A UAW-GM deal could bring big bonus, raise. Here's what to do with the money

By Susan Tompor

After the long, contentious five-week walkout at General Motors, UAW members will no doubt have to pay off the bills that have been building since the strike began Sept. 16.

The United Auto Workers touted "major gains for UAW workers" on Wednesday when the UAW GM National Negotiators and UAW GM Vice President Terry Dittes announced news of a proposed tentative agreement. The announcement did not include details. 

"Out of respect for our members, we will refrain from commenting on the details until the UAW GM leaders gather together and receive all the details," the UAW said in its statement. 

What we do know: Pay raises of 3-4% and a ratification bonus of more than $9,000 are coming, though precise details of the raises were not known. In the 2015 contract, workers got a 3% wage increase on years one and three and 4% lump sum payments on the alternate years.

The strike doesn't end immediately, of course. The UAW GM National Council will meet Thursday and "will decide whether to continue the strike until ratification concludes or to stop the strike at the time of the council's approval of the agreement." 

Because there is some real cash here, now is not the time to go out and be tempted to splurge with all the money offered in the tentative agreement. 

Dare we suggest two other words: Save it. 

No doubt, bills that went unpaid during the longest UAW strike at GM since 1970 will need to be paid. But feel-good spending? Time to step back and take a real hard look at any displays of extravagance.

If one thing remains true about the auto industry, it's that the car and truck sales remain highly dependent on the winds of the U.S. economy.

Times still remain pretty good but economists wouldn't be surprised to see a U.S. recession hit sometime in 2020 — maybe 50-50 odds, says Moody's economist Mark Zandi. If we're lucky, we won't see a recession until sometime later. 

If the strike ends soon, economists do not expect that the lengthy walkout at General Motors will push the U.S. economy into a recession.

The strike "may have shaved one-tenth of a percent off of growth in the third quarter," said Diane Swonk, chief economist at Grant Thornton in Chicago.

She estimates that U.S. economic "losses during the fourth quarter could be recouped so they wouldn’t show up in the data."

"Collateral damage to shops and restaurants will not be recouped," Swonk said.  

Longer term, the auto industry's push toward electric vehicles — as well as cost-cutting efforts — also can be expected to shake up the employment landscape in the auto industry. GM has been charting a new course to pull back from the traditional business to make a bet on self-driving cars and electric vehicles. 

And hourly workers know only too well that plug-in, battery-powered cars require fewer parts and less labor to build. 

Pick your cliche: Save for a rainy day. (Or the next recession.) Remember, money doesn't grow on trees. (But these days, it may grow out of pickup trucks.) 

"Times are changing so much right now in the auto world, the last thing you want to do is go out and spend money in these uncertain times," said Michael Foguth, president and founder of Foguth Financial in Brighton. 

"You may need it in the near future."

What should you do with a big bonus? 

"GM employees should take an inventory of their financial lives," said David Kudla, CEO and chief investment strategist with Mainstay Capital Management, a Grand Blanc investment adviser. 

Think about how that bonus money can put you on a stronger financial footing. Do what's right — and what's right for you.

And remember, scammers do strike after big windfalls, so watch out for any hype or sure-bet investment products, too. 

First, address the basics. Do you have an emergency fund set aside?

A general rule of thumb is to make sure that you have three to six months of living expenses covered in emergency savings. "This minimum requirement is important," Kudla said. 

After that, he suggests that bonus money can be used to pay off high-cost credit card debt and other debt that's built up over the years. "Pay these off next," he said. 

Some families also could use some of the ratification bonus to pay down their own student loan debt — or the Parent PLUS loans that they took out for their children. 

"Finally, if there is money left over, look to invest the remaining proceeds — either in stocks, bonds or CDs," Kudla said. 

Big bonuses aren't new, of course, to UAW members.

Hourly UAW members at GM received an $8,000 ratification bonus for traditional and "in-progress" workers and a $2,000 bonus for temporary workers as part of the contract reached in 2015.

Back in 2015, Fiat Chrysler Automobiles workers received signing bonuses of $3,000 to $4,000. And Ford workers received $8,500 in a signing bonus — plus $1,500 pull-ahead in profit sharing — to give Ford workers $10,000 upon ratification in late 2015. 

How should you treat that raise? 

"Consider increasing your 401(k) contributions by 1% or 2% to try to max out your limits for 2019," Kudla said. 

If you're younger than 50, the maximum amount someone at any company can contribute to a 401(k) is $19,000 in 2019. Someone age 50 and older could save an extra $6,000 as part of "catch up" contributions and ultimately put aside a maximum of $25,000 in 2019. 

In general, financial planners say you don't want to take any pay raise for granted by simply letting that money flow easily into your checking account where it can be quickly spent. Think about bigger goals — retirement, saving a down payment for a new home, sending your children to college. 

"Try to continue to live your lifestyle the same as you did before having received this increase in pay," said Sam G. Huszczo, a chartered financial analyst in Southfield. 

It may not feel like you'd be able to build much in savings by setting aside a small pay raise. But extra, consistent savings can have a huge impact on your retirement or other lifetime goals over the long run. 

For some workers who haven't had a long career at GM yet, it's even more important to boost your retirement savings.

To be sure, once details on the proposed tentative agreement are released, we could be hearing about some improved gains ahead. The union has been driving hard for better retirement coverage for many of its workers during this walkout. 

If nothing changes, someone hired as of 2007 in a UAW-represented job at GM no longer qualified for a traditional pension but instead was covered by a 401(k) plan. (Those hired before the start of the 2007 national contract continue to be covered by a pension.) 

Again, if nothing changes, the current 401(k) employer contributions for the hourly plan are 6.4% of regular pay plus $1 per hour. GM notes that this is a straight contribution, not a match.

GM automatically enrolls workers in the plan when they are hired and 3% of employee pay is automatically contributed to the plan unless workers opt out. 

How else can you save? 

Think about adding some money to college savings for your children. 

Think about contributing to a 529 college savings plan. Michigan residents may want to look at the Michigan Education Savings Program.

Money in the MESP accounts may be used at any eligible educational institution.

"With the cost of tuition being what it is, every extra dollar helps,"  Huszczo said. 

How should you splurge? 

No one needs advice on that one. But take your time and then pick a really meaningful way to spend some money. Many are no doubt hopeful that a deal could be reached in the days ahead. But again, the strike isn't over quite yet. 

Even so, it's OK to think about ways one might splurge, if given the chance. 

Yes, life is short. So if there is something, within reason, that you always wanted to do, say maybe take a trip to see family, figure out a way to do that, too. It's only money. (OK, not really.)