General Motors and the UAW are reported to be closer to a deal that would set a new contract in motion and avert a strike. The UAW chose to lead their new contract negotiations with GM over a week ago. In the past, the other U.S. auto makers have followed suit once a deal was struck with the lead company. That may not be the case this time.
The Big Three are in differing situations, and the deal GM cuts simply can not be cut by the others. GM is striving to get health care off of their books, and let the UAW run the program. With over 500,000 retired people and spouses, the cost of funding health care is substantial, and simply makes GM less competitive. GM, it is rumored, is offering to fund part of the program, in cash and stock. Stock issuance would be dilutive, and the debt would still remain for the company, al-be-it a more predictable debt. Ford and Chrysler wait in the wings, but both have substantially smaller retiree pools, and in Chrysler's case, there is no stock. This makes funding a health care program with shares problematic.
In the short term, a deal could be a positive for GM and Ford stock, but an analysis would need to be made to consider the long term impacts of such a deal. In my opinion, the UAW needs to play ball here, because otherwise, one of these companies may well disappear, leaving many UAW employees out of a job. These companies have given about all that could be given, and the impacts on competitiveness and market share are easy to demonstrate.
Thus far, there has been no strike, so impacts on SDARS is very minimal, but the issue is well worth watching for SDARS investors because the Big Three play a major role in getting SDARS into the hands of consumers.
Position - Long Ford, No Position GM