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GM's New Deal Keeps It In The Auto Game
General Motors (NYSE:GM) and the United Auto Workers (UAW) reached a preliminary agreement for a new four-year contract. The deal was endorsed by UAW leadership but still must be ratified by its members in votes through next week to ten days. The contract will cover GM's 48,500 U.S. workers. (For more on unions, read Unions: Do They Help Or Hurt Workers?)
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The Background for the Talks
The tentative contract was negotiated over a seven-week period. The agreement represents a milestone of sorts for GM and the UAW, as GM, along with Chrysler, was pulled through bankruptcy and received a subsequent $30 million government bailout. These negotiations are the first large-scale deal with the autoworkers' union since GM's restructuring and will tell not only how management and labor are going to get along in the automaker's post-bailout era, but how the costs and potential profitability of the automaker will be affected down the line.
The Terms
The contract features signing bonuses for workers as well as pay increases for entry-level employees. For most workers, though, improved profit-sharing is included in lieu of pay raises. The entry-level workers, who now make around $14-16 an hour, or roughly half the pay of autoworkers with more longevity, will get raises. These raises will be in the vicinity of $2-3 an hour, and average $3.50, bringing entry level pay to roughly $16-19 an hour. The signing bonus of $5,000 per worker will cost around GM $242.5 million. (For the importance of minimum wage and what this pay increase can mean, check out The Minimum Wage: Does It Matter?)
The New Auto Industry
The post-bankruptcy negotiations between GM and the autoworkers certainly shows we're fully in a new era in the auto industry. By the standards of ten, twenty or thirty years ago, the contract is muted for both sides, as were the negotiations. The concern for GM and the U.S. automakers is to keep costs down to compete with formidable global rivals such as Honda Motors (NYSE:HMC), Toyota Motors (NYSE:TM), Nissan Motors(OTC:NSANY) and Volkswagen (OTC:VLKAY). GM attempted, and needed, to keep its competitors squarely in focus as it negotiated, while the union wanted and needed to make realistic gains for its membership.
What it Means for the Auto Industry
We are likely to see similar deals with the other U.S. automakers with this more cooperative negotiating atmosphere. The atmosphere for negotiations is a far cry from the heyday of both the automakers and the autoworkers, when talks were often acrimonious, even bitter, with protracted strikes and lingering animosity on each side. To thrive, the U.S. industry must be able to be profitable with lower levels of annual sales in the new economy, and the union must find a way to sustain itself and provide jobs with decent wages and some semblance of security for its workers. Other details of the proposed pact include the re-opening of the Spring Hill, Tennessee plant, along with increased work at some of the other plants, as well as provisions for buyouts for older workers. GM is seeking to get a younger work force, which will be paid entry-level hourly wages; a move which is seen as necessary to hold costs down going forward. The two-tiered pay system, which was once controversial for the union, now seems an accepted part of the labor landscape.
The Bottom Line
Will this be a good deal for GM and ultimately its stock? From a cost perspective it appears to be one that will allow GM to hold down expenses. GM's been doing well, so the question is, will it be able to keep it up? The company had a tremendously profitable second quarter where net income nearly doubled from the same quarter in 2010. Revenue and unit sales of vehicles were both up appreciably, and GM has been alive in the battle for market share. This new deal should give GM and its workers at least a chance to stay viable in the high-stakes competitive global industry - no small achievement given the recent history of GM, the union, the industry and the struggling global economy. (For more on auto stocks, see Taking Another Look At Auto Stocks.)
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The Background for the Talks
The tentative contract was negotiated over a seven-week period. The agreement represents a milestone of sorts for GM and the UAW, as GM, along with Chrysler, was pulled through bankruptcy and received a subsequent $30 million government bailout. These negotiations are the first large-scale deal with the autoworkers' union since GM's restructuring and will tell not only how management and labor are going to get along in the automaker's post-bailout era, but how the costs and potential profitability of the automaker will be affected down the line.
The Terms
The contract features signing bonuses for workers as well as pay increases for entry-level employees. For most workers, though, improved profit-sharing is included in lieu of pay raises. The entry-level workers, who now make around $14-16 an hour, or roughly half the pay of autoworkers with more longevity, will get raises. These raises will be in the vicinity of $2-3 an hour, and average $3.50, bringing entry level pay to roughly $16-19 an hour. The signing bonus of $5,000 per worker will cost around GM $242.5 million. (For the importance of minimum wage and what this pay increase can mean, check out The Minimum Wage: Does It Matter?)
The post-bankruptcy negotiations between GM and the autoworkers certainly shows we're fully in a new era in the auto industry. By the standards of ten, twenty or thirty years ago, the contract is muted for both sides, as were the negotiations. The concern for GM and the U.S. automakers is to keep costs down to compete with formidable global rivals such as Honda Motors (NYSE:HMC), Toyota Motors (NYSE:TM), Nissan Motors(OTC:NSANY) and Volkswagen (OTC:VLKAY). GM attempted, and needed, to keep its competitors squarely in focus as it negotiated, while the union wanted and needed to make realistic gains for its membership.
What it Means for the Auto Industry
We are likely to see similar deals with the other U.S. automakers with this more cooperative negotiating atmosphere. The atmosphere for negotiations is a far cry from the heyday of both the automakers and the autoworkers, when talks were often acrimonious, even bitter, with protracted strikes and lingering animosity on each side. To thrive, the U.S. industry must be able to be profitable with lower levels of annual sales in the new economy, and the union must find a way to sustain itself and provide jobs with decent wages and some semblance of security for its workers. Other details of the proposed pact include the re-opening of the Spring Hill, Tennessee plant, along with increased work at some of the other plants, as well as provisions for buyouts for older workers. GM is seeking to get a younger work force, which will be paid entry-level hourly wages; a move which is seen as necessary to hold costs down going forward. The two-tiered pay system, which was once controversial for the union, now seems an accepted part of the labor landscape.
The Bottom Line
Will this be a good deal for GM and ultimately its stock? From a cost perspective it appears to be one that will allow GM to hold down expenses. GM's been doing well, so the question is, will it be able to keep it up? The company had a tremendously profitable second quarter where net income nearly doubled from the same quarter in 2010. Revenue and unit sales of vehicles were both up appreciably, and GM has been alive in the battle for market share. This new deal should give GM and its workers at least a chance to stay viable in the high-stakes competitive global industry - no small achievement given the recent history of GM, the union, the industry and the struggling global economy. (For more on auto stocks, see Taking Another Look At Auto Stocks.)
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by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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