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Fiat (FCAU) Enters 4-Year Tentative Labor Contract With UAW

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Fiat Chrysler Automobiles N.V. (FCAU - Free Report) recently committed to make an investment of $9 billion, by reaching a tentative four-year labor contract with the United Auto Workers (UAW) union. This is likely to boost the $50-billion merger plans of Fiat and PSA, the maker of Peugeot and Citroen, in order to create the world's fourth largest automaker.

Per Bloomberg, Fiat will spend $4.5 billion to boost the output of its Jeep sport utility vehicles and Ram trucks, while the other half of the investment will be spent over the next four years. The company will also generate 7,900 new jobs under this four-year agreement.

Shares of Fiat have rallied 11.8% in the past three months compared with the 9.3% increase recorded by the industry.

However, the agreement is subject to ratification by the UAW members, matching the contract that the UAW concluded with Ford (F - Free Report) and General Motors (GM - Free Report) . While the Ford-UAW employees secured a $9,000- and $3500-ratification bonus for full-time and temporary workers, respectively, the General Motors-UAW members gained annual lump-sum bonuses or raises and $11,000-ratification bonuses as part of the deal.

Moreover, a federal racketeering lawsuit against Fiat was filed by General Motors recently for bribing UAW union officials. This lawsuit revealed how Fiat has been corrupting the bargaining process for several years in order to gain advantages, causing General Motors significant damages. Nonetheless, Fiat has dismissed the lawsuit as baseless.

Zacks Rank & Stock to Consider

Currently, Fiat carries a Zacks Rank #3 (Hold).

Investors can consider a better-ranked player in the same industry, CarMax (KMX - Free Report) , carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CarMax has an estimated earnings growth rate of 10.44% for 2019. The company’s shares have surged 48.1% in a year’s time.

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