Gm: What Price Peace?

GM lost a lot to the UAW, and labor relations are still bad

Can General Motors Corp. justify the $2.2 billion it lost trying to win its costliest labor battle in decades? It wouldn't seem so--and not just because it won so little at the bargaining table. What makes GM's victory seem so puny is that, after enduring a companywide shutdown and the potential loss of even more of its dwindling market share, the car giant has left so many wrenching questions about its future--including its relations with its workers--unresolved. How, for instance, will the company pursue its goal to shed 50,000 hourly workers in the coming years? What other measures should it take to improve efficiency in manufacturing and marketing? How will it halt its market-share slide?

True, when the 54-day strike ended on July 28, the company had won some of the work-rule changes aimed at improving productivity that had prompted the United Auto Workers' walkout. GM also won a measure of labor peace, which could last until its national pact with the union expires in September, 1999.

ANTAGONISM. These, however, are small victories involving only a handful of plants. And to clinch a deal, GM gave plenty of ground--including promising to keep open plants that it had said were not needed six weeks ago. That includes the Flint (Mich.) stamping and parts facility where the strike began--and where GM will now invest $180 million, as originally promised.

Even so, these concessions won't do much to reverse years of antagonism between GM and the union. "Obviously, the relationship that our members and our union has with GM leaves a great deal to be desired," Richard Shoemaker, head of the UAW's GM unit, said on July 29. The sides did agree to confer more frequently to head off disputes. "We're hopeful this new process will help us move towards better relations and avoid conflict," says Shoemaker.

On the other hand, UAW President Stephen P. Yokich has been meeting regularly with top GM officials over the years, with little to show for it. Indeed, the Flint showdown--in which the company tried to have the strike declared illegal--is a recent low in GM labor relations and could set the stage for an even bigger confrontation in 1999. In Lordstown, Ohio, for example, many GM workers are convinced that the company will move their jobs to Mexico if they don't make big concessions. "They're threatening us, and we're tired of threats," says Lordstown worker Joseph Popovich.

Whether it's moving small-car production from Lordstown or spinning off parts subsidiaries, GM now is under more pressure than ever to get its costs down. Ford Motor Co. and Chrysler Corp. have shown that such cuts, though painful, can be less disruptive and ultimately less costly if the union is a partner instead of an adversary. "GM ought to have learned from this strike that it can't win labor showdowns," says Furman Selz LLC analyst Maryann N. Keller. "They've had 24 strikes since 1990, and it hasn't solved anything."

DISAPPOINTMENT. Certainly, this latest shutdown--costing $2.2 billion in lost sales and perhaps more lost market share--seems out of proportion with the local compromises that settled it. After the strike in Flint halted all GM production in North America, the company got the UAW to bend on work rules in the stamping plant. The union agreed to increase the quota for workers in one section by 15% so they would work longer hours. Even now, some will be able to fill the new quota in six hours or less.

Probably the biggest short-term gain for GM was the promise by the UAW not to strike at Flint or at its Dayton (Ohio) brake plant until January, 2000. But it won it at the cost of pledging not to sell Dayton until then. The promise could throw a wrench in management's plan to spin off its entire Delphi parts division. If that happens, investors would be very unhappy. "We would be shocked if a Delphi spin-off didn't happen this year," says Kevin L. Risen, co-manager of several funds at Neuberger & Berman Group, which owns more than 10 million GM shares.

Investors hoping to see GM drastically ratchet up efforts to improve efficiency now will likely be disappointed. The board, which is scheduled to gather for its regular meeting on Aug. 3, does not contemplate any major new initiatives to close plants, cut poor-selling models or outsource work, according to people close to management. Indeed, management may tread more lightly to avoid a fresh confrontation with the UAW. This leaves the company with few options--beyond waiting for older workers to retire--to resize its workforce and plant capacity to match its market share. GM has about 31% of the U.S. vehicle market, but still has enough capacity to fill 36%--a slice it may never see again.

Management now faces two broad options. One is to use the new agreement to meet regularly with union officials to begin to forge better relations. The day the strike ended, Yokich said that he hopes the meetings will help "the UAW and GM to sit down and find a better way of doing things." GM's vice-president for labor relations, Gerald A. Knechtel, expressed a similar desire.

"GM needs to convince its employees that they have a stake in becoming more competitive," says Sean McAlinden, a University of Michigan auto expert. "Even if GM had to pay them more, it would be cheaper than what it spends on strikes."

"BETTER CHANCE." GM's other choice: to confront the UAW head on over restructuring. In one way, the strike could make that strategy somewhat easier. Yokich settled before a judge could rule on the legal challenge to the Flint strike; inside the UAW, the fear was that GM would win in court. And that might make Yokich more hesitant to use a local strike to trigger another national shutdown at GM. His option then would be to battle GM on a national level during next year's contract talks. But the cost would be prohibitive: Workers across the nation idled by a local strike can collect unemployment. In a national walkout, the union would have to chew up its $700 million strike fund. "GM would stand a better chance in a confrontation where the union had to pay the whole cost," says Nicholas Lobaccaro, an analyst at Merrill Lynch & Co.

Given its history, GM is likely to wind up closer to the second approach. If so, the relative calm that should prevail for a while could be followed by an even more cataclysmic battle next year. And both sides would sbe the losers.