Pick Me As Your Strike Target! No, Me!
When Detroit auto makers sit down in June to hammer out new labor pacts with the United Auto Workers, all three companies will be begging the union to pick them as its strike target. The union typically pens a deal with the target company first, then demands that the other two follow the same pattern. The carmaker that goes first thus has the best shot at shaping the contract to fit its own particular business needs.
Who gets first crack is crucial in this round of talks because the Big Three's economic interests diverge so sharply. General Motors Corp. (GM ) is struggling under the weight of 360,000 union retirees and the soaring cost of the health care they receive. So management desperately wants to whack its $5 billion annual medical tab and is willing to offer job guarantees in exchange, which the company can do since it already has cut so many slots over the past decade. Ford Motor Co. (F ) and Chrysler Group (DCX ), on the other hand, can't afford new job-security demands, since both need to dump some of their $22-an-hour workers to get their bloated costs in line. But they have fewer retirees and less need to seek health-care relief.
The result is a scramble to see which company can persuade the union to make it the pattern-setter when the current contract expires on Sept. 14. New UAW President Ron Gettelfinger, who faces his first contract talks as president, is already signaling that he may lean toward Ford's and Chrysler's demands, not GM's. "A lot of people are curious to know how we're going to solve the problem of rising health care," he said in a Mar. 31 speech to the Detroit Economic Club. "We're not. You can't fix the health-care crisis at any one bargaining table."
If Gettelfinger sticks to that, GM could shoulder huge medical costs for years. Ironically, the No. 1 carmaker is in this pickle because it already has done much of the job-cutting that Ford and Chrysler want to do. GM slashed some 120,000 jobs in the 1990s, often by paying workers extra to retire early. The goal was to bring down the workforce as market share plunged and to boost lagging productivity. The stiff measures worked, and GM now uses fewer labor hours to produce a vehicle than its crosstown rivals (chart). But GM is also stuck with 2.5 retirees for every active worker, vs. 1 to 1 at Ford and Chrysler. And those retirees get the UAW's Cadillac of medical plans, with no deductibles -- a big reason why GM's health costs are double those of its rivals.
Gettelfinger is unsympathetic because great health benefits are crucial to his plan for reviving the UAW. To offset its 50% membership decline since 1980, to 700,000, he wants to sign up workers at foreign-owned plants and suppliers in the U.S., which are only 23% unionized. Most make nearly the same as UAW members, but their health benefits are usually stingier. Gettelfinger figures UAW-style insurance can be a big selling point for recruitment.
If the UAW budges on anything, it's likely to be job cuts. Ford and Chrysler are among the industry's least efficient manufacturers. It takes Ford about 27 hours to assemble a car. Chrysler needs 31 hours; GM can do it in 26. Japanese carmakers, meanwhile, manage in 17 to 22, according to Harbour & Associates Inc., a Troy (Mich.) firm that studies productivity.
To shave their numbers, Ford and Chrysler want to make the kind of cuts GM has been allowed since 1999. The UAW's contract requires auto makers to replace every three retirees with one new hire. But the union, knowing GM needed more efficiency, hasn't enforced this provision. Instead, UAW leaders quietly allowed GM to shed 21,465 slots in recent years, mostly through retirement, but hire just 4,600, according to Sean McAlinden, a labor analyst at the Center for Automotive Research in Ann Arbor, Mich. That helped the industry's longtime productivity laggard to grab a cost advantage vs. its domestic rivals in the current price war.
Ford, which has lost $6.4 billion in the past two years, is most in need of such cutbacks. Its restructuring plans call for closing four U.S. plants and slashing 15,000 hourly jobs, mostly UAW positions. The union will likely go along with some of that, possibly even giving it a special deal for a year to get its house in order, predicts McAlinden. The UAW cuts such deals only when a company is in really bad shape, such as Chrysler's near-death experience in the late 1970s. But the UAW acknowledges that Ford has problems, says Gerald D. Bantom, the union's top Ford negotiator. A complication: Visteon Corp. (VC ), Ford's spun-off parts maker, wants to cut jobs, too, but its workers have the right to transfer back to Ford.
Chrysler is in better shape -- it's back in the black. But it, too, wants to slice jobs and divest some of its 15 parts plants. The company has less of a retiree burden than its rivals and a lower health-care bill. So it may be best positioned to lead in the UAW talks, since management can more easily afford to keep the health benefits intact.
GM may still get a modicum of relief even if the UAW digs in its heels on health care. The union could make small concessions to mitigate the soaring costs, such as requiring the use of generic drugs over brand names. GM may also propose a plan that gives workers cash or 401(k) incentives if they pick cheaper medical plans. The union has already made some moves along these lines, which helped to keep GM's health-care costs rising at only 8.6% last year while most U.S. companies saw medical inflation of 14%.
Plus, GM would still benefit from job cuts. A lower payroll would bring GM's productivity even closer to that of Toyota Motor (TM ) and Honda Motor (HMC ) factories, lowering costs and making it easier to bear rising health expenses. "We've made productivity gains, but we're still not where we need to be," says GM's labor relations vice-president, John R. Buttermore. True enough, but with the auto makers' interests so divided, the UAW is in a strong position to play them off against one another.
By David Welch in Detroit