What's happening? General Motors (NYSE:GM) and the United Auto Workers (UAW) have agreed to extend their 2011 contract until Nov. 20 while they work out lingering issues with a new four-year labor agreement, the Detroit News is reporting.
Wasn't the new agreement approved by workers? It was approved by an overall vote of workers. The contract gives regular production workers significant raises and bonuses. It also largely eliminates a "two-tier" wage system that was adopted when the Detroit automakers were in dire straits last decade.
The two-tier system provided that new hires could be paid substantially less than veteran workers. That rankled old and new workers alike, and all were eager to see the lower-tier workers given a path to wage parity with the veterans. The UAW was able to work out an arrangement with Fiat Chrysler (NYSE:FCAU) that brought the two tiers into parity with a series of adjustments over eight years; GM (and Ford) both adopted the same system in their agreements.
That was enough to win approval from a majority of workers. But votes of "skilled trades," a category of specially trained workers, are tallied separately because certain parts of the contract apply only to them. While the contract won enough votes to get overall approval, a majority of GM's skilled tradespeople voted to reject the agreement.
Technically, UAW leaders have the power to declare the contract to have been approved if they decide that the skilled trades' objections were to parts of the contract that apply to all workers. But after talking to representatives of skilled trades in several GM plants, UAW leaders decided to go back to the negotiating table with GM to address the tradespeoples' concerns.
Why are the skilled tradespeople objecting to the new contract? The UAW isn't saying. But the Detroit News has reported that skilled trades workers have said they are concerned that provisions in the new agreement could require them to do multiple jobs and "water down" their specializations. Workers are also concerned that GM might outsource some of the tasks that have traditionally been performed by skilled tradespeople within the factories.
Is this likely to cause the agreement to fail? Under the UAW's own rules, any changes that come out of these talks can't change aspects of the new contract that apply to all workers. It seems unlikely that either the UAW or GM will let these concerns throw the whole contract into question.
More likely, the UAW and GM will work out a compromise that addresses some or all of the skilled tradespeoples' concerns. The compromise may not even require voting; the UAW could declare the contract to be approved with an addendum.
What does this mean for GM investors? Probably not a lot. Issues with labor unions don't tend to move GM's stock unless a dispute gets heated and a major strike becomes likely. That's probably not going to happen here.
And new labor contracts won't tend to affect GM's stock unless they increase costs significantly. This contract will almost certainly add to GM's production costs in the United States over the next four years, but any tweaks made to appease the skilled tradespeople are unlikely to add meaningful additional costs.