Winning always helps you get momentum,” King said. “When workers see how we play such a key role in the success of the companies, that will have a big impact.”

--With assistance from Tim Higgins and Keith Naughton in Southfield, Michigan. Editor: Jamie Butters, Bill Koenig

To contact the reporters on this story: Craig Trudell in Southfield, Michigan at ctrudell1@bloomberg.net; David Welch in Southfield, Michigan at dwelch12@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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