Sept. 26 (Bloomberg) -- General Motors Corp. reached an historic contract agreement that takes $50 billion of future health-care obligations off GM's books and may transform the competitive landscape of the U.S. auto industry.

The accord, ending a two-day strike, is designed to allow the Detroit automaker to operate with a cost structure closer to that of its Japanese rivals. Should the four-year deal be approved by GM workers, Ford Motor Co. and Chrysler LLC will seek similar UAW contracts. GM rose 9.4 percent, leading gains for automakers and parts suppliers.

``This begins to solve the significant legacy cost for the domestic auto producers which has just put them at such a comparative disadvantage to the foreign competition,'' said David Sowerby, a portfolio manager at Loomis Sayles & Co. in Bloomfield Hills, Michigan.

GM Chief Executive Officer Rick Wagoner won most of the things he sought to ensure GM's survival, including the centerpiece, the union-run retiree health-care fund. The contract also limits growth for wage increases and introduces an idea the union has fought since its inception in 1935 --multiple tiers of wages for workers on the same assembly line.

UAW President Ron Gettelfinger said he received ``outstanding'' job-security pledges for U.S. workers in exchange. He told reporters today he feels ``very good'' about the accord and will seek its approval in voting this weekend.

Back to Work

The agreement will allow Detroit-based GM to restart operations today at more than 80 U.S. locations shuttered by the walkout. The action, which sent more than 73,000 union workers to the picket lines, was the first national work stoppage at GM since a 67-day strike in 1970.

``If it looks as good as it sounds, once we see the details, I think the people will be happy,'' said Chris Sherwood, president of UAW Local 652 at a Cadillac assembly plant in Lansing, Michigan.

GM agreed to contribute $35 billion to start the retiree health-care fund, two people familiar with the accord said. That's equal to 70 percent of the value of the company's outstanding retiree health liability.

The automaker agreed to additional buyouts of more senior workers to make room for some of the temporary employees hired in the last two years to be made permanent, people familiar with the agreement said. They asked not to be named because details aren't yet public. A total of 4,100 temporary workers would become permanent, one of the people said.

More Contract Details

GM won the right to pay newly hired employees less than existing workers, the people said, and the UAW agreed to forgo a base wage increase.

Instead, union workers will receive a signing bonus of $3,000, plus three annual lump-sum payments equal to 3 percent of wages, the people said. The UAW also agreed to divert a portion of future wage increases to pay for health care for both active and retired workers, the people said.

``We retained the medical benefits we have without additional out-of-pocket costs for either active or retired workers,'' said Art Baker, bargaining chairman of UAW Local 652 at the Cadillac plant in Lansing.

GM shares rose $3.22 to $37.64 at 4:01 p.m. in New York Stock Exchange composite trading. They have gained 23 percent this year through yesterday, fueled by prospects for union concessions including the retiree health fund.

Ford, which may be next to reach a retiree-health deal with the union, rose 6.5 percent. American Axle & Manufacturing Holdings Inc., a Detroit-based parts supplier that gets the bulk of its sales from GM, gained 7.2 percent.

Swaps

Credit-default swaps on GM dropped 67 basis points to 493 basis points, the biggest fall in seven weeks, according to CMA Datavision in London. The price means it costs $493,000 to protect $10 million in bonds for five years.

A decline signals rising investor confidence in the company's ability to pay back its debt. Contracts on Dearborn, Michigan-based Ford fell 47 basis points to 578 basis points.

GM's 8.375 percent bond due July 2033 rose 3.12 cents to 89.75 cents on the dollar today, according to Trace, the price reporting system of the NASD. The yield fell to 9.44 percent.

``We should see bond prices up and CDS spreads compressing,'' said Peter Plaut, an analyst at Sanno Point Capital Management, a New York-based hedge-fund manager. ``The agreement bodes well for other auto manufacturers and suppliers.'' Broader concerns remain for the debt market such as weak employment and falling house prices, he said.

Debt Rating

Standard & Poor's said it would begin reviewing GM, Ford and Chrysler for possible upgrades of their long-term debt ratings. The New York-based company rates all three automakers at B, or five levels below investment grade.

``The chances of a prolonged and widespread strike at either GM, Ford Motor Co., or Chrysler LLC are now largely averted,'' S&P said in a statement.

Bear Stearns analyst Peter Nesvold wrote in a report today that ``at first glance, the contract appears transformational. We caution the devil may be in the details.''`

Gettelfinger said he is ``comfortable'' UAW members will ratify the contract and said retirees will be ``pleased.'' He declined to give specific details.

``It's an agreement we're proud to recommend to our membership,'' Gettelfinger said at a 4 a.m. press conference in Detroit. GM's competitiveness will be improved as the company's burden for retiree health care is eased, he said.

The two sides negotiated 12 days past the scheduled Sept. 14 expiration of the previous contract.

`Sounds Good'

``All we know is that we're back to work,'' said Mark Cole, 42, a pipefitter with 11 years' seniority at a GM assembly plant in Detroit. ``That part sounds good.'' Cole spoke under a full moon as strikers packed up their picket signs and headed home to await word on details of the contract.

``This agreement helps us close the fundamental competitive gaps that exist in our business,'' GM's Wagoner said in a statement. ``The projected competitive improvements in this agreement will allow us to maintain a strong manufacturing presence in the United States along with significant future investments.''

UAW members at GM walked out on Sept. 24, citing ``one-way'' talks on a new four-year accord. Gettelfinger said at the time that GM wasn't willing to ensure the job security of UAW workers.

Job Security

``We got the job-security guarantees we were looking for,'' Gettelfinger said. These include a modified version of the ``jobs bank'' program that lets UAW members receive paychecks even if there was no work for them to do, he said.

Gettelfinger predicted that at the end of the four-year contract, the union's membership will be about the same as it is today, assuming the company can maintain its sales volume. The union represented 73,454 active employees at GM when talks began in July.

GM sought to shift future retiree health-care obligations off its books through creation of a union-run fund called a Voluntary Employees' Beneficiary Association, or VEBA, that it would help to finance. Retiree medical liabilities at GM, Ford and Chrysler totaled $114 billion at the end of 2006.

``It's based on cash flow and solvency,'' Gettelfinger said. ``Based on the trend, the discount rate, and other projections, that VEBA will be solvent for 80 years.''

Delphi

Wagoner earlier this year reached an agreement with the UAW and Delphi Corp. to avoid a walkout at the parts supplier, a former GM unit that's now in bankruptcy. Another accord, for 34,400 union workers to retire or leave GM early, helped Wagoner save an estimated $9 billion this year.

GM and the UAW have a history of conflict. The union won recognition at the automaker after a 1937 strike in Flint, Michigan. At the time of the last national walkout against GM, the union had more than 300,000 members at the company, more than quadruple the number now.

The negotiations played out against the backdrop of $15 billion in combined 2006 losses for GM, Ford and Chrysler. Gettelfinger's goal was to preserve living standards, wages and benefits for his members.

Unlike pensions, retiree health care isn't insured by the U.S. government and companies aren't required to fund it at any particular level. As of June 30, GM had set aside $18.9 billion toward retiree medical expenses, including $3.6 billion available for immediate use.

The contract ``will secure the position of General Motors retaining large-scale U.S. interests,'' Howard Wheeldon, a senior strategist at BGC Partners LP in London, said in an interview. ``It's an object lesson of what has to happen in the U.S. auto industry.''

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net; John Lippert in Southfield, Michigan jlippert@bloomberg.net

Last Updated: September 26, 2007 16:21 EDT