GM Deal Seen Boosting Auto Industry, Economy
General Motors' quick settlement with its major union allows the softening U.S. economy to sidestep another blow and sets the stage for similar deals that could boost domestic automakers, analysts and investors said Wednesday.
GM's deal ended the United Auto Workers' two-day strike by more than 73,000 workers before it could hurt an economy already weighed down by a housing downturn and credit market
unrest, analysts said.
The tentative deal also could allow GM to drastically slash the cost disadvantage it carries versus Toyota Motor Corp and other Japanese rivals.
"It appears that it's really a win-win for both sides," said Tim Ghriskey, chief investment officer with Solaris Asset Management, a New York investment management firm. "The important point for GM and its shareholders and the economy is that the health care costs have been segregated and limited.
"That's really been the albatross around the neck of GM and the other major automakers for quite a while," added Ghriskey, who does not own auto stocks but follows the sector closely.
"To us, it really will lead in time to a much healthier domestic auto industry."
GM shares were up almost 5% and its bonds rose as well on news of the tentative deal. The deal, which still must be approved by a majority of UAW members, helped push the Dow Jones Industrial Average higher.
Costs Still a Problem
Despite the optimism, Peter Morici, a professor at the University of Maryland School of Business, dismissed the deal as not addressing GM's real cost issues, including high
manufacturing salaries and a bloated jobs bank.
"The details that emerged in the press about the 'historic' UAW-GM labor pact indicate the deal may prove the death knell for yet many more Midwestern manufacturing jobs," said Morici,
former chief economist at the U.S. International Trade Commission. "Overall, GM was very, very uncompetitive before this deal and is now just very uncompetitive."
Next up for the UAW will be talks with GM's U.S. rivals, Ford Motor and Chrysler, which is controlled by Cerberus Capital Management.
GM's deal will likely shift the automaker's obligation for more than $50 billion of retiree health care to a trust fund aligned with the union. Similar deals would allow Ford and Chrysler to redeploy millions for product development and other areas critical for their survival.
"The real noose around all the automakers' necks is these very rich health care guarantees," said Peter Jankovskis, a chief investment officer with OakBrook Investments in Lisle,
Ill. He has a short position on GM stock.
GM's pact with the UAW also could serve as a blueprint for other industries with large union work forces, analysts said.
UAW Offered Concessions
The deal was a landmark for another reason, as the UAW offered concessions to help U.S. automakers struggling with billions of dollars in losses and health care obligations, analysts said.
"This is really the first time in memorable history the auto companies got anything significant out of these negotiations," said John Wolkonowicz, a senior automotive analyst for North America for Global Insight, a consulting and analysis firm in Lexington, Massachusetts. "This is truly monumental."
He estimated the health care agreement alone could halve GM's cost disadvantage versus its Japanese rivals -- a gap the automakers estimate at $30 per hour for the average factory
However, the deal is seen as just the first of many steps GM needs to make for a comeback. After all, the U.S. automaker needs to build cars and trucks consumers want, analysts said.
"To be perfectly blunt, there really wasn't a lot to be gained here," said Mike Davis, an economist at Southern Methodist University in Dallas, which is near a GM plant that builds full-size pickup trucks. "GM has to clean up its act, get its costs in line with its Japanese competitors."
Wall Street Happy
Many on Wall Street were simply happy about the strike's brief tenure.
A Merrill Lynch analyst had estimated a month-long strike could have cut U.S. economic growth by at least one percentage point in the fourth quarter. GM's last national strike in 1970 cut as much as 2 percentage points off fourth-quarter growth in that year.
And with employees in Canada and Mexico, the strike's impact would have been felt beyond the U.S. borders.
Others said a long strike could have discouraged employers in a range of industries from hiring more workers, contributing to another contraction in payrolls. The number of nonfarm
workers on U.S. payrolls slipped in August, the first decline in four years.
In the end, GM's deal may serve to weaken its U.S. rivals, depending on how the UAW applies the agreement to successive talks, Maryland's Morici said.
"It's the old story of the bear chasing hunters in the woods," he said. "The fastest hunter does not have to worry, because the bear will eat the slowest runner."