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| Home Front: Economy |
| A Collision Course for GM and the UAW |
| 2005-06-12 |
| I post this because this may - IMHO - be the most critical moment for the auto industry since the original union battles of the Thirties. We will feel the results whichever way it goes - Mike By Keith Naughton Newsweek June 20 issue - As GM's engine stalled this year, CEO Rick Wagoner has laid much of the blame on the automaker's runaway health-care costs. And he's pushed the United Auto Workers union to give concessions on its generous medical bennies (no deductibles, tiny co-pays). The union has steadfastly refused to reopen its contract, which runs until 2007. So last week Wagoner ratcheted up the pressure. While announcing plans to cut 25,000 jobs and close factories by 2008, he promised to find a way to "promptly" reduce GM's health-care burden—with or without the union's help. The UAW fired back that GM can't "shrink its way" to prosperity, but instead needs to design cars people want. By late last week the war of words had escalated. "If we don't fix some of the basic problems that exist when it comes to the product," UAW president Ron Gettelfinger told NEWSWEEK, "then it seems to me that no matter what we did, it wouldn't be enough. Ever." GM is on a collision course with its union over health care. And if there's a crash, the results would be devastating. Last time the UAW struck GM, for 54 days in 1998, it cost the automaker $3.5 billion and dealt such a blow to the economy it shaved a point off the GDP. Back then, though, the American auto industry was riding high on the SUV boom. Now analysts expect GM's North American car business to lose $4 billion this year, as SUV-fatigued buyers reject its aging lineup of guzzlers in favor of stylish sippers from Toyota, Nissan and Hyundai. Wagoner says the automaker's turnaround is threatened by accelerating health-care costs that add $1,500 to the cost of each car GM builds. The UAW and GM are in intense negotiations to reach a compromise because neither "side wants to see this thing go in the ditch," says Gettelfinger. Wagoner once made it his personal mission to improve GM's historically horrible labor relations. But now that he's taking a harder line, a relationship that has been carefully nurtured since the '98 strike hangs in the balance. "Without question," says Gettelfinger, "this will be a test." The big question now: will GM try to break the contract if the UAW won't agree to benefit cuts? In a closed-door meeting with union leaders in Detroit last week, UAW VP Richard Shoemaker promised to block any attempts by GM to reopen the contract. But he also offered to help the ailing automaker find ways within the contract to cut health-care costs. At Chrysler this year, the UAW agreed to deductibles on some PPO plans. After the union meeting, GM stock surged on optimism that the union might give the company a break. But if GM acts unilaterally, the union hints at dire consequences. "Any corporation would have a hard time breaking contracts," Shoemaker told NEWSWEEK, "and still convincing consumers that they'd be a good company to do business with." Wall Street has begun wondering if GM is overplaying the health card. "Even if GM solves their medical-cost disadvantage," says Standard & Poor's analyst Scott Sprinzen, "they will still not be another Toyota." And some question whether Wagoner's tough talk doesn't help because it simply backs the union into a corner. Says veteran analyst Maryann Keller, "It makes it difficult for the union to do anything without looking like the bad guys." A roadblock to any deal is the union's feeling that GM brass is not sharing in the sacrifice. Wagoner just took a $2.5 million bonus (while Bill Ford swore off compensation until his company is fixed). And GM shareholders still receive $1.1 billion in yearly dividends. That makes the union suspicious that Wagoner's big job cuts are merely saber rattling, especially since they reflect the automaker's normal attrition rate. "Do they have problems?" says Gettelfinger. "They've got some issues. But I certainly wouldn't rate it as a crisis." The real crisis would be a breakdown in communications between GM and its union. |
| Posted by:Mike Kozlowski |
| #5 I grew up in the Detroit area and had family and neighbors who worked in local plants or in the tubes. When I was young, I always thought GM cars were the best. My family had near-canine loyalty to Pontiac. Of course, this was the days of the SS/396, GTO, and Corvair, before the Vega, the Cimarron, and V8-6-4. It's a shame to see how far the company has fallen. Unfortunately, the overhead is killing them. Having 6 divisions made sense when they had almost 50% of the market. Now that they have 25%, they have, what, nine divisions? Caddy, Buick, Pontiac, Chevy, Saab, GMC, Isuzu, Saturn, Hummer, Opel, ... Unless they can quickly get back to 50% share (as likely as My embracing Islam), they need to cut down the brands and the dealers servicing them. If you are selling half as many cars (I know the market's bigger, but let's just say half), you should have half as many dealers. Either they can close a bunch of them and give the franchise to others nearby, or they can continue to have them all slowly sink. You can keep the brands, but you simply must cut down the overlap, accepting fewer sales per brand, and having fewer dealers per brand. No more Pontiac minivans. No more Buick trucks. Get Chevrolet out of any truck larger than Class 2 (or 3) and GMC out of any truck smaller than that. Clip Saturn back to its original plastic-bodied import-fighters. It did OK (not great, but OK) there. I don't know what to do about Saab. As for the health care and pensions being thrown out in a bankruptcy, that's essentially what United, Kaiser, and many other companies have done. If it ends up being that or liquidation, which do we want? Fans of Hudson and Packard must have felt the same way in the 50s. |
| Posted by: Jackal 2005-06-12 22:12 |
| #4 Time for Detroit to stop fiddling with the Unions and focus on dev George Jetson's flying/space car, or does the guy from Guam, i.e Madonna's daddy, have to do it, AGAIN. IN about ten years the Koreans will be where the Japanese automakers were in the late 1960s - ready to blow out Detroit and the world. |
| Posted by: JosephMendiola 2005-06-12 21:55 |
| #3 Look for The Union Label On a guy in a breadline Near You! |
| Posted by: M. Murcek 2005-06-12 21:28 |
| #2 Jackal- I have several GM salesmen for clients, and to a man, they are all quietly dreading one of two possibilities: first, that GM may implode due to runaway costs and utterly incompetent management. (Right now, the largest single cost at GM is health care.) Apparently, Federal law is such that GM might just be able to do that and simply blow off all its pensions and health care plans. The other rumor that has them concerned - one that has apparently been floated as a trial balloon - is scuttling Buick, Saturn, Pontiac, Hummer, and GMC's personal vehicles. This would come damn close to taking out about one HALF - or more - of the Automotive Division's personnel. The dealership structure would, with the exception of Cadillac, be 'dualled': each dealer would sell a combination of Chevies, Caddys, and/or Saturns. These guys all feel that GM is in deep, deep trouble and it will not survive the decade in its present form. Mike |
| Posted by: Mike Kozlowski 2005-06-12 19:13 |
| #1 Sometimes you have to slip the comb under the cholla and pull it out. Yeah, it hurts, but then it's over and you can get healed. Either GM does this, or they file Chapter 11 and stiff all the retirees. Or, they get liquidated and Toyota and Kia buy some more plants. |
| Posted by: Jackal 2005-06-12 17:27 |