Big Three have it out for UAW
Wall Street Journal - June 14, 2007
Detroit Pursues Sweeping Cuts In Union Talks
Big 3 Cite Wide Cost Gap With Asian Auto Rivals; Threat to Export Jobs
By JEFFREY MCCRACKEN
Detroit’s Big Three, facing their worst crisis in decades, are
seeking unprecedented concessions from the United Auto Workers union
in a bid to narrow what they say is a $30-an-hour labor-cost
disadvantage against Asian rivals like Toyota Motor Corp. and Honda
Motor Co., auto executives say.
The unusually tough stance by General Motors Corp., Ford Motor Co.
and DaimlerChrysler AG’s Chrysler Group marks their latest attempt to
stanch heavy losses in their North American auto operations. It also
sets up a potential showdown with the UAW — which has a 70-year
history of winning progressively richer contracts for its members –
as the two sides prepare for contract talks that start this summer.
In recent years, the union has agreed to work-rule changes and
benefit cuts for its retirees designed to save the auto makers
billions of dollars a year. However, UAW President Ron Gettelfinger,
who declined to comment on the coming negotiations, has argued his
workers shouldn’t bear the entire cost of Detroit’s restructuring.
The Big Three have talked tough before ahead of contract talks, only
to agree in the end to a costly labor deal. This time around,
however, people familiar with their plans say all three are united in
believing they have no choice but to close the $10 billion-a-year
labor-cost gap between them and their leaner Asian competitors on
cars and trucks built in the U.S. The three are also resolved to move
jobs abroad if they can’t bring down U.S. wage-and-benefit costs, one
industry executive says.
GM, Ford and Chrysler have eliminated about 70,000 UAW jobs over the
past two years through buyouts and other means. The three, which
currently employ about 210,000 of the UAW’s 520,000 active members,
say they pay union workers $70 to $75 an hour, when wage, health-care
and pension expenses are factored in. By comparison, according to Big
Three estimates, Toyota and other Asian auto makers, pay $40 to $45
an hour at their U.S. plants, which together employ about 62,300
nonunion workers.
“We need to eliminate most, if not all…like 80%” of the gap, says a
senior automotive executive involved in labor planning. “It has to be
gone by the end of the contract, or doing business in the United
States is unsustainable.”
All three domestic auto makers “will move investment in plants and
people outside the country” if they don’t bring U.S. labor costs in
line with those of Toyota and the other foreign auto makers, the
executive said.
Detroit’s auto makers are in a more precarious position than at any
time since the early 1980s. Ford and GM are bleeding cash in North
America and their debt ratings have sunk to junk status. Control of
Chrysler is about to be passed from German industrial giant Daimler
to private-equity firm Cerberus Capital Management LLC, which has
profited by aggressively restructuring distressed companies.
The Big Three’s competitive problems extend far beyond labor costs, a
point UAW bargainers have made in the past and will likely make
again. Union leaders have said the auto makers should invest more in
improving the quality and design of their vehicles.
[graphic shows profit/loss per vehicle, 2002-2006; 2006 figures:
Nissan $1,575 Honda 1,368 Toyota 1,266
Chrysler -1,072 GM -1,436 Ford -5,234
source: Harbour Consulting
The three companies allowed quality to deteriorate in the 1980s, a
stumble that still haunts them by hurting their standing with
consumers. Detroit also resorted to discount-driven marketing,
undermining its profits and cheapening the image of its brands.
Moreover, the auto makers have been slow to respond to shifts in
consumer tastes over the past two years; a sharp rise in gasoline
prices caught them with too much of their production capacity devoted
to trucks and sport-utility vehicles that got relatively poor mileage.
Mr. Gettelfinger, the UAW president, has been maneuvering for two
years to soften the potential blow to the union’s more than 700,000
active and retired members, agreeing to mass buyouts, some cuts in
retiree health-care benefits and moves to improve factory-floor
efficiency.
Former and current union officials say Mr. Gettelfinger prefers to
make smaller, less dramatic sacrifices that still add up to
substantial savings, concessions such as changing work rules to allow
for outsourcing of jobs such as janitor or materials handler or
restricting the amount of time a union worker can remain unemployed
but on full pay in the industry’s so-called Jobs Bank. Such moves can
save an auto maker tens of millions of dollars per plant.
In recent speeches, Mr. Gettelfinger has reiterated calls for the
federal government to take over some or all of the auto makers’
health-care burdens. “The UAW believes it would be immoral and
irresponsible to abandon the hundreds of thousands of retirees who
helped build GM, Ford and Chrysler. We are simply not going to do
that,” he said in a speech earlier this month.
Jerry Sullivan, president of UAW Local 600 at Ford’s Dearborn Truck
plant, says his members know this summer’s talks will be all about
trying to catch up with Toyota. “But closing that gap, it will be
very difficult,” Mr. Sullivan says. “Hopefully we can get something
worked out. That’s why all the big minds are getting together to talk
this summer.”
The Big Three argue that Toyota, Honda, Nissan Motor Co. and other
foreign auto makers building cars and trucks in the U.S. — and not
the UAW — set the industry’s rate for labor. This year more vehicles
are expected to be built in the U.S. by non-UAW workers than by UAW
members for the first time in the union’s 72-year history, according
to CSM Worldwide.
UAW workers in GM, Ford and Chrysler plants earn about $27 an hour in
wages, roughly the same as the nonunion workers in the U.S. plants of
Toyota, Honda and Nissan. But the UAW’s generous health-care plans
and pensions for the hundreds of thousands of union retirees and
their dependents more than double the total hourly cost. By contrast,
the foreign-owned auto plants in the U.S. haven’t been around long
enough to accumulate significant numbers of retirees.
Detroit’s labor costs are continuing to rise, mainly due to rapidly
increasing health-care expenses. According to an internal Chrysler
estimate, the labor-cost gap could grow to $45 an hour by 2011 if
nothing is done.
Cutting total labor costs by anywhere close to $30 an hour would be
an unprecedented accomplishment. For decades, the UAW has won steady
improvements in job security and benefits as well as wage increases
of 2% to 3% per year.
Four former and current UAW officials with knowledge of the union’s
thinking say Mr. Gettelfinger wants to sign a new contract that,
among other things, slows or stops the rapid decline of UAW
membership. The union’s membership could sink below 500,000 as a
result of the tens of thousands of buyouts and early retirements GM,
Ford and Chrysler are now in the process of completing. It had one
million members in 1987.
The UAW has made significant concessions to save jobs in other
industries. The auto makers are studying a six-year deal the union
reached with heavy-equipment giant Caterpillar Inc. in January 2005
which allowed the company to pay new hires between $10 and $15 an
hour, compared with $20 and $22 for previous hires.
UAW-Caterpillar workers must pay some of their health-care costs for
the first time and get annual bonuses but no raises over the term of
their contract. “A deal like the Caterpillar contract would take out
$7 to $10 an hour of that $30 gap,” said one senior automotive
executive familiar with plans for the UAW talks.
Detroit, especially GM, would like the three companies to merge their
combined $95 billion retiree health-care obligation into a separate
trust. It would be partially funded by the auto makers, but managed
by the UAW.
A UAW official that has worked on national contract talks said the
union is analyzing a similar trust that Goodyear Tire & Rubber Co.
recently created for its union retirees. One of the union’s lawyers,
Dan Sherrick, negotiated a similar health-care plan for the UAW a few
years ago with engine maker Navistar International Corp.
The Goodyear trust involved just $1.2 billion in unfunded health-care
liabilities, and Goodyear’s Steelworkers union had also previously
agreed to inflation caps, which the UAW hasn’t. By contrast, the Big
Three would have to come up with billions of dollars to fund such a
trust. The UAW would likely have to agree to accept just 50 cents to
60 cents on the dollar of funding for the trust to make economic
sense for the auto makers, one individual familiar with the process
said.