GM, UAW Agree On New Labor Contract

By Bill Visnic September 28, 2011

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General Motors Co. today became the first of the Detroit Three automakers to agree on a new four-year labor contract with the United Auto Workers union, announcing in Detroit today a pact that, overall, increases GM’s labor costs about 1 percent. As expected, the UAW garners the commitment of more jobs in GM’s U.S. factories, an increase in the starting wage for newly hired workers and a more-generous profit-sharing formula in addition to a $5,000 signing bonus for each of GM’s approximately 48,500 UAW workers. The new contract was ratified by UAW workers by a roughly 2-to-1 margin.

A “win-win” for GM and the UAW was how GM CEO Dan Akerson described the agreement in a conference call with media and the investment community today. He said the absence of a significant increase in the fixed cost of labor for GM helps the company to “maintain the fortress balance sheet we’ve been working on for the past two years.” Akerson honed in on the new profit-sharing formula, which GM portrayed as more lucrative for workers in the likely range of annual profitability scenarios and with a formula that is “more transparent” than in the past. “When the company does well, the employees ought to share in the success,” Akerson said, adding the program for hourly-worker profit sharing now is similar to the plan for salaried workers.

GM-UAW 2011 contract profit share.jpgThe Specifics
For GM, the new contract enables savings in the non-compensation area by eliminating pension increases, eliminating a legal-services plan for active workers and retirees and moving entry-level workers to a new defined-contribution pension plan. It also includes the final elimination of the infamous Jobs Bank that guaranteed almost full pay to laid-off workers, and the UAW’s agreement of an incentive program to encourage some of GM’s approximately 10,000 underutilized skilled-trades workers to retire.

In terms of compensation-related aspects of the new contract, GM agreed to increase the starting wages of new employees by about $3 per hour from the approximately $14 starting wage today, while the UAW accepted no cost-of-living wage adjustments during the life of the contract and no base wage increases for experienced workers. But the prime component is the new profit-sharing formula. If GM makes $4.7 billion in profits earned in 2010, it would yield a profit-sharing check of about $4,000 for each worker. GM said the overall increase of about 1 percent in labor cost will enable the company to maintain its breakeven point at an annual U.S. Seasonally Adjusted Annual Rate of sales of about 10.5 million units (Edmunds.com’s forecast for 2011 SAAR currently stands at 12.6 million units). The extra costs associated with the new contract will be offset by attrition of older, higher-wage workers and the skilled-trades workers, who will see retirement packages of up to $75,000.

For the UAW, more money for entry-level workers – and the promise of better profit-sharing for all – was nice, but the plum is GM’s promise of maintaining or adding as many as 6,400 new jobs during the duration of the contract. Central to the commitment is the reopening of GM’s dormant assembly plant in Spring Hill, TN, and the addition of a shift to build a new midsize pickup at the company’s plant in Wentzville, MO, as well as increased work at two powertrain plants in Michigan. Questioned about how the Spring Hill plant will be staffed – the contract’s broad rules maintain a company-wide limit for entry-level wage earners of 25 percent – GM officials said the company and the union are working on a “unique set of arrangements” regarding the eventual mix of experienced and new workers at Spring Hill. The company also still has about 700 veteran workers on layoff, GM said.

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Working Pattern
Although the UAW and GM seem satisfied with the result of the new labor contract, it is unlikely all its specifics can be carried over to currently ongoing negotiations with Ford Motor Co. and the Chrysler Group LLC. For Ford, which reputedly has labor costs slightly higher than GM, workers are said to be seeking higher signing bonuses and a better profit-sharing program, while it is believed Ford may be committed to adding as many as 10,000 new UAW jobs during the life of the contract, which runs through 2015.

The going may be tougher at Chrysler, where CEO Sergio Marchionne has publicly said the company cannot afford GM’s generosity – and to now, at least, has no profits to share. Marchionne also injected an element of combativeness into the negotiations when a letter sent to UAW president Bob King chastised King for not attending a meeting with Marchionne as the current contract’s initial deadline approached. Chrysler and the UAW subsequently extended the deadline to Oct. 19.

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