Neat trick. Build automotive plants where there are few UAW members. Honda (NYSE: HMC) appears to have it down to a science. According to The Wall Street Journal the Japanese car company recently built a plant in Indiana, but was only willing to hire employees from counties that outside the ones where "most of the state's thousands of unionized laid-off auto workers" were located.

It seems that foreign car companies are adroit at avoiding geographic areas where the UAW has members or people are likely to organize. It may be why so many of these plants are located in the South. Right-to-work rules tend to be lenient there. Companies like Honda are willing to take local tax breaks, but often don't hire workers who may be inclined to join a union.

There is a reason that most foreign car factories are not staffed by UAW members, and the move to locate in regions where worker's rights are modest may be a part of that.

As the UAW slowly dies due to downsizing at big US car companies, it would be a huge benefit if it could organize workers in foreign car plants. But, one of the reasons that Japanese car companies have a lower-costs-per-vehicle is that they do not have the legacy pension costs that Detroit does. These costs are the byproduct of decades of living with the UAW.

And, companies like Honda are not inviting the UAW in.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Bear Stearns Companies (NYSE: BSC) -- implied volatility decreases after EPS as BSC rallies. BSC is recently up $4.23 to $118.96. BSC October option implied volatility of 40 is below its 26-week average of 43 according to Track Data, suggesting decreasing price movement.

Ford Motor (NYSE: F) -- implied volatility-risk collapses on tentative UAW agreement. Ford is recently up 33 cents to $8.67. General Motors Corp. (NYSE: GM) and the United Auto Workers announced a tentative agreement on a new national contract. Dow Jones reported, "The cost of protecting $10 million of fellow U.S. automaker Ford bonds fell to $590,000, after being in the $630,000 area on news of the strike at GM, according to a market participant. F's 7.45% notes due 2031 were up 1 point to 78.75 cents, according to MarketAxess." F October option implied of 35 is below a level of 52 from last week and below its 26-week average of 49 according to Track Data, suggesting decreasing risk.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

General Motors Corp. (NYSE: GM) is recently trading up $1.46 to $35.93. GM and the United Auto Workers announced a tentative agreement on a new national contract. Alex Brown says, "this contract represents an inflection point for GM. We believe this should significantly improve competitiveness, cash flow, and valuation." GM October option implied volatility of 61 is above its 26-week average of 46 according to Track Data, suggesting larger risk.

Chevron Corp. (NYSE: CVX) is an integrated energy company with a market cap of $195 billion and quarterly June 2007 revenue of $56 billion. CVX closed at $91.88. CVX announced a program to acquire up to $15 billion of common stock over a period of up to three years. Crude oil futures are up 0.79% to $80.16, according to Bloomberg. CVX overall option implied volatility of 27 is above its 26-week average of 24 according to Track Data, suggesting larger risks.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

MarketWatch reports that the United Auto Workers (UAW) ended its strike against General Motors Corp. (NYSE: GM) due to a settlement reached early this morning. 74,000 production workers will return to work. GM shares are up 8% in pre-market trading. This deal will benefit the reputation of Lazard Ltd. (NYSE: LAZ) which represented the UAW.

Details have not been revealed. On the surface it appears that the UAW got something it wanted as did GM. The new four-year contract agreement gives the UAW an independent retiree health-care trust -- estimated to cost GM $51 billion. The Associated Press reports that it would also give workers bonuses and lump-sum payments. Meanwhile, GM will be able to boost its competitiveness -- getting more flexibility to hire new workers at lower costs -- helping to reduce what GM claims is a $25-per-hour labor cost disparity with its Japanese competitors.

The health care trust GM is establishing would pay about 70% of GM's $51 billion pension obligation, or $36 billion, into a Voluntary Employees Beneficiary Association (VEBA). The UAW would manage the VEBA for 340,000 GM hourly retirees and spouses. If the VEBA's investments appreciate enough in value, those 340,000 pensioners will have their pension obligations satisfied. If not, it will be the UAW's fault.

To reach $51 billion in, say, five years, the VEBA will need to achieve a 7.2% annual rate of return -- sounds like a profitable job for Lazard!

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. His brother, William D. Cohan, is the author of a book on Lazard, The Last Tycoons.

The UAW told the media at a 4 AM press conference that it had reached an agreement with GM (NYSE:GM) on a four-year labor contract. The deal now goes to UAW members for a vote.

While the union did not give details, the pact is said to include a two-tier payment system and a new fund for healthcare payments that will be managed by the union.

Douglas A. McIntyre is a partner at 24/7 Wall St.

General Motors (NYSE: GM) and the United Auto Workers today resumed bargaining talks hours after the union called its first strike at the automaker in nearly 40 years.

Though a labor agreement may not come today or tomorrow, odds are good that it will come fairly soon because the only winner in a protracted work stoppage would be Toyota Motor Corp. (NYSE: TM) which continues to take away market share from GM, Ford Motor Co. (NYSE: F) and Chrysler. But even if the strike is short-lived, it will still cost GM billions of dollars, according to MarketWatch.

Both sides are already on the same page on the key issue of transferring the $50 billion in future retiree health care costs to a union-administered fund. Whether the union can do a better job at controlling health care costs than the company or anybody else for that matter is an open question GM also wants new union members to have 401 (k) plans instead of pensions, according to Bloomberg News. That's a concession that the UAW will have difficulty fighting since many large companies are trying to phase-out their plans or get the federal government to take them over.

By calling a strike, UAW President Ron Gettelfinger wanted to show that the union can still flex its muscles. With that point being made, he now has to show that he can negotiate a deal that serves his members and keeps GM competitive in today's fiercely competitive auto market.

Ford Motor Co. (NYSE: F) shares are trading higher today as automakers are getting a boost this morning before the General Motors (NYSE: GM) 11 AM strike deadline with the United Auto Workers. Investors believe that this deadline means an agreement will be reached today. Furthermore, the auto sector is seeing continued gains based on optimism created by the Fed's rate cut last week. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on Ford.

After hitting a one-year high of $9.70 in June, the stock has sagged a bit over the past couple of months, though it has been moving higher recently. Ford opened this morning at $8.47. So far today the stock has hit a low of $8.36 and a high of $8.59. As of 10:55, Ford is trading at $8.57, up $0.34 (4.1%). The chart for Ford looks bearish but improving slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $7 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.1% return in just 3 months as long as Ford is above $7 at December expiration. Ford would have to fall by more than 18% before we would start to lose money.

General Motors Corp. (NYSE: GM) -- GM is recently up 80 cents to $35.76. The United Auto Workers set a deadline of 11 a.m. EDT today to conclude a new national contract with GM. GM October option implied volatility of 64 is above its 26-week average of 44 according to Track Data, suggesting larger risk.

ValueClick Inc. (NASDAQ: VCLK) -- call volume and volatility up on unconfirmed Time Warner Inc. (NYSE: TWX) buyout chatter. ValueClick, an online marketing services company, is recently up 65 cents to $21.15 on unconfirmed chatter that Time Warner is interested in purchasing ValueClick for its AOL unit. Time Warner Chairman and CEO Richard Parsons stated at Goldman Sachs Communacopia conference on September 18 that more acquisitions could occur to help AOL grow its platform. ValueClick call option volume of 3,042 contracts compares to put volume of 109 contracts. ValueClick October option implied volatility of 52 is above its 26-week average of 47 according to Track Data, suggesting larger risks.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

To no one's surprise, the ground-breaking negotiations between General Motors (NYSE: GM) and the United Auto Workers are going well into overtime. The contract, which expired six days ago, is being extended hour by hour as the two sides attempt to hammer out an agreement that the UAW will then use as a template in negotiations with Ford (NYSE: F) and Chrysler.

According to an AP report, both sides are on the same page in establishing a Voluntary Employee Beneficiary Association (VERA) along the lines of that established by Goodyear Tire and the United Steelworkers last year. The VERA would turn over responsibility for retiree health care to the union. The two sides do not, however, agree on the amount of the contribution GM would make to the fund. GM's obligations for retiree health care is currently estimated at $51 billion, and the company reportedly proposed paying 65% of this amount into the VERA.

This is not the only contentious issue on the table, however. The UAW wants GM's assurance that it will keep building cars in UAW plants in the U.S., while GM is asking for a drop in hourly wages, larger worker contributions to health care program, a reduction in guarantees of work for UAW plants, reduced vacation time, and other cost-saving measures.

However, with 64% of UAW members eligible for retirement in next five years, until the VERA contribution is settled, no agreement can be reached. According to the Detroit Free Press' Tom Walsh, the delay works to the advantage of the union, especially if the market begins to lose confidence and GM's share price declines.

I suspect that as long as the union believes that it is making progress in the negotiations, it won't rattle the strike saber. If you start hearing its officials throwing around the "S" word, though, take that as an indication the two sides are closer to stalemate.

More details are leaking from the ongoing labor negotiations between the United Auto Workers and General Motors (NYSE: GM). According to Bloomberg, the company has proposed dropping its pension program for new hires in favor of 401(k)s. The move would unbundle these employees from the guaranteed income pension plan, transferring worries over the value of investments from the company to the workers. For the workers, the move could be a good deal, if the fortunes of GM continue to decline.

According to the Wall Street Journal, in GM's proposal to transfer management of employee health care programs to the union, the company would fund this program over several years so that it can reduce the total amount if and when much-discussed universal health care becomes a reality.

GM has also proposed cutting new hires out of the health-care benefit current retirees enjoy. Instead, the new hires would, on retirement, receive a yearly cash stipend to use for medical care. This assumes, of course, that thirty years from now there is still an American automobile industry.

The negotiations are more wide-ranging and precedent-breaking than any in memory, and a quick resolution would be a miracle. Hopefully, the UAW will continue to extend the previous contract to avoid work stoppages.

For more on this topic, see The UAW as GM's health care plan provider?

As a nation, we seem to be evolving toward consensus that saddling employers with the responsibility of arranging and paying for health care is an inefficient system. Such a system demands companies develop expertise that has no relationship to their core business.

This begs the question -- if not these corporations, then who? According to the GM-United Auto Workers negotiations, the answer could be, the unions that represent GM employees. Is this a good solution for the workers, the corporations, investors, and/or the country? My impressions to date are no, yes, yes, and no.

If I were a UAW retiree, I'd be very nervous about the likelihood that the UAW bean counters could do a better job than GM in allocating the right amount of money to cover future health benefits. Certainly, GM is going to sharpen its pencil in an attempt to fund this as leanly as possible, and even at that, the pot will no doubt stretch the corporation's wallet.

Ford (NYSE: F) does not want to miss its financial targets, no matter what. The car maker's recovery is now backed by the hope that current negotiations with the UAW will go well. The talks may lead to a new benefit pool, funded by the Big Three and run by the union. This would take billions of dollars in employee liabilities off Ford's balance sheet.

But, Ford faces a growing economic headwind. With home prices falling, consumer credit debt rising, and oil above $81, the old US auto firm may not get enough financial traction from UAW concessions. As one Ford senior executive put it to The Wall Street Journal [subscription required] "If we see weakness on the revenue side, we have to take up the slack on the cost side."

But at a company that has already slashed tens of thousands of jobs and closed plants, where are the extra cuts? Ford believes that its market share in the US will level out at about 13% and it has to "right size" its costs to make money at that sales level.

Ford can't articulate where another set of cuts might come from because there may not be much left to cut. It has already squeezed suppliers. A number of the largest auto parts companies are already in Chapter 11. It has laid off a large number of its white collar workers. If it could have taken out more, Wall Street would expect that would have happened.

There simply may not be much more left to cut at Ford, And, if a recession comes that could become a very big problem.

Douglas A. McIntyre is a partner at 247wallst.com.

Friday night, the nation's largest auto maker, General Motors' (NYSE: GM) old union contract expired and the company is working hard to gain approval of a new four-year UAW contract. Three people that are close to the talks have released some of the company's ideas, but have remained anonymous in their revelations.

One of the company's new proposal is that it will cap out-of-pocket costs in order to gain a better bargaining position with the union-controlled health fund. It also has suggested a freeze in cost-of-living raises and base wages. What is at stake here is the approval by the union to allow GM to get rid of retiree health-care liabilities that ended up costing the Detroit auto maker somewhere in the neighborhood of $3.3 billion in cash during 2006.

In its attempt to unload the current health-care liabilities, GM is hoping to start a Voluntary Employee Beneficiary Association in which it would only have to contribute around 60% of its current liabilities to get started.

In negotiations with General Motors Corp. (NYSE: GM), Ford Motor Co. (NYSE: F), and Chrysler, the head of the United Auto Workers has said that the union would be open to a fund created to handle future health liabilities. The Big Three would have to provide the money for the fund, perhaps a much as $60 billion. The union would administer the pool.

The announcement made front page news because very little has been said by the UAW during the current round of negotiations, which has a deadline of September 14. But, according to The Wall Street Journal, UAW President Ron Gettelfinger has said that he is "willing to agree in principle to the creation of a multibillion-dollar, union-controlled health-care trust fund." GM, Ford, and Chrysler carry about $95 billion in health and pension liabilities on their balance sheets. A new fund operated by the union would transfer those obligations off their books.

The largest single hurdle to a deal is defining what the level of funding would need to be. It depends on complex calculations of how much would have to be paid out to workers each year and how much the fund could yield in returns on its invested capital.

The UAW is faced with a near-term problem of its own. A number of its rank and file members are more interested in keeping their jobs than in who holds the liability for their benefits. While UAW management may support a health care fund, if it has to trade job reductions as part of the bargain, it may not get the support of its members.

Douglas A. McIntyre is a partner at 24/7 Wall St.

GM (NYSE: GM) and its rivals Ford (NYSE: F) and Chrysler have been exploring setting up a fund, managed by the union but financed by the car companies, to handle union member health-care benefits. The move would take tens of billions of dollars in liabilities off the companies' balance sheets, but funding it could take as much as $60 billion.

The union has not warned to this program as fast as GM would like, so it has proposed an alternative--huge job cuts. According to The Wall Street Journal (subscription required), this plan would results in "deeper, more-painful cuts." That would probably include jobs and benefits.

The deadline for the UAW negotiations to finish is September 14. While it would not be odd for talks to go beyond that, the tension between the car companies and union is likely to grow.

While the UAW management may be patient, its membership may feel otherwise. Benefits are important to them, but having jobs is probably higher on the list. Any hint of massive firings is likely to rub them the wrong way.

The union does not have to go straight to a nationwide strike to send its message. It could stage work stoppages at plants that produce popular cars which are in low supply.

And, then it gets ugly.

Douglas A. McIntyre is a partner at 24/7 Wall St.