Reuters:

The United Auto Workers union and General Motors Corp agreed to a new contract on Wednesday, ending a two-day nationwide strike by 73,000 workers with a groundbreaking deal that includes a health care trust fund.

News of the tentative four-year pact sent the automaker's shares up more than 6.0 per cent in early trading.

GM's quick settlement with its major union allows the softening U.S. economy to sidestep another blow and sets the stage for similar deals that could boost domestic automakers, analysts and investors said on Wednesday.

GM's deal ended the United Auto Workers' two-day strike by more than 73,000 workers before it could hurt an economy already weighed down by a housing downturn and credit market unrest, analysts said.

Cost disadvantage

The tentative deal also could allow GM to drastically slash the cost disadvantage it carries versus Toyota Motor Corp and other Japanese rivals.

"The important point for GM and its shareholders and the economy is that the health care costs have been segregated and limited. That's really been the albatross around the neck of GM and the other major automakers for quite a while," said Tim Ghriskey, chief investment officer with Solaris Asset Management, a New York investment management firm.

"To us, it really will lead in time to a much healthier domestic auto industry."

The deal still must be approved by a majority of UAW members.

Despite the optimism, Peter Morici, a professor at the University of Maryland School of Business, dismissed the pact as not addressing GM's real cost issues, including high manufacturing salaries and a bloated jobs bank.

"The details that emerged in the press about the 'historic' UAW-GM labour pact indicate the deal may prove the death knell for yet many more Midwestern manufacturing jobs," said Morici, former chief economist at the U.S. International Trade Commission.

Uncompetitive

"Overall, GM was very, very uncompetitive before this deal and is now just very uncompetitive."

Next up for the UAW will be talks with GM's U.S. rivals, Ford Motor Co and Chrysler LLC, which is controlled by Cerberus Capital Management LP.

GM's deal will likely shift the automaker's obligation for more than US$50 billion of retiree health care to a trust fun with the union.

Similar deals would allow Ford and Chrysler to redeploy millions for product development and other areas critical for their survival.

"The real noose around all the automakers' necks is these very rich health care guarantees," said Peter Jankovskis, a chief investment officer with OakBrook Investments in Lisle, Ill. He has a short position on GM stock.

Blueprint

GM's pact with the UAW also could serve as a blueprint for other industries with large union work forces, analysts said.

The deal was a landmark for another reason, as the UAW offered concessions to help U.S. automakers struggling with billions of dollars in losses and health care obligations, analysts said.

"This is really the first time in memorable history the auto companies got anything significant out of these negotiations," said John Wolkonowicz, a senior automotive analyst for North America for Global Insight, a consulting and analysis firm in Lexington, Massachusetts.

"This is truly monumental."