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UAW Bonuses on GM Profit May Lift Economy

Mike Green says he already knows how he’s going to use a $7,000 profit-sharing check from General Motors Co. (GM): He’ll help his son buy a new car, throw him a graduation party and sock some money away in the bank.

“A lot of people are going to catch up on stuff,” said Green, president of UAW Local 652 in Lansing, Michigan, where GM builds Cadillacs. “People haven’t really had a raise since 2005. It’s kind of nice we get to reap some of the rewards now.”

The rebound in carmaker profits is putting money into the pockets of U.S. workers after years of belt-tightening. GM yesterday reported a record $9.19 billion in net income for 2011, which will mean profit-sharing bonuses of as much as $7,000 for 47,500 eligible UAW members. That’s an all-time high for GM, and up from an average of $4,300 for the company’s U.S. union workers last year.

The payouts, scheduled for March 2, come on top of similar bonuses at Ford Motor Co. (F) and Chrysler Group LLC. The money may help lift the economies of states with unionized auto factories such as Michigan, Ohio and Kentucky.

“This is a day that none of us thought we’d see,” said Harley Shaiken, labor professor at University of California at Berkeley. “Given what UAW workers have been through, if there is a time to buy something, it is now.”

The return of bonuses will help consumers shake off fears from the Great Recession and boost spending, said Donald Grimes, a senior research specialist at the University of Michigan who studies labor and the economy. Savings rates peaked in December 2009 and have now fallen back to 2004 levels, he said.

Michigan Rising

Already, the economies of Michigan, Indiana and Ohio have improved faster than that of the U.S. since April 2009 as GM and Chrysler were forced into U.S.-backed bankruptcies as part of an $80-billion bailout, according to the Philadelphia Federal Reserve. Michigan is expected to lead all 50 states over the next six months, the Fed data show.

“This is a reversal of the first half of the 2000s when Michigan and other auto states bore the brunt of the downturn,” said Grimes, who conducts annual economic forecasts for the Institute for Research on Labor, Employment and the Economy. “Now they are getting a bigger share of the recovery.”

GM posted its record profit as sales rose 7.6 percent last year to 9.03 million vehicles, allowing the company to outsell Toyota Motor Corp. and reclaim the title of the world’s top- selling automaker. GM also benefited from a lower break-even point from the 2009 bankruptcy.

$49,600 Corvettes

The Upper Midwest will be a hotly contested region in this year’s presidential election. Michigan and Ohio went for Barack Obama in 2008 and now each has a Republican governor. GOP candidates Mitt Romney and Rick Santorum are campaigning against the auto bailout in Michigan, which has a Republican primary Feb. 28. President Obama has visited the region several times to tout the U.S. auto industry’s comeback.

In the battleground state of Ohio, David Green says he plans to pay off his 2011 Chevrolet Cruze sedan with his GM profit sharing.

“I’m would think some folks are going to save it after being through some tough times, other people are going to use it to pay off bills and some are going to go out and buy stuff,” said Green, president of UAW Local 1714 in Lordstown, Ohio, which stamps metal parts for the Cruze.

Union workers at the Corvette factory in Kentucky will probably use their profit sharing checks to put a down payment on the $49,600 sports cars they build, said Eldon Renaud, president of United Auto Workers Local 2164 at the Bowling Green, Kentucky factory that builds the cars.

UAW Discounts

“There are some people ready to put that toward a Corvette,” he said. “With all the concessions we gave during and after the bankruptcy, it’s an exciting time. Some of the money we lost will be made up with this profit sharing.

‘‘Morale is certainly quickly improving. Everyone is starting to feel like it was worth biting the bullet.’’

Local businesses are beginning to market specifically to workers in line for bonuses. The Art Van furniture chain in Michigan is offering GM workers a special promotion of as much as 65 percent off and no 6 percent state sales tax.

‘‘We have noticed that auto workers are spending their bonuses at Art Van,’’ said Diane Charles, a spokeswoman for the retailer. ‘‘After three years of ‘needs’ spending, there is a little pent up demand for the ‘want’ spending. Many folks are beginning to replace furniture, carpet and televisions.’’

Ford paid out about $3,750 in profit sharing in December for the first half of 2011 and will pay out $2,450 more on March 14 as part of $6,200 in total payments on $20.2 billion profit last year. Chrysler paid out an average of $1,500 to about 26,000 union workers on Feb. 10.

Jobs Gains

GM paid no bonuses to union workers from 2005 through 2010 and Ford and Chrysler skipped all but two of those years, according to data compiled by the Center for Automotive Research in Ann Arbor, Michigan. The most GM paid before last year was $1,775 in 1999, Ford paid out a record $8,000 that year and Chrysler paid its biggest ever bonus as well, at $8,100.

Auto states are starting to see benefits from the industry’s recovery. Michigan, Ohio and Indiana all ranked among the top eight performers for improvement of economic health in the Bloomberg Economic Evaluation of States from the third quarter of 2009 through the third quarter of last year. Michigan gained 66,000 jobs in 2011, according to a Jan. 13 report, the first gain in the state since the turn of the century.

‘Problems Lurking’

With about a third of each bonus check going to state and federal taxes, governments are also gaining from the largess, said Sean McAlinden, a labor economist with the Center for Automotive Research in Ann Arbor, Michigan.

‘‘Michigan tax revenues will certainly benefit: first income taxes, then sales taxes, then spinoff effect,’’ McAlinden said. ‘‘I wish I owned an appliance firm.’’

Gary Chaison, professor of industrial relations at Clark University in Worcester, Massachusetts, said the economic bump from bonuses may not be as big as before the recession.

‘‘Most GM workers realize there still may be problems lurking and that they’re not out of the woods yet,’’ he said. ‘‘They’re not going to go out and buy a summer home or a new car. They’ll pay a large share in taxes and use the rest to pay off debts.”

The UAW’s Renaud isn’t among the cautious ones. He plans on using his $7,000 profit-sharing check to take his wife to Italy to celebrate her new doctorate and his survival at GM.

“Things are finally starting to look up and we’re just excited that we still have jobs,” said Renaud. “I’m sure my wife will be excited. I owe her a trip to Italy.”

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net; Keith Naughton in Southfield, Michigan, at knaughton3@bloomberg.net.

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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