Auto workers make concessions to keep jobs in U.S.

But innovative fund secures healthcare for retirees even if General Motors goes bankrupt.

A historic deal between America's largest carmaker and the industry's labor union promises to help Detroit become more competitive with Asian rivals.

In that sense, the tentative agreement reached Wednesday represents a win for both sides. But for workers, it's as much about sidestepping defeat as declaring victory.

At the core of the accord between General Motors and the United Auto Workers is a simple trade-off: The union makes major concessions that will help the company bring down labor costs, and in return it wins the hope of retaining many of its remaining US jobs.

"They have to have GM invest in North America in order to ensure their long-term viability as a union," says David Cole, who heads the Center for Automotive Research in Ann Arbor, Mich. The price of getting a degree of job security, he says, is to help GM bring its labor costs much closer to those enjoyed by Asian rivals such as Toyota.

The deal Wednesday morning ended a two-day national strike against GM. The details were not immediately made public, as the union communicated first with its own membership.

But according to news reports, the broad outlines of the pact involved gains for both sides. It includes a groundbreaking move to shift responsibility for retiree healthcare from the company to a union-administered trust fund. This lowers GM's hourly labor costs, which include healthcare, and removes uncertainty about its long-term health-cost burden.

For the union, the healthcare arrangement provides assurance that hard-won benefits won't disappear if GM is ever forced into bankruptcy. GM will kick billions of dollars into the fund, known as a VEBA (voluntary employee beneficiary association).

On wages, the company will pay some new hires in nonmanufacturing jobs a lower rate than its current employees in those jobs. Instead of formal pay raises, the company agreed to annual lump-sum payouts to workers.

All this amounts to a carefully choreographed plan that both sides hope will help GM restore profitability to its North American operations.

In the talks, the company in effect gave the union a choice, Mr. Cole says. Under Plan A, the UAW makes big concessions, and GM is able to keep jobs in the US. The alternative, if the union refused to cut costs enough, is Plan B: "Disinvest in the US."

Investment in US plants – especially ones whose future has been in doubt – is what the union means when it talks of "job security" as a top goal in bargaining.

According to the Associated Press, GM generally agreed that with the reduced costs from the new contract, investment in the plants would make good business sense.

"We're very comfortable with this agreement, and we're happy to be able to recommend it to our membership," UAW president Ron Gettelfinger said. "I'm pleased to say that we have a VEBA in place that will secure the benefits of our retirees."

That arrangement with GM probably paves the way for a similar deal at Ford and possibly Chrysler in the UAW's ongoing contract talks with those companies.

The VEBA is key – and not only because those retiree healthcare costs account for a sizable share of the labor-cost gap between GM and its competitors.

"It will change a very longstanding principle" for the UAW, says Joseph D'Cruz, a University of Toronto expert on the industry. Hard-won social-welfare elements of past contracts have long been off the table, he says. Now "they've actually become negotiable."

Both sides knew that the status quo wasn't working. Labor costs are far from the only key to Detroit's success, but the cost gap weighs down the US companies in an era of rising competition. In addition to Japan and South Korea, the threat of China and India as automobile exporters now looms.

Adding pressure on the union, GM itself is increasingly a global company, with fast-growing foreign markets competing with the US for its investment dollars.

America remains the core market in terms of revenues. But GM now has more factory workers – and makes more cars – outside the US than inside. That trend, even more than the union's two-day strike this week, hung as a threat over contract talks.

GM is more global than Ford or Chrysler, but all the automakers are moving that way. Chrysler, now under private-investor ownership, has a deal with Chinese manufacturer Chery to build small cars for export.

"That's obviously the thin end of the wedge," Mr. D'Cruz says. "If they can build the lowest end [models] in China, then what about the next level?"

No one is expecting US production to disappear. This week's deal offers the union hope that its job base won't shrink too fast.

"This is really a win-win solution," says John Wolkonowicz, an auto analyst at the consulting firm Global Insight in Lexington, Mass. But "is Detroit out of the woods with this? No way."

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