GM, Union Agree on Contract to End Strike

By Sholnn Freeman and Frank Ahrens
Washington Post Staff Writers
Thursday, September 27, 2007

DETROIT, Sept. 26 -- General Motors and the United Auto Workers agreed on a new four-year contract early Wednesday morning, ending a two-day nationwide strike and sending workers back to assembly lines in the afternoon.

The deal between the nation's biggest automaker and one of the largest unions was designed to bring both sides out of the past century and into this one, where each faces intense global competition. The contract may be a template not only for the rest of the auto industry but also for other large-scale employers, such as telecommunications companies, according to economists.

One economist called the deal, struck around 3 a.m. Wednesday, "the new Treaty of Detroit," a reference to the 1950 contract between the UAW, then at the height of its power, and GM, which once built half of the cars sold in America. The 1950 deal set relations between the UAW and Detroit's Big Three for the second half of the 20th century. It established a blue-collar middle class but became increasingly oppressive to automakers faced with floods of cheaper, popular imports.

At the core of the new deal is the transfer of retiree health-care payments from GM to the UAW. GM will pay an estimated $35 billion into a trust designed to appreciate in value and pay health-care benefits for retired workers for at least the next 80 years, the union estimated. In return, GM is able to unload a $51 billion burden in retiree health-care obligations from its books, enabling the troubled company to borrow money more easily and move more nimbly against competitors. GM's health-care liability is more than twice the company's $21 billion market capitalization.

In exchange for giving up annual raises over the course of the contract and allowing GM to pay new workers a lower wage, the union got job-security assurances. The deal must now be approved by union leaders at a meeting Friday, then by union members. Analysts expect the deal to be ratified.

"This agreement helps us close the fundamental competitive gaps that exist in our business," GM Chairman G. Richard Wagoner Jr. 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."

At a 4 a.m. news conference, UAW President Ronald A. Gettelfinger said the union got the assurances it wanted that GM would invest in building new products in the United States, thereby providing job security for members. Details of the commitment were not released.

Gettelfinger said he was "firmly convinced" that the new deal was in the best interest of the union. "I can't help but think that having a national strike brought this thing to a head real quick," he said on a Detroit radio station.

The 1950 contract was the first to build in extensive health-care and retiree benefits -- costs that ballooned so much in the second half of the century that a new kind of deal was required for both the union and automakers to survive, said Teresa Ghilarducci, an economist at the University of Notre Dame in Indiana.

"It was said that most people in Detroit in the '70s and '80s who had health care got it from the auto companies," Ghilarducci said. "That created little Swedens, or mini welfare states. Now, as countries are more interdependent, no one company is big enough to carry the social insurance for an entire region or city."

The new contract is also a departure from the classically adversarial, and at times violent, relationship between the union and the U.S. automakers.

Under Gettelfinger, who called the national strike on Monday, the union showed it still had the power to order 73,000 workers to walk out of GM's 80 unionized plants at once. At the same time, the UAW signaled to GM that a strike was coming, and warned the company to stock up on high-profit vehicles, according to a UAW official in Detroit. The courtesy suggested that the strike was meant to push GM to sign a contract rather than cripple the company, as a 1998 UAW strike in Flint, Mich., did.

While some saw the contract talks as a way to deal a death blow to an already diminished union -- with fewer than 600,000 members, the UAW is less than half the size it was at its peak in the 1970s -- others saw it as an opportunity to turn decades of conflict into collaboration, noting that GM no longer has the clout it once did, either. GM's U.S. market share has slipped to less than 25 percent.

"I'd say the two sides are pretty much balanced now," said Ross Eisenbrey, vice president of the Economic Policy Institute and a labor scholar. "That's why they worked out an agreement that was a real give and take. The union took into account the true financial state of the company and neither side ran over the other."

Under the new contract, UAW retiree benefits will be paid out by a voluntary employees' beneficiary association (VEBA) that will be funded by GM initially but managed by the union. Creation of the retiree health trust is to be monitored by a judge and the Securities and Exchange Commission, according to a GM statement.

Economists said that the deal would not only be a model for the UAW's coming negotiations with Ford and Chrysler, but also for other large U.S. industries, such as the telecommunications sector. Verizon Communications, for example, has thousands of unionized workers nearing retirement age.

Most intriguing, Ghilarducci said, is that the UAW-GM health-care compromise could be applied to nonunion U.S. autoworkers. Half the U.S. auto workforce is nonunion and works at plants owned by such foreign companies as Honda and Toyota.

Retiree health benefits have not yet been a concern for those companies. They have been in the United States for only a generation and hired workers in their 20s and 30s, and their benefits are generally capped. But as their workforce ages, Ghilarducci said, the Japanese companies may look to the VEBA model as a way to offer employees retirement health-care benefits without unionizing their plants.

Not all details of the tentative contract were revealed, but it is known that underlying wages will be frozen during the duration of the four-year agreement, though workers will receive one-time bonuses in each of the contract years, in addition to a $3,000 signing bonus to entice them to ratify the deal soon.

GM will be allowed to pay as little as $14 to $15 an hour to employees in non-manufacturing jobs that once paid as much as $28 as hour, as openings come up. Those jobs were prized by older workers who were able to become forklift drivers or janitors after years of physically demanding work on assembly lines.

GM shares closed Wednesday at $37.68, up $3.26.

Ahrens reported from Washington.

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