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Union contracts can affect auto industry financing opportunities

Oct 14, 2011 Randy Mosteller

Among the biggest issues for the auto industry in recent years has been contract negotiations with workers. For years, companies in the United States were forced to comply with the steep demands of powerful unions, who took in sizable compensation and benefit packages while the companies were losing money. However, since the years since it was forced to take an emergency loan from the government, General Motors has been making agreements with its union after both sides came to terms. The four-year deal singed between GM and the United Automobile Workers union won't have too large an impact on the companies overall spending, as it is expected to add only 1 percent to its labor costs, according to The New York Times. Prior to its auto industry financing package from the government in 2005, the Detroit car maker more than $15 billion on labor, as compared to just $5 billion in 2010. According to the head of GM, Daniel F. Akerson, both sides benefited from the ability to make the deal and the company would benefit as a result. It was the first labor agreement with any of the Big Three automakers following the crisis in 2009 and was also hailed by those within the union. "In these uncertain economic times, we were able to win an agreement with G.M. that guarantees good American jobs at a good American company," Joe Ashton, the union vice president in charge of negotiations with G.M., said in a statement. "When G.M. was down, our members sacrificed and saved G.M. Now that G.M. is posting strong profits, our members, as a result of this agreement, are going to share in the company’s success." One of the stipulations of the new agreement is that the firm must add 6,400 to the U.S. workforce and raise the pay for those working in entry level positions. "Now we believe we have the tools in place that will further improve our competitiveness going forward, which is important both for the U.A.W. and for G.M.," Mr. Ammann of GM said. The contract settlement is likely to benefit customers, who may get more easy access to auto industry financing as a result.