The Big Squeeze On Gm

Labor strife on two fronts could cost it billions--for no good reason

It's the strike that never should have happened. On one side, General Motors Corp. had every incentive to reach a compromise with the 26,000 members of the Canadian Auto Workers: In Canada, labor costs are about a third lower than in the U.S. And the country's more efficient plants raked in a record $1 billion in profits last year. On the other, the Canadian union faced the grim prospect of going into hock by blowing its entire strike fund in a lengthy walkout.

But as so often happens with GM and its workers, heated rhetoric and a clash over principles ignited a war. GM management hawks have drawn a line in the sand over the union's demands for outsourcing restrictions--even though the CAW already has agreed to much of the outsourcing the company needs. And CAW leaders have fanned the flames by talking up demands such as a desire for union "ownership" of jobs. "Given our need to become more competitive, the principle of work ownership is troublesome," says Dean Munger, GM's top Canadian negotiator. Adds GM Chairman John F. Smith Jr.: "We've got certain [issues] that will cripple the company if we don't get them fixed right."

SPILLING OVER. Now, even though the two sides have reached agreement on most issues, GM is caught in a vise between its two unions. The Canadian walkout will bring most of its North American auto operations to a halt if it drags past about Oct. 24. The pitched battle is spilling into GM's labor negotiations in the U.S., too, where promising talks over a new pact with 220,000 United Auto Workers have stalled. The UAW likely will simply wait out the Canadian strike and may be bolder in its demands if GM appears bowed once the conflict is ended. Unless cooler heads prevail, the company faces a prolonged bout of labor strife that could cost billions and endanger the launch of 15 new vehicles beginning this fall (table). "Everything points to this escalating into a classic battle between management and labor," says CAW President Basil "Buzz" Hargrove.

If so, it will be a largely unnecessary clash. True, Hargrove slammed down his briefing book so hard during bargaining on Oct. 7 that he almost broke the binder, and Munger has made similar outbursts. But in fact, both sides have compromised on most major issues. GM has agreed to cough up the same healthy wage-and-benefit package the CAW recently won from Chrysler. And Hargrove has agreed to allow GM to proceed with the sale of two parts plants, provided workers there get additional protection, despite his earlier vows to force the company to rescind the moves.

Indeed, Hargrove has given ground throughout, while continuing to talk tough. For instance, he says GM can cut jobs to accommodate productivity gains or sales downturns. And given the CAW's small $36 million strike fund--he'll have to borrow money when it runs out after eight weeks--he might even accept modest loopholes in his demand for a ban on cutting jobs by outsourcing.

GM has plenty of reason to come to terms with Hargrove over this major sticking point. Thanks to a weak Canadian dollar and national health care, it pays just $30 an hour for an assembler there, vs. $43 in the U.S. Canadian GM plants are 15% more productive than those in the U.S. And if the two parts plants are sold, GM's Canadian unit concedes that it will have dumped 65% of the 5,300 noncore jobs it wants to outsource. GM may risk losing money and market share in a strike to make a point "that has very little bearing on the Canadian operation," says Charlotte A. Yates, a labor studies professor at McMaster University in Ontario. GM insists, however, that GM Canada can't match the efficiency of top rivals without the freedom to cut 1,800 more noncore jobs. "And we can't make a promise to the union we can't keep," says Munger.

The rub for GM is that it probably can't polish off talks with its U.S. union as long as it remains at loggerheads with the CAW. That's unfortunate, since the pact between Ford Motor Co. and UAW President Stephen P. Yokich looked to be one that GM could work with. While Ford guaranteed 95% of its blue-collar jobs over the three-year pact, it also negotiated loopholes to allow for further downsizing. Like Hargrove, Yokich agreed that sinking volumes of specific car and truck lines would pave the way for job cuts, as would productivity gains in individual plants. Moreover, the Ford-UAW contract doesn't prevent the auto maker from selling any operations as long as the buyer heeds the terms of the union contract.

LAST MILE. Chrysler Corp. easily accepted the Ford deal on Sept. 29, and GM seemed poised to come to terms as well. While the UAW balked at GM's demand that it lower the guaranteed employment level to 85%, union insiders expected Yokich to give GM some wiggle room. "The expectation was that Steve could almost get GM and Chrysler simultaneously," says one source close to the union.

But GM has little incentive to go the final mile with Yokich while its Canadian workers are on strike. After all, Yokich can't call a walkout if his members already are collecting unemployment because of a lack of parts from Canada. For the same reason, Yokich is in no hurry to finalize a deal now, either. "What's he going to get from GM when the company is about to be shut down anyway?" says one UAW source. And GM can't back down in Canada without ramifications in the U.S. "If GM were to cave in to Buzz, they would have to cave in to Yokich," says Nicholas Lobaccaro, an analyst at Bear, Stearns & Co.

But the ripple effect of the Canadian strike could hit GM hard. Analysts predict that one-third of the company's North American assembly plants will be idled in the second full week of the walkout, as supplies of Canadian-made parts such as control arms and interior trim dry up. By the third week, all of GM's assembly production could be shuttered, costing the auto maker an estimated $300 million a week in lost profits. However, GM probably could make up some of these losses after the strike ended, just as it did after the UAW's 17-day walkout in Dayton shut production last spring.

Already, GM has lost a third of its production of full-size pickups after the initial CAW walkout shut down its Oshawa (Ont.) plant. More devastating for GM is the strike's ultimate effect on the launch of 15 new models starting this fall. "Do they really want to blow the launch of 40% of their fleet to make a point over a few hundred Canadian jobs?" asks Harley Shaiken, a University of California-Berkeley labor expert.

So far, though, GM appears determined to make a stand in Canada. "You really saw the new GM at Dayton," says David E. Cole, director of the University of Michigan's Office for the Study of Automotive Transportation. The flamboyant Hargrove may well sit tight for a while longer, too. He has worked to line up loans from other unions in Canada. Canadian Labor Congress President Robert White, who once had Hargrove's job, says his group stands ready to help. And Hargrove's leverage will increase once GM's U.S. plants start to close.

If things get to that point, GM may have to rethink its position--or pay dearly for its principles.

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