GM, UAW contract extended as talks continue

By Jui Chakravorty and Poornima Gupta

DETROIT (Reuters) - The United Auto Workers union agreed to extend its contract with General Motors Corp. on an "hour-to-hour" basis on Saturday as the two sides continued labor talks beyond a Friday deadline.

The move by the UAW avoided the threat of an immediate strike against the No. 1 U.S. automaker and stoked expectations that the two sides were closing in on a deal after eight weeks of negotiations.

Phil Smith, an official with UAW Local 599 in Flint, Michigan, said the rolling contract extension suggested that the two sides were making progress.

Other UAW local officials, who had readied GM factory workers to walk out at a moment's notice, agreed.

"They are still talking, so that means it's good news. I think it is either a contract or an extension. I don't think it'll be a strike. If it was a strike, they wouldn't be talking any more," said Chris "Tiny" Sherwood, president of UAW Local 652, who represents GM workers at a Cadillac assembly plant in Lansing, Michigan.

GM and UAW declined comment on the progress of the talks which will affect over 73,000 hourly workers and almost 270,000 blue-collar retirees.

The UAW on Thursday singled out GM as its "strike target," a term it had avoided in more collegial negotiations in 2003.

Rival automakers Ford Motor Co. and privately held Chrysler LLC already signed contract extensions with UAW, clearing the way for their union-represented workers to continue working into the coming week.

But strike preparations began on Friday at GM plants across the United States after the UAW's lead negotiator with GM, Cal Rapson, told members the union needed to see some "serious movement soon."

"Unless this happens, a strike might well be unavoidable," he said in a note to UAW-represented GM workers.

A person familiar with the UAW's position said the union had been prepared late Friday to extend the contract with GM and continue talks into next week if there was progress on the central issue of health-care costs.

The Detroit-based automakers lost more than $15 billion in 2006 and have cut more than 80,000 jobs through buyouts driven by plant closings. Given the industry's weakness, analysts have viewed a strike as unlikely.

RATCHETING UP THE PRESSURE

Wall Street analysts have been optimistic that the automakers will emerge from the talks with a deal that slashes health-care costs, but the UAW's threat to strike had injected a new tone of uncertainty.

The UAW, one of the most powerful unions in a U.S. economy where less than 10 percent of all private workers remain unionized, has historically negotiated an agreement with a lead company first and then applied that deal as a pattern for the other two Detroit-based automakers.

The contract talks between the UAW and GM have been dominated by complex negotiations over the idea of cutting billions of dollars in GM's health-care expenses by funding a new stand-alone trust fund to pay for retiree care.

The two sides continue to spar over how many billions of dollars the automaker would offer for such a fund -- known as a voluntary employee beneficiary association, or VEBA -- and how large a discount the UAW would accept.

The person familiar with the UAW's stance said the union was seeking a job security guarantee in exchange for accepting a VEBA and could agree to funding of 65 percent to 67 percent of liabilities.

Ford and Chrysler LLC were also in talks with the UAW to establish such trusts, sources have said.

Chrysler negotiators planned to meet with the UAW through the weekend, a person familiar with the plan said.

Analyst Brian Johnson at Lehman Brothers said a settlement where automakers cover 75 cents of each dollar of their outstanding estimated liability for health care has been seen as the most likely outcome.

The automakers may seek outside financing rather than drawing down cash balances to fund the VEBA, Johnson said.

(Additional reporting by David Bailey, Ben Lamothe, Dave Rogers and Kevin Krolicki)

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