GM To Union: Trust Us

Andrew Farrell | 09.13.07, 12:29 PM ET | Link to Original Article @ Forbes

With a key deadline looming on labor negotiations, investors were optimistic that General Motors would soon be able to create a new health care trust for its workers and save billions of dollars.

Shares of General Motors rose $1.93, or 6.4%, to $32.18, after Citi analyst Itay Michaeli said they would be worth much more if GM could hammer out a favorable labor deal. Michaeli initiated coverage of General Motors with a "buy" rating on Thursday.

GM, Ford Motor, and Chrysler are in round-the-clock negotiations with the United Auto Workers Union, which represents about 180,000 workers whose labor contracts expire Friday.

A sticking point is healthcare. According to Michaeli, healthcare liabilities add over $1,000 to the cost of each vehicle made by General Motors. Detroit auto makers want to trim these expenses to better compete with foreign rivals, but workers are reluctant to give up benefits as their medical costs skyrocket.

Michaeli said General Motors shares could be worth $57 if the company and the UAW agreed to a type of health care trust fund called a voluntary employee beneficiary association, or VEBA. Such a fund could save General Motors billions of dollars in retiree costs.

UAW President Ron Gettelfinger has agreed in principle to the trust, according to a report in Thursday's Wall Street Journal, and the two sides are now haggling over the amount of money that the auto makers will front.

Hopes of a cost-saving deal also rallied Ford shares on Thursday. The stock gained 34 cents, or 4.5%, to $7.84. Chrysler is owned by private equity firm Cerberus.

Good to see that GM is a 'buy' now...

6 years ago Boeing went from hold to buy @ 58$ now at 98$, one can only hope that GM does as good as Boeing.

Get Her Done!

I wonder if this might be so advantageous to the manufactueres that Toyota will want to join and be forced to go union?