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View Full Version : UAW. Did they win & are we next?

09-27-2007, 08:33 AM
GM Labor Deal Ushers In
New Era for Auto Industry

September 27, 2007;

The deal struck at 3:05 a.m. yesterday between General Motors ( Corp. and the United Auto Workers union marks the dawn of an uncertain new era for the American auto industry and its unionized work force.
For much of the past half century, Detroit's Big Three auto makers had collaborated with the UAW to create an industrial aristocracy of blue-collar workers whose pay and benefits set the standard for the American middle class. If the proposed contract announced yesterday is ratified by union members -- and is subsequently replicated at Ford Motor ( Co. and Chrysler LLC -- that era in American industrial history may be over.
The contract, which covers about 74,000 U.S. auto workers, restructures GM's obligations to cover health care for UAW retirees.
It also sets up a mechanism for the auto maker to buy out thousands of workers, whose wages and benefits total about $70 an hour, and to replace many of them, particularly those in nonproduction jobs, with new employees earning far less. In return, GM has agreed to invest in UAW-represented factories and to make certain improvements to retirement benefits.
The proposed contract allows GM to shift to an independent trust $51 billion in liabilities for UAW retiree health care. GM has argued that it cannot shoulder that burden and remain viable. The auto maker could eventually contribute as much as $35 billion to that trust, called a voluntary employees' beneficiary association, or VEBA, people familiar with the bargaining process say.
For Detroit's Big Three, which together lost more than $15 billion last year, the establishment of such independent trusts would constitute a major step toward avoiding the fates of the steel and airline industries, where crushing pension and health-care costs forced major players to seek bankruptcy-court protection. Ford and Chrysler are also engaged in contract talks with the UAW -- talks that are now likely to accelerate. The UAW retiree health-care obligations of Detroit's three auto makers total between $90 billion and $95 billion.
The tentative pact appears to ratify what has become increasingly clear over the past several years: That Toyota Motor ( Corp., not GM or the UAW, now sets the bar for labor costs in the U.S. auto industry. Over time, the new contract could allow GM to significantly narrow the cost gap between its unionized U.S. operations and nonunion U.S. plants run by Toyota and other Asian and European auto makers -- a gap now pegged at $25 to $30 an hour. Auto research firm CSM Worldwide Inc. estimates that the new pact may allow GM to reduce that differential by 40% to 50%.
UAW President Ron Gettelfinger still has to sell the deal to his rank and file. But his decision to agree to its terms suggests that the union leader thinks Detroit's problems stem from a permanent realignment of the auto industry in the face of globalization. One of Mr. Gettelfinger's biggest challenges will be to stop the erosion of union auto jobs, which has reduced UAW ranks at the Big Three by 40% since the last national contract was ratified in 2003. Mr. Gettelfinger said Wednesday he expects GM will have as many UAW jobs at the end of this contract in 2011 as it does now -- a talking point he will likely repeat as he tries to win votes.
Ratification of the new contract would mark a turning point in relations between the Big Three and UAW. During the 1950s and 1960s, the two sides established a pattern of agreeing to ever-better wages and benefits -- sometimes after strikes -- without any significant union givebacks. The last time the UAW offered significant concessions was during the economic downturn of the early 1980s. At that time, Detroit's woes were seen as the result of a short-term economic slump and rising energy prices.
Since then, however, Detroit has watched numerous storm clouds roll in. Imported Japanese and European cars made inroads among American consumers. Honda Motor ( Co., followed by Nissan Motor Corp. and Toyota, began building nonunion factories outside the industry's stronghold in the upper Midwest. These Japanese rivals succeeded in transplanting their celebrated manufacturing methods to American soil, using American workers. And they did so while keeping UAW organizers at bay. They paid comparable wages, but did not offer Detroit-style retiree benefits.
WSJ's John Stoll discusses the impact that the tentative General Motors contract with the United Auto Workers may have on other auto makers.
As they lost market share to foreign rivals, Detroit's auto makers and the UAW lost the power to set standards on labor costs. Yet during the prosperous 1990s, they seemed reluctant to accept the fact that their business model -- with its expensive defined-benefit health and pension programs -- was driving the domestic industry toward ruin. With yesterday's deal, the UAW and its biggest employer have effectively conceded that their golden age of dominance is over.
GM has by far the largest retiree health-care burden, equivalent to more than double its market capitalization yesterday. That liability, coupled with $12 billion in losses over the past two years, led some analysts to predict that GM might someday have to seek Chapter 11 bankruptcy protection. GM executives consistently dismissed such speculation, but acknowledged that it couldn't be competitive in North America without a fundamental change in its labor-cost structure.
The UAW got a harsh lesson in the consequences of bankruptcy proceedings when former GM parts unit Delphi Corp. sought Chapter 11 protection in 2005, and pushed through substantial job and wage cuts under a deal subsidized by GM.
The agreement allows GM to transfer those obligations to an independent trust that would survive even if GM seeks bankruptcy-court protection. The trust will be funded, over time, with cash and securities valued at about 70% of the $51 billion obligation. It could remove the threat of an endlessly escalating liability. The auto maker has been building up cash for more than a year in anticipation of such a deal, selling key assets such as a 51% stake in its finance arm, General Motors Acceptance Corp.
"The advantage for the UAW is they get hard assets now, away from risk of GM and the others, which could really be a good move if we are heading into a downturn and these companies struggle even more," says Itay Michaeli, an auto analyst at Citigroup Inc. "If you are a creditor, you'd rather negotiate when the debtor has liquidity and cash, which is the situation right now."
In addition, GM will be able to use early-retirement packages and buyouts to ease out thousands of highly paid veterans. If GM chooses to do so aggressively, it could usher out most of a generation of auto workers who started with the company in the 1970s and 1980s. That would enable it to reposition itself with a younger, less expensive work force. It wasn't clear yesterday how many categories of employees GM could hire at lower wages.
The raw hourly wages of U.S. auto workers employed by Asian auto makers such as Toyota, Honda and Nissan are on par with wages on Detroit factory floors -- roughly $25 an hour. It's the benefits that create the gap, lifting total compensation for Big Three workers to $65 to $75 an hour, compared with an estimated $45 to $55 an hour for Asian rivals. Detroit labor negotiators attribute about one-third of the gap to retiree health care.
The GM deal could produce a nonfinancial dividend for the UAW, erasing its status as the struggling domestic industry's No. 1 scapegoat. UAW leaders often maintain that labor represents less than 9% of the cost of new vehicles, blaming Detroit's market-share slide and revenue woes on design, engineering, marketing and other areas.
Labor leaders said yesterday that the tentative settlement would have a big impact on upcoming negotiations in other industries. They expressed relief that GM had not sought to eliminate or further cut retiree health benefits, which they said would have emboldened other employers to aggressively seek health-care concessions.
"I think it ends up being a positive thing, for General Motors, for the UAW and for other unions," said Gregory Junemann, president of the International Federation of Professional and Technical Engineers, which represents 63,000 workers at Boeing Co., Lockheed Martin Corp. and General Electric Co., among others.
The UAW, formed in 1935, negotiated its first health-care benefit in 1950 during contract talks between GM and legendary UAW President Walter Reuther. GM agreed to pay half the cost of hospital visits and surgeries for workers and family members.
In 1961, the UAW won full health-care coverage for active workers and one-half coverage for retirees, the first medical coverage for retirees. Again, GM was the lead company in the talks. The next contract brought full coverage for retirees. The 1967 contract gave full coverage to surviving spouses.
In 1970, after a 67-day strike, GM agreed to allow members to retire after 30 years, which increased the cost of retiree health care. That contract also expanded hospital and surgical coverage and added prescription-drug benefits.
At that time, domestic car makers were dominating the world markets, and health care was still a manageable expense. By the early 1990s, however, both conditions had changed. Toyota and Honda ramped up production at nonunion factories in the U.S. UAW membership, which had been between one million and 1.4 million during the 1960s and 1970s, was sliding toward today's level of just 520,000 active members.
Auto makers, particularly GM, realized that retiree health care was a runaway locomotive. Health-care costs shot up and GM's market share slid. GM's top management tried during the 1990s to persuade UAW leaders to accept measures to check the growth in UAW health-care costs. Those efforts failed.
Today, GM's demographic problem is stark. It has 74,000 active UAW hourly workers, down from 246,000 in 1994. It provides health benefits to about 340,000 UAW retirees and surviving spouses. By comparison, Toyota provides retiree health care to about 250 people, according to GM's internal estimates. About two-thirds of GM's active UAW workers could retire in the next five years, according to outside projections.
Although the proposed agreement would cap that exposure, it doesn't solve all of GM's problems. The company is struggling to stop erosion of U.S. sales and market share, which stems in part from consumers associating its vehicles with poor quality and reliability and bad resale values.
The UAW and Detroit's auto makers have also debated the possibility of a national health-care plan. The UAW wants auto makers to keep pushing for nationalized health care, while auto makers want some of their money back if such legislation passes.
Mr. Gettelfinger is gambling that the tentative agreement will be approved by a UAW membership that in recent years has shown reluctance to accept concessionary deals. A midcontract concession on health care with Ford in 2005 passed with just 51% of the vote, and the UAW didn't try to push a similar measure with Chrysler after Chrysler-UAW plant officials told union leaders the deal wouldn't pass.
In a radio interview yesterday morning, Mr. Gettelfinger said the health-care trust meant UAW members are "going to be secure in their retiree benefits." He acknowledged that the move to shift the health-care burden to an independent trust could spark debate among members worried that the trust won't be adequately funded. He said he welcomes that debate, asserting that the trust will be adequate to pay benefits for 80 years. "Our membership will be very pleased with this agreement," he said.
Union members were still waiting late yesterday to hear details of the agreement. As they returned to work, they expressed views ranging from elation to apprehension over the tentative contract's main points and their industry's changing landscape.

09-27-2007, 08:35 AM
Yes, it's long. Sorry. But, this is the blueprint for what happened and is happening to us....