Full Details Emerge of New UAW/GM Agreement

The United Auto Workers (UAW) union released full details of the new tentative agreement with General Motors (GM) on Friday, in a press conference to announce that all of the UAW General Motors National Council had unanimously approved ratification of the contract to the rank-and-file. The full details of the contract were then published in several news outlets, covering the new employment terms that the UAW has agreed to in exchange for unprecedented product investment commitments from GM for U.S. plants. The council represents UAW workers in roughly 80 facilities in the United States. "Our goal is transparency," UAW president Ron Gettelfinger said in a press release. "Our members will have the opportunity to be exposed to all of the information about this proposed contract, so they can make an informed decision."

Among the new details not discussed in Global Insight's previous report (see United States: 27 September 2007: New UAW/GM Contract Looks to Be a Game Changer; Ford & Chrysler Up Next):

• U.S. investment: GM will agree to invest new products in 16 U.S. plants, and detailed exactly what that those investments will be out through 2012. The products include confirmation of remarkable new products, such as the Chevrolet Volt, a Chevrolet version of the Lambda crossover-utility vehicle (CUV), and an all-new mid-size rear-wheel-drive platform.

• Plant closures: GM has committed to not closing, idling, or divesting any more plants and facilities, aside from three already agreed to: a service parts warehouse in St. Louis (Missouri), Livonia (Michigan) powertrain assembly, and Massena (New York) powertrain.

• VEBA funding: Of the US$50 billion in retiree healthcare liabilities it currently possesses, GM would instead contribute an initial US$29.9 billion in cash and securities, with the availability of up to US$5.4 billion in additional funding in future years should the average cost of healthcare exceed projections, putting the health of the VEBA in jeopardy. GM commits to contribute as much as US$1.6 billion in additional emergency funding over the next 20 years, should the VEBA be calculated to be in jeopardy of not providing coverage for retirees.

• Employment details: A new two-tier wage system was already known, but the rate at which new hires would be paid was not: all new hires would come in at non-core roles (janitorial, maintenance, etc.) and be paid US$14.00-16.23 per hour, roughly half the current UAW wage. Workers would then progress to "core" manufacturing assembly jobs. Instead of pensions, new hires would receive a 401(k) investment contribution retirement plan. In return, 3,000 outsourced jobs would return to in-house status, and 3,000 temporary workers would receive full-time status.

New Product Investment

The extraordinary changes to the employment terms came at a price: guaranteed product investment in 16 U.S. plants. The UAW, much to GM's reported shock, released the details of not only which plants would receive new products, but also what those products would be.

What's Next: Chrysler and Ford

Next up for the plan is a ratification vote expected sometime this week. The contract is expected to pass, and given the unanimous approval of the Local leadership, this seems less and less in doubt. Negotiations begin today with both Ford and Chrysler in parallel sessions, as the UAW had hinted were possible last week. Initial reports are that Ford may ask for additional wage and labour cost cuts, citing its more troubled financial position. Chrysler remains an enigma, but is expected to at least demand healthcare revisions along the lines of those granted to Ford and GM in the last 2005 revisions.

Outlook and Implications

The public revelation of GM's product plans for U.S. manufacturing through 2012 is astonishing, but reveals vehicles which have been known to Global Insight for some time, and are largely the reason that the company's analysts are generally very positive about GM's upcoming product. It has been often said that there are few problems in the auto business that excellent product cannot fix, and as the matrix above displays, GM is well on the way towards getting that product to market. Of significance:

• Lordstown's line-up: The new Alpha platform is reportedly a rear-wheel-drive mid-size vehicle along the lines of the BMW 3-Series in size and dynamics, but much more affordable. One model would fit into a Pontiac line-up of RWD cars very well, further bolstering that division's performance image, while the other would make a good entry-level Cadillac to slot below the ever-growing CTS sedan. The plant is also scheduled to receive a version of the Gamma subcompact, reportedly the next-generation of Opel/Chevrolet Corsa in international markets. Whether or not this vehicle will be rebadged as the Cobalt and G5 for Chevrolet and Pontiac remains to be seen.

• The Volt is a go: Scheduled to be built in the heart of Detroit at the company's Hamtramck plant, the advanced hybrid-electric vehicle is on the schedule for introduction in 2010, but much work still remains in developing the vehicle's lithium-ion batteries for production. Production in 2010 also means that orders and work for vehicle systems should be going out to suppliers; with batteries still in the development phase, despite the company's protestations to the contrary, introduction of the Volt in 2010 still seems extremely optimistic. But giving the vehicle an assigned manufacturing location puts it one step closer to legitimacy for GM.

• Cadillac and Chevrolet: New wagon and coupé versions of the Cadillac CTS luxury sedan are coming, as well as a new small MPV (possibly the replacement Opel Zafira), the often-photographed Chevrolet version of the successful Lambda CUVs, and a "large Chevrolet notchback" to be built in Kansas.

The upcoming models show immense progress towards achieving world-class vehicles that represent the efforts of GM's turnaround programme, significant global development process revisions, and the influence of auto enthusiasts in the development process. But much work still remains for convincing American consumers to give GM another shot at their business, and that challenge is not one that can be negotiated away.

The Big VEBA Risk

While the ability of GM to get rid of nearly US$50 billion (or more) in liabilities is a definite win for the automaker, further details of the deal reveal that GM could be paying billions into the VEBA for the next two decades. The initial outlay of US$24 billion in cash and securities will create the VEBA (pending approvals from UAW members, federal regulators, and others) early next year, but it will not start paying out until 2010, according to the details of the released contract. GM would still be accountable for making payments of US$165 million for as long as the next 20 years, should the level of funding in the VEBA drop to where payout projections become risky. This means that GM could be on the hook for another US$1.65 billion over the next 20 years, still a drop in the ocean in comparison to the possible payouts required from the original liabilities. But some of the assumptions, such as the level of healthcare cost inflation projected for the next 10 years, may turn out to be less than reality, which could put GM back in a difficult negotiating position for future contracts.