Ratings agency Standard & Poor’s (S&P) raised its corporate credit rating on General Motors Co. (GM) by two notches to BB+ from BB- as its workers recently ratified a 4-year contract with the United Auto Workers (UAW). The agency also lifted its rating outlook on the company to “Stable” from “Positive”. It believes the contract will help GM maintain profitability and continue generating cash in North America.
A couple of days back, workers at GM ratified the UAW deal as a majority of the workers voted for the same. Among the 48,500 workers, 65% of production workers, and 63% of skilled-trade workers voted for the deal.
Most of the workers, except at the entry-level, would not get annual pay raises, but signing bonuses totaling $5,000, profit-sharing checks and other payments amounting to at least $11,500 during the tenure of the deal.
Wages of entry-level workers would be increased 22% from the current $15.78 per hour. GM currently employs about 1,900 entry-level workers.
The deal would also save more than 6,000 U.S. jobs and create another 5,100 jobs at GM plants. The UAW estimated the deal would also add another 57,600 jobs at suppliers and other auto-related businesses.
It will save $50 million this year and $145 million in future years for GM as it would no longer need to pay for factory workers’ legal services. As a result, factory worker costs would be reduced to $5 billion per year from $16 billion in 2005 and $11 billion in 2007.
After GM, UAW would now turn to its motown rival, Ford Motor Co.(F) and then to Chrysler Group LLC, controlled by Italy’s Fiat SpA (FIATY), to reach an agreement.
S&P expects to raise Ford’s corporate credit rating as well once the labor negotiations are over and a new and competitive contract is reached. Currently, Ford has a BB- credit rating from S&P with positive implications. The agency may lift it to BB+, which is a notch below investment grade, and assign a “Stable” outlook.
