CAW Ratifies GM Contract

After Ford Motor Co. (F - Analyst Report), Canadian Auto Workers (CAW) union has ratified the 4-year agreement with General Motors Company (GM - Analyst Report). About 73% of union members have accepted the deal. Under the deal, GM would create or save 1,750 jobs and invest C$675 million ($692 million) in its Canadian plants.

The agreement included 5,600 CAW workers represented by GM in Ontario. The workers belong to a vehicle assembly plant in Oshawa that manufactures Chevrolet Impala and the Cadillac XTS, as well as a plant in St. Catharines that produces V-8 and V-6 engines.

The CAW union already ratified its 4-year agreement with Ford last week. The new contract will help both Ford and GM lower labor costs in Canada.

Under both the Ford and GM agreements, workers will be paid 60% (instead of 70% previously) of the highest hourly wage rate of C$33.89 (US$34.74), which would be $20.40, a decline from C$23.80 previously. The wages would take 10 years instead of 6 years to reach the highest level.

The new agreement also includes lump-sum bonuses for workers instead of cost-of-living adjustment bonus for the first three years. Both GM and Ford workers will receive C$2,000 ($2,039) lump-sum payments in the contract’s second, third and fourth years in lieu of cost-of-living adjustments and a C$3,000 ($3,059) ratification bonus.

The new deal would also alter retirement plans for new hires. It will move half the pension into a defined-contribution plan where workers will pay certain amount into a pension fund while the eventual payment will depend on the fund’s performance. At the time of retirement, the company is bound to make up the shortfall if the pension fund underperforms.

Under the deal, GM would extend the operation at its consolidated assembly line in Oshawa, Ontario, for one more year. The plant was supposed to close in June next year. It will also add a third shift of 900 workers at another plant in Oshawa and 100 jobs at an engine and transmission plant in St. Catharines, located southwest of Toronto.

The Canadian Auto Workers (CAW) union has wrapped up its labor negotiation with the remaining Detroit automaker, Chrysler Group LLC, majority-owned by Fiat SpA (FIATY). Among the Detroit Big Three, Chrysler operates the largest facility in Canada. The ratification vote for Chrysler agreement is scheduled for September 29 and September 30.

GM, a Zacks #3 Rank (Hold) stock, reported a sharp 41% fall in profits to $1.49 billion or 90 cents per share in the second quarter of the year from $2.52 billion or $1.54 in the same quarter of 2011. Nevertheless, profits exceeded the Zacks Consensus Estimate by 15 cents per share.

Revenues in the quarter fell 4.5% to $37.61 billion, which is lower than the Zacks Consensus Estimate of $37.98 billion. Unit sales rose 3% to 2.39 million vehicles from 2.32 million vehicles in the second quarter of 2011. The automaker occupied a worldwide market share of 11.6% during the quarter, down from 12.3% a year-ago.

The decline in profits and revenues was attributable to strengthening of U.S. dollar against most of the major currencies as well as weak macroeconomic conditions globally, especially in Europe and South America.