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Labor Deal Hopes Fuel Up GM

Shares jump 5% on a report of UAW concessions and a bullish Citi note.
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General Motors

(GM) - Get Report

and

Ford

(F) - Get Report

shares burned rubber Thursday as investors bet on the prospect of concessions from the United Auto Workers union in Detroit's ongoing labor negotiations.

Shares of GM recently were up 5.4%, while Ford gained 2.1% after

The Wall Street Journal

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reported that UAW President Ron Gettelfinger has said he is willing to agree in principle to a union-controlled health care trust fund. Such a deal would cut about $95 billion in retiree costs for Detroit's Big Three automakers,

The Journal

said.

The newspaper cited unnamed sources familiar with the negotiations. The current UAW contract expires on Friday.

Representatives from GM, Ford and the UAW couldn't be reached for comment.

Meanwhile, Citigroup analyst Itay Michaeli issued a buy rating on shares of GM with a $41 price target. In a report, Michaeli said there's a 50% chance that GM will find itself in a "concession scenario," in which the UAW agrees to establish the so-called VEBA trust to fund the company's massive retiree liabilities. He likes the risk-reward trading proposition presented by those odds.

If the two sides could agree on establishing a trust, the Big Three would make large one-time payments to fund it. In return, they would be freed from the liabilities that have increased their borrowing costs and weighed on their ability to compete with low-cost, foreign-based competitors that have been stealing market share from domestic manufacturers in North America.

GM shares were trading up $1.60 to $31.85, while Ford was up 16 cents to $7.66.