Give A Little, Get A Little In Detroit

How GM and the auto workers built a solid peace

When the United Auto Workers' top brass arrived for a barbecue at the home of UAW President Stephen P. Yokich last Aug. 21, they were surprised to see an unexpected guest: Basil "Buzz" Hargrove, head of the Canadian Auto Workers. The CAW had barely been on speaking terms with the UAW since a messy mid-'80s split. Yet there Hargrove was at Yokich's inner-circle briefing on which Detroit auto maker would be named the UAW's strike target the next day.

To union insiders, it was a sign that this year's auto talks would be unlike any in the past. Hargrove and Yokich agreed to coordinate efforts so that "we would not trip over one another," Hargrove recalls. The initiative led to unusual cooperation between the two unions and hinted at the wiliness Yokich would show in his first contract talks as UAW president. His skills, plus some timely personal interventions by GM Chairman John F. Smith Jr, avoided a lengthy strike that could have cost both sides enormously.

ROUGH SEASON. Not that they didn't play hardball. Yokich and Hargrove hit General Motors Corp. with four strikes this year, making 1996 the company's roughest labor season since 1970. The two also faced down GM's demands for significantly different contract terms from its Detroit rivals. Still, they were careful to leave GM enough flexibility to achieve its bottom-line goals--though not an inch more. Result: When GM and the UAW finally reached a new pact on Nov. 2, the company had the O.K. to keep shrinking its workforce toward competitive levels in both the U.S. and Canada. Wall Street cheered, lifting GM shares by 1 5/8 the next day, to 55 5/8.

In the end, both sides showed flexibility. The union, which sought ironclad employment guarantees, settled for a pact that keeps the blue-collar ranks at GM, Ford, and Chrysler at 95% of current levels. However, Yokich built in enough exceptions to allow a still-bloated GM to dump up to 30,000 of its 220,000 hourly workers. GM had wanted the freedom to chop more. But even 30,000 is probably more than it can achieve during the pact's three-year life. "Yokich's strategy was brilliant," says Furman Selz LLC analyst Maryann Keller.

Under the deal, GM can shed some of its dozen unprofitable parts plants, selling a few to skirt the 95% guarantee. It also won easier restrictions on transferring workers from one plant to another. But the most valuable concession the company got was the freedom to cut jobs through productivity gains, an area where it already has made some strides. "The biggest improvement is when we do all-new vehicles," G. Richard Wagoner Jr., GM's president of North American operations, told BUSINESS WEEK on Sept. 3.

For this model year, GM has cut the hours needed to build 15 new models by 20% to 30%, says Wagoner, by using fewer parts and simplified auto designs. Says David E. Cole, an auto industry expert at the University of Michigan: "The key for GM is carte blanche on productivity and they got that" from the UAW.

Just last March, it was difficult to see how the two sides would ever reach an agreement. After a local dispute over outsourcing at two GM brake plants in Dayton ballooned into a 17-day walkout that shuttered most of the company, GM managers were proud that they had stood up to labor. But by May, Smith was telling shareholders at the annual meeting that "I hope peace and productivity will mark the months ahead."

ALL SMILES. While GM flip-flopped, Yokich sounded a constant theme, repeatedly calling job security the union's top priority. Although union leaders toted a symbolic Louisville Slugger when talks at Ford Motor Co. began on June 10, Yokich and Ford bargainers were all smiles. The reason: Yokich and Ford Executive Vice-President Peter J. Pestillo, golfing partners with a close personal relationship, already had forged an understanding.

With GM, Yokich drove home his bottom-line demands. On June 12, after repeated talk from GM Delphi parts unit chief J.T. Battenberg III about a need for drastic job cuts, Yokich publicly termed his relationship with Battenberg "lousy." Asked what Battenberg could do about it, Yokich replied: "Quit."

Finally, on Sept. 4, Yokich settled on Ford as the union's primary target. Two weeks later, he and Pestillo had crafted a deal that left both elated. Yokich got his 95% job guarantee, but Ford won important loopholes, avoided Yokich's demands for strong language about supplier organizing, and won a lower wage rate for hires in new parts operations. "We were going after an agreement all the companies could work with, and that's where we are," Yokich said when the deal was announced. Chrysler followed with a similar pact on Sept. 29.

Then GM stumbled into a crisis north of the border. In mid-September, Hargrove had set his own pattern by winning stringent limits on future outsourcing from Chrysler. Although he agreed to exclude two parts plants that GM wanted to sell, the company still refused to accept the Chrysler terms. But when a CAW walkout threatened to wallop GM's U.S. production, Smith flew to Toronto on Oct. 16 to work something out. By Oct. 22, the two sides did just that, but on the terms that Hargrove had offered before the strike, including GM's acceptance of the Chrysler outsourcing limits.

Still, when Yokich resumed his talks, GM wouldn't agree to the 95% guarantees, even with the loopholes. Frustrated, Yokich in late October orchestrated two locals to call strikes at high-profit plants. With losses of $50 million a day, GM resumed round-the-clock bargaining, and Smith stepped in again. Finally, just before 2 a.m. on Saturday, Nov. 2, Yokich and Smith announced a tentative deal. Neither was entirely happy. But they averted another showdown that would have cost more than either was likely to have gained.

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