DETROIT - General Motors Co.'s shares rose Monday on news that the company's new contract with the United Auto Workers union will bring only a minimal increase in recurring costs for the automaker.
The tentative agreement, reached late Friday, includes a $5,000 signing bonus for workers and the possibility of sweeter profit-sharing checks for GM's 48,500 factory workers. But most aren't likely to see a pay raise.
Because fixed costs were contained, GM still will be able to break even in a depressed U.S. auto sales market of around 10.5 million, said a person familiar with the contract, who asked not to be identified because terms of the deal haven't been released to union members.
GM shares rose 44 cents, or nearly 2 per cent, to close at $23.05 Monday, about 30 per cent below the initial public offering price of $33 per share in November. The shares topped $39 not long after the IPO but have traded as low as $20.88 more recently. Monday's increase came as the Dow Jones industrial average fell almost 1 per cent on worries about government debt problems in Greece.
Union leaders from factories across the nation will be in Detroit on Tuesday to hear UAW President Bob King and other leaders explain the contract terms. Workers must vote on the deal before it can take effect. Voting will take place in the next week or so.
Despite the GM pact's minimal increase in recurring costs, Chrysler Group CEO Sergio Marchionne said Monday that his company may not aim for a similar deal. The UAW is still negotiating with Chrysler and Ford Motor Co.
"Let's try not to compare such two different realities,'' Marchionne said at an event in Turin, Italy, according to LaPresse news agency. He said he didn't yet know the details of GM's contract but is "optimistic'' that Chrysler will reach an agreement soon.
People briefed on GM's agreement said it includes a $2- to $3-per-hour pay raise for entry-level workers over the life of the contract and guarantees of more union jobs. GM now has around 2,400 workers making the entry-level wage of $14 to $16 per hour, about half the pay that longtime UAW workers get.
Also, a former Saturn assembly plant in Tennessee will be reopened under the deal, the people said, and new products have been promised to plants in Michigan and Missouri. A plant in Wisconsin, which stopped producing trucks in 2009, will remain idled but won't close.
None of the people who spoke about the terms of the pact wanted to be identified because the terms have not been explained to union members.
Citi analyst Itay Michaeli wrote in a note to investors Sunday that the deal appears to fall in line with earlier expectations and shouldn't meaningfully affect GM's stock price.
Michaeli wrote that, based on what he has heard so far, it appears the new deal won't change much for the Detroit automaker or meaningfully alter its break-even point.
"Thus, we view the contract as a neutral to the stock, particularly in today's volatile macro environment,'' Michaeli wrote.
The analyst said GM's labour costs last year were less than one-third as high as just five years ago. So small changes to them won't affect its profits the way they once did.
If approved, the GM contract will serve as a template for the UAW's negotiations with the other two U.S. automakers. These are the first labour negotiations since GM and Chrysler Group LLC received government bailouts to make it through bankruptcy protection in 2009.
GM pays around $56 per hour including wages and benefits, which is less than what Ford pays but far higher than other companies like Chrysler and Hyundai Motor Co.
