General Motors and United Auto Workers close to agreement on healthcare

SAN FRANCISCO (MarketWatch) -- Negotiators for General Motors Corp. and the United Auto Workers were close to agreeing on a deal to transfer the automaker's retiree health care costs to a trust managed by the union, according to news reports Saturday.

GM and the labor union held their seventh session of talks Friday and planned to meet Saturday, the Associated Press reported.

Details of the health care plan haven't yet been worked out, AP said, citing comments from a person who was briefed on the talks.

GM's drive to transfer about $50 billion of long-term retiree health-care costs to a trust managed by the union has been seen as critical to a positive outcome.
Such a move, if agreed, would save GM about $3 billion a year.

While union bosses accept the concept, pioneered in a labor agreement struck last year between Goodyear and its United Steel Worker employees, progress has been slow to non-existent on how it would work at GM.

Media reports as of Friday, citing anonymous sources privy to the closed-door talks, say GM is only willing to take on about $30 billion of the $50 billion accounting liability the health-care plan carries.

"The union is understandably skeptical to this," David Healy, analyst at Burnham Securities said Friday. Like many on Wall Street, he is also increasingly skeptical that the talks can produce an agreement without resolving the health-care issue.
"The longer this goes on without a settlement, the more likely there will be a strike, though it is my impression it would be a short one," he said.

GM's share price reflects this growing concern. It jumped from $31.74 on Sept. 13, the day before the talks began, to a session-high of $36 on Wednesday, fueled in part by a big rally following the Federal Reserve's rate cut but also on views that GM would manage to hammer out a deal with the union.

That optimism is waning and the stock has since flattened out at around $35 a share, despite further gains Friday by the Dow Jones Industrials Average, which includes GM.
GM shares closed Friday at $34.94, up 47 cents for the day.

Meanwhile, more than 70,000 GM employees are working day-by-day without a contract, poised to strike at any time if their representatives declare the talks deadlocked.
The entire automotive industry is closely watching the talks. Whatever deal is eventually reached between GM, the world's biggest car maker, and the UAW will serve as the blueprint for contracts between Ford Motor Co. , Chrysler, and their workers. It will also shape the contracts of thousands of workers in the U.S. automotive parts industry.

Negotiators on both sides of the table are painfully aware of the high stakes.
GM, fighting to defend a market share under siege from foreign carmakers, insists it needs to get out from under crushing pension and health-care costs that, for key competitors such as Toyota, are often borne by national welfare programs.
Auto workers are also reluctant to resort to a strike, keenly aware that a prolonged labor action could accelerate the decade-long offshoring of their jobs to far cheaper labor markets.

Jim Jelter is Industrials Editor for MarketWatch in San Francisco.
Myra P. Saefong is MarketWatch's assistant markets editor, based in San Francisco.