On Sept. 26, following a two-day strike, the United Auto Workers and the General Motors Corp. reached a landmark deal on a four-year collective bargaining agreement. The centerpiece of the new UAW-GM contract is the establishment of a retiree health-care trust fund, called a Voluntary Employee Beneficiary Association. GM will transfer $30 billion into the VEBA, which will be administered by the UAW. The new agreement will greatly influence not only the new contracts the UAW is negotiating with Ford and Chrysler but also future contracts negotiated in the auto parts industry, the aerospace industry and elsewhere.

UAW President Ron Gettelfinger noted that the new pact will provide job security guarantees the union sought for its members. General Motors' CEO Rick Wagoner issued a statement saying, "This agreement helps us close the fundamental competitive gaps that exist in our business."

Wagoner claims the transfer of responsibility for retiree health care from the company to the union will go a long way to achieving his goal of reducing GM's fixed costs from 30 percent of total revenue to 25 percent in 2010.

But one is entitled to be skeptical about the longer-term effects of the new compact. Despite the rosy prognostication by Gettelfinger, sustaining the retirees' gold-plated health-care plan in the face of ever-increasing health-care costs is not likely to be any easier for the union than it was for the company. The UAW may be betting that the election of a Democrat to the presidency next year will lead to the passage of a national health insurance plan, which could very well lessen the union's burden of protecting its retirees. If that gamble doesn't pay off, however, it is widely believed that sooner or later the UAW will be forced to tell its retirees that the costs and coverage of their health-care plan must be cut.

The new pact is emblematic of the desperate straits both the union and the auto companies now face. GM's U.S. sales have been declining for the past eight years, with $12.4 billion in losses over the last two years alone. GM's share of both the U.S. and worldwide auto markets has been steadily shrinking for decades. In 1960, sales of GM vehicles constituted 47 percent of all auto sales in the U.S.; this summer GM's share of the U.S. market slipped to 22.2 percent, an all-time low. Membership in the UAW has fallen from a peak of 1.5 million members in 1979 to 538,448 as of December 2006. The union now represents only 180,681 hourly auto workers (including the 73,454 that struck GM), but a mind-boggling total of 721,025 retirees and their surviving spouses are entitled to receive health benefits under the UAW's contracts. GM has borne a $50 billion liability because of its commitment to cover the health-care costs of its retirees.

The union, which once represented virtually all automotive workers in the U.S., has been striving for years to organize the Japanese "transplants" -- the auto assembly plants operated by Japanese car makers across the U.S. With few exceptions these transplants have avoided unionization. The Detroit Free Press reported recently that this year workers at the Toyota plant in Georgetown, Ky., received more in pay and bonuses than UAW members received on average at domestic auto plants. On the other hand, hourly labor costs at U.S.-owned auto plants are $25 to $30 higher than they are at the Japanese transplants, largely because of the costs of retiree health care.

In truth, both the U.S. auto companies and the UAW are struggling to survive in the face of intense competition from foreign automakers. The UAW has the doubly difficult task of attempting to hold on to its U.S. base, while GM, Ford and Chrysler continue to shift production facilities to Mexico, South America and Asia. GM also has been investing heavily in new plants in China.

Wagoner himself acknowledged that reducing the company's cost structure will not guarantee its continued survival. The key, he says, is producing cars and trucks Americans want to buy. Wagoner's strategy calls for the company to produce a series of new models to replace current ones that have suffered stagnant sales. By the end of this year, he hopes the new models will constitute about 40 percent of GM's vehicle sales.

Wagoner's sales strategy may be another example of the triumph of hope over experience. If the strategy fails, then the concessions the UAW granted GM in its new agreement will not serve to save either the company or the union from further decline.

David Lipsky is the Anne Evans Estabrook Professor of Dispute Resolution and director of the Scheinman Institute on Conflict Resolution at the Cornell ILR School.