GM-UAW reach tentative agreement

The tentative contract reached between General Motors Corp. and the United Auto Workers would involve significant wage and benefits restructuring along with a commitment by the automaker to invest in the U.S.

Also, it involves the establishment of a voluntary employees' beneficiary association, or VEBA to cover retiree benefits at a significant discount in exchange for pledges to build new vehicles at 16 of 17 UAW-represented GM plants.

The four-year deal announced last week, still seeks the union ratification and court and SEC approval.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, said the move to fund retiree health care can be seen as part of a well-established trend of employers shifting away from guaranteeing pension-style benefits to workers as health care costs spiral.

"It is a transfer from a defined benefit to a defined contribution. ... That becomes much more predictable for a business," Cole said.

GM had faced a liability of worth $50 billion for retiree benefits and an estimated $25-$30 more in hourly production costs than competitors like Toyota Motor Corp. and Honda Motor Co. By tapering that cost gap GM would be able to better its ability to develop new products since the gap turns into five new products a year, Cole said.

The automaker will also switch a portion of its future cost-of-living increases to pay for health care for active employees and retirees and introduce a two-tier wage constitution to pay lower wages to new hires in ‘non-core,’ non-production jobs.

"This is a situation where GM is able to really tip the balance a little bit in terms of their competitiveness and now GM's U.S. operations are sitting in a much better position than they were before," said Michael Robinet, vice president of global vehicle forecasts for CSM Worldwide. "This was really what GM needed to give them just that much more momentum in the market."

The UAW is hoping to get the consent of its members on the agreement with GM by next week, and then it will get to discuss a similar deal with Ford and Chrysler LLC.