Ford's Sweet Labor Deal

Ford's contract shows the UAW's flexibility. That could help GM, too

Ford Chairman Alexander J. Trotman looked like the cat who had just swallowed the canary. After winding up round-the-clock talks with the United Auto Workers on Sept. 16, Trotman had agreed to a new labor contract that not only looked good for Ford Motor Co. but also seemed as if it could hurt rival General Motors Corp. "We think we have a good deal," said Trotman with a grin.

On the face of it, Ford's sweet deal looks pretty sour for GM, if the UAW can force the No.1 auto maker to swallow its terms. By agreeing to keep employment at 95% of its current 105,000 workers, Ford set a pattern GM would be hard-pressed to match. After all, GM still needs to shed up to 70,000 of its 220,000 workers to boost lagging productivity and make parts operations competitive.

But this is one case where appearances may be deceiving. Ford's new employment guarantees have loopholes. For instance, they don't apply if the economy falls into a recession. Also, the union already is sending out signals that it may let GM cut a higher percentage of jobs than Ford, say sources close to the talks (table). "We're going after an agreement that all three companies can live with," UAW President Stephen P. Yokich told reporters on Sept. 16. At a public appearance the next day, GM Chairman John F. Smith Jr. went so far as to laud Yokich for his "statesmanship" and said that he expected the UAW to come up with a deal GM could accept. GM may not be so lucky in Canada, though: On Sept. 17, the Canadian Auto Workers (CAW) won a near-absolute ban on cutting jobs through outsourcing from Chrysler Corp. that seems likely to spark a strike at GM there.

PRAGMATISM. Indeed, this year's auto talks seem to be shaping up as a replay of 1987, the last time the UAW extracted guaranteed job levels from Detroit. Back then, a healthy Ford agreed to maintain current employment but the union left enough loopholes in the deal to allow GM to go along. It even fudged the pattern further when it actually sat down with GM, which at the time was plagued with overcapacity and efficiency problems much worse than those it faces today.

The question now is how far Yokich will go in accommodating GM this time. Both Ford and Chrysler have added workers in recent years, but GM still hasn't finished the slim-down that it started a decade ago. Management has put four parts plants on the auction block--including two in Canada--and labeled eight others with low profits as "troubled." It also is counting on slashing labor-hours by 20% to 30% on the 15 new vehicles the company is now launching. Ford-level limits on job cuts would stall these efforts before they really get rolling. "The 95% figure would only let GM cut about 12,000 jobs," said Daniel Luria, a labor analyst in Ann Arbor, Mich. "That's got to change."

It probably will, unless the UAW is ready to weather a strike against GM. Sure, Yokich will insist that GM match the economic portions of the pact: a $2,000 bonus in the pact's first year and 3% annual wage hikes in the second and third years, plus improved pension benefits. These rich terms are key to getting members to ratify the deal later this month as expected. "People like wage increases," says Donald F. Ephlin Jr., a Ford worker in Rawsonville, Mich., and son of a retired UAW vice-president.

But industry observers believe the UAW may allow GM to cut employment by a larger percentage than Ford. That would be in keeping with the pragmatism Yokich already has shown in his first national contract talks as UAW president. He dropped a demand to allow the UAW to strike over outsourcing issues, which would have given a powerful boost to the guerrilla-war tactic of local walkouts that he has used against GM in recent years. He also jettisoned a demand that Ford force its suppliers to remain neutral in UAW organizing drives. Instead, he broke with UAW precedent by allowing Ford to add new parts-making jobs at a permanently lower wage comparable to those at outside suppliers. This is the first time the union has agreed to a two-tier wage structure, but it could add new members to the union's dwindling ranks.

Lower-paid parts jobs could save Ford and Chrysler a bundle as they cope with aging workforces. For instance, they could set up new parts-making operations next to an assembly plant, then move trained parts workers into the plant to replace retirees, Luria speculates. The new workers would start in parts jobs at, say, $11 an hour, then graduate into the assembly plant as workers there retire. The companies "could set up a `minor league' system in new parts plants and move promising workers up to assembly plants as needed," says Luria.

But GM won't necessarily be hurt. By agreeing to treat some parts jobs differently from assembly ones for the first time, the union may find ways to address GM's attempts to outsource high-wage parts jobs. For instance, Yokich may agree to different job-guarantee levels for the two kinds of work, says one UAW insider. "It could be 95% for the assembly portion of GM and 85% for the parts," says the source.

CANADIAN FIGHT? The broader question: whether a Ford-type contract would let GM shrink as much as it wants. With an annual attrition rate of 10,000 to 15,000 workers, it would take at least five years for GM to approach its ideal size. Selling off parts plants could accelerate the pace, but Yokich's minimum employment levels could snag such moves.

But the union has stretched its pattern many times before to allow for cost-cutting. Yokich has said several times recently that he wants a pattern established more for wages and benefits than for issues such as job security. And he scoffs at the notion that he's strictly bound by the Ford pattern. "Steve knows he can't protect all these jobs if GM is to stay sound economically," says one source close to the union.

GM faces a far less understanding adversary in Canada. The agreement between Chrysler and the Canadian union embargoes the sale of any plant and requires any jobs lost to outsourcing to be replaced with equivalent work. CAW President Basil "Buzz" Hargrove plans to seek a similar deal from Ford and GM. But GM, which plans to cut some 5,500 of its 26,000 CAW jobs through outsourcing, "can't accept this deal in any way, shape, or form," warns Dennis DesRosiers, a Toronto auto consultant. Unless someone capitulates, a costly strike seems likely, which would soon cripple many of GM's U.S. plants, too.

Yokich has provided nonstop surprises ever since Detroit's labor talks began. He refused to target Chrysler, as everyone predicted, and wound up clasping hands with a smiling Trotman over a conciliatory contract. If Yokich keeps showing such creativity, he and Smith may end up as happy partners, too.

Before it's here, it's on the Bloomberg Terminal.