GM's holds line on labor costs with new contract

By John W. Schoen, Senior Producer

In their first new contract since General Motors undertook a massive restructuring as part of a?government?bailout, members of the United Auto Workers have approved a new four-year deal with the company that pays cash bonuses in place of automatic annual pay raises.

GM executives said Wednesday the agreement means the company will maintain its current "break-even" point, which allows the company to remain profitable with annual global sales of about 10.5 million vehicles. Last month, the carmaker reported that second-quarter profits nearly doubled, boosted by higher vehicle prices and strong sales overseas.

In return for agreeing to flat wages, most workers will get a series of bonuses totaling at least $11,500 over the next four years. The centerpiece of the bonus plan includes a profit-sharing formula for hourly workers based on the company's reported earnings.

"This agreement aligns the interest of hourly and salaried employees more closely than ever before," GM?CEO?Daniel?Ackerman?told?reporters and?investment?analysts on a?conference?call Wednesday. "If salaried employees earn share of profits the hourly workers do too. It's that simple.

Workers will also be eligible for additional bonuses if they meet certain production quality targets. The company also agreed to raise the starting wage for entry-level workers to $19 per hour, about 20 percent higher than current levels.

As part of a restructuring following the government's 2009 bailout of GM, the company entered bankruptcy, allowing it to cancel some of its crushing debt. It also cut payrolls and slashed wages and benefits to restore profitability; in 2005, the company employed 111,000 hourly workers at a cost of $16 billion. After shrinking the workforce to less than 49,000 hourly workers, labor costs in 2010 came to about $5 billion.

For their part, union leaders stressed that the contract rewards members for the painful sacrifices undertaken to get GM back on its feet.

"It's the workers and the quality of the work they do, along with the sacrifices they made, that have helped return this company to profitability. ?UAW President Bob King said in a statement. "Now that GM is posting profits again, our members are sharing in the success, while ensuring GM's continued profitability"

The union also noted that the contract maintains the current level of health benefits and added unlimited doctor visits, for which workers pay $25.

The company still faces major hurdles, including a slowing economy that is eating into car sales. Like many older companies with large pools of retirees, GM is also grappling an underfunded pension plan, which was not overhauled during the restructuring overseen by the White House.

To further cut costs, GM is offering a $10,000 bonus to eligible workers who retire in the next two years. Some 40 percent of the company's hourly work force is eligible for retirement.

Though once again?profitable, the U.S. auto industry is considerably smaller than it was before the 2007 recession hit. Auto sales peaked in the U.S. at about 17 million vehicles in 2000, and held fairly steady?until?falling to 10.5 million in 2009. Sales strengthened in the first half of the year, but the rebound was halted by the Japanese earthquake in March which cut off critical supplies of parts and materials.

Analysts had been forecasting U.S. sales of 13 million units for 2012. But a recent slowdown in job?growth, falling consider confidence and the threat of a fresh recession will make that target tough to hit.

That's prompted U.S. car makers to look for faster growth?overseas. China and South America are expected to create more than half of the growth in global light vehicle sales through 2015, according to analysts at Zacks Investment Research.

Last week, GM signed an agreement with SAIC Motor Corp. to develop and build electric vehicles in China. The company expects to begin selling the Volt in China by the end of the year. The car has a range of about 50 miles on a single battery charge and 300 on its gas-powered engine.

Following a public offering of stock after GM emerged from?bankruptcy, the U.S. government still holds half a billion GM shares as part of the company's 2009 bailout package. To cover its $26 billion investment, the government would have to get about $53 a share for its holdings.The stock is currently trading at about $20 a share.

Source: http://bottomline.msnbc.msn.com/_news/2011/09/28/8017968-gms-holds-the-line-on-labor-costs-with-new-contract

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