General Motors Avoids a Costly Strike in Canada

By Markets

Chevrolet Impalas are assembled on one of two production lines at GM's plant in Oshawa, Ontario. Under a new labor deal, the plant will continue to build Impalas alongside several other GM models. Image source: General Motors.

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After a somewhat contentious round of negotiations that included the threat of a strike, General Motors' (NYSE: GM) hourly workers in Canada have ratified a new four-year labor contract, according to a statement released by the Unifor labor union on Sunday.

In a nutshell, the new contract is an incremental deal that gives the workers what they most wanted at a price GM can afford.

What did the workers get?

GM has committed to making 554 million Canadian dollars (about $421 million) in new investments in two factories in the province of Ontario, according to the Unifor labor union that represents GM's hourly workers in Canada.

There had been hints that GM might try to close one of the factories, a vehicle-assembly plant in Oshawa, Ontario. GM has agreed to build future new products on one of Oshawa's two assembly lines. It will close the other line next year, but GM has agreed to replace that line with a "flexible assembly module" that will take in overflow work from other GM plants in North America, retaining the workers. GM's total investment in Oshawa will be roughly 300 million Canadian dollars, the union said.

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GM also committed to spend about 150 million Canadian dollars on its engine and transmission factory in St. Catharines, Ontario, according to the union. The St. Catharines factory will be set up to make a new series of transmission parts that GM had originally planned to make in Mexico.

Securing new products for those two factories was a very high priority for the union. It was also able to secure modest wage increases, a boost in the pay rate for new hires, and an agreement from GM to eliminate the 2.3 billion Canadian dollar deficit in the pension plans for its Unifor workers and retirees.

What did GM get?

GM got one significant concession from the union, and it could mean substantial savings over the long haul. Until now, GM's hourly workers in Canada have always had defined-benefit retirement plans. Nothing will change for existing workers, but new hires will instead be enrolled in a defined-contribution plan similar to a U.S. 401(k) plan. Those workers will be required to contribute 4% of their earnings to the plan, with GM contributing a matching amount.

Is this a good deal for GM?

Yes. GM did give up enough concessions for the union to feel like it got a decent deal. But importantly, GM didn't do anything that will have a significant impact on its cost structure in North America over the long term. The concessions it did give up were not an outrageous price to pay for four more years of labor peace.

The union also got a good deal. Union leaders didn't have to go to great lengths to sell the new deal to the membership. Unifor said that about 65% of eligible workers voted to approve the new labor agreement. By labor standards, that's a solid majority.

The upshot: good news for GM investors

Sometimes, for investors, "there's not much to see here" is good news. There were only two factories involved, and the negotiations didn't get too far out of hand -- but there was real risk here: A strike at the St. Catharines factory could have quickly halted production of several key GM models made elsewhere in North America.

Fortunately, that didn't happen. The workers won raises and commitments that aren't likely to come back to haunt GM later on. For GM investors, that's unambiguous good news.

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John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.