UAW Strikes GM as Talks Fail - VIDEO ENHANCED

The strike marked an unexpected twist after the negotiations seemed to have brought the two sides close to an historic deal that would allow GM to cut its $5 billion annual health-care bill.

GM shares and bonds shot higher early Monday as investors anticipated the automaker would reach an accord with the UAW and avoid a disruptive work stoppage.

News of the strike -- the first such UAW action against GM in almost a decade -- prompted GM shares to fall back from early highs. In early afternoon trading, the shares were up just 16 cents at $35.10.

"You can be pushed off a cliff and that's what happened here," UAW President Ron Gettelfinger said, speaking to reporters at a news conference at the union's Detroit headquarters.

Gettelfinger said union negotiators would head back to the bargaining table on Monday and remained ready to discuss one of GM's key demands of establishing a trust fund to pay for retiree health care.

GM said in a statement it was "disappointed" in the UAW's decision to strike and wanted to reach a deal with the union

"The bargaining involves complex, difficult issues that affect the job security of our U.S. work force and the long-term viability of the company," GM said in a statement. "We are fully committed to working with the UAW to develop solutions together to address the competitive challenges facing General Motors."

The White House urged both sides to stay at the bargaining table. "We encourage both the company and the UAW to continue to work through their differences," White House spokesman Tony Fratto said.

INVENTORY SEEN AS CUSHION

Analysts said GM had the inventory to ride out a short work stoppage with many expressing doubt the union would push the struggling automaker to the wall with a prolonged strike.

"The interpretation that I would go with is that this is sort of a last-minute push by the unions to get GM over the hump on a couple of benefits," said David Healy, an automotive analyst at Burnham Securities.

Negotiations between GM and the UAW have hinged on a GM proposal to cut its health-care costs by establishing a trust fund for retiree-related costs.

But in setting a firm Monday strike deadline, the UAW said it was reacting to GM's reluctance to guarantee to preserve U.S. production jobs as it restructures.

Despite the tougher rhetoric from the UAW, most analysts said they believed the two sides remained close on the terms of a deal.

"My preliminary feeling is this is just really part of the negotiating posture," said Eric Kuby, chief investment officer of North Star Investment Management Corp.

GM and UAW negotiators had agreed during the weekend to the broad terms of a deal that would reduce GM's annual health-care costs, people briefed on the talks said.

Under that plan, GM would shift responsibility for retiree health care to a new UAW-aligned trust fund known as a voluntary employee beneficiary association, or VEBA.

Wall Street analysts have said establishing a VEBA could cut GM's annual costs by $3 billion in exchange for a one-off payment expected to top $30 billion.

Expectations for a cost-cutting labor deal had sent GM shares up almost 14 percent this month before Monday's trading.

The outcome of the contract talks is seen as crucial to efforts by the three Detroit-based automakers -- GM, Ford Motor Co and Chrysler LLC -- to recover from combined losses of $15 billion last year and sales difficulties that have driven their share of the U.S. market below 50 percent.

GM, Ford and Chrysler are seeking concessions from the UAW to close a labor cost gap with Toyota Motor Corp and other Japanese automakers operating in the United States that they say amounts to more than $30 per hour for the average factory worker.

'WE'RE ON STRIKE'

Union local leaders had been told to have 73,000 GM factory workers begin walking off the job on Monday unless they were told by their negotiating team that an impasse in the talks had been broken.

"We're on strike. It's too late to call us back now," UAW Local President Chris "Tiny" Sherwood told Reuters as the union-imposed strike deadline passed at 11 a.m. EDT (1500 GMT).

At the same time, workers began leaving GM factories in Michigan, Ohio and Kansas. At a GM plant in Bay City, Michigan, workers began to picket in front of the gate with signs reading "UAW on Strike."

The union's previous contract expired Sept. 14. The last UAW strike against GM was in 1998. That walkout at two GM parts plants in Flint, Michigan, shut down GM production and caused sales to plummet.

The UAW has not called a national strike during contract negotiations since 1976.

Additional reporting for Reuters by Nick Carey