Global Insight Perspective | |
Significance | Workers at 19 of 24 Chrysler plants in the United States walked off the job yesterday after the strike deadline passed with no settlement, but were recalled to work in the early evening with the announcement of a new agreement. The UAW also announced that its members employed by General Motors had formally ratified the agreement reached nearly two weeks ago. |
Implications | No details have been made available about the deal struck with Chrysler, except that an employee healthcare trust was indeed part of the bargain. The whole process was a rather bizarre, seemingly loosely communicated affair that left many observers confused. |
Outlook | The question of what the strike and settlement mean for Ford is uppermost in everyone’s minds, but it is tough to answer without knowing the full details of how the Chrysler contract differs from the GM contract, if at all. Many question why a strike was called at all, if the two sides were truly that close to an agreement. |
At 11:00 EDT yesterday, workers at 19 of 24 American Chrysler plants walked off the job and onto the picket lines, following the instructions laid down by United Auto Workers (UAW) union President Ron Gettelfinger in a memo earlier in the week. If the workers had not received instructions to the contrary by that time, then they were to consider themselves on strike, read the memo. With the two sides bargaining in a marathon 27-hour session up to the strike deadline with no resolution, workers did just that.
It was a selective strike: six plants in the Chrysler network had already been idled due to slow sales and high inventories. Workers at four of those plants were not officially on strike, which would have seen their 95% pay received during a manufacturer-led idling replaced with an average US$200-per-week strike payment from the union. However, barely six hours after workers hit the picket lines, word came down from lead union negotiator and UAW Vice-President General Holiefield that a tentative settlement had been reached. "Once again, teamwork in the leadership and solidarity in the ranks has produced an agreement that protects jobs for our communities and also protects wages, pensions, and health care for our active and retired members", said Holiefield, in a statement released by the union.
No details have officially been released about the new contract, but sources close to the negotiations report that it is similar to the General Motors (GM) contract in that it features a healthcare retiree trust, a two-tier wage agreement, and commitments to produce certain vehicles in U.S. factories. Unlike the GM agreement, however, the deal reportedly only applies the two-tier wages to new hires for Mopar Transport (the company's internal parts shipping network) in exchange for a new round of buyouts, and the product commitments are much less extensive than those included in the GM document. According to the Associated Press (AP), many of the product commitments only apply to keeping the current model of specific vehicles in their respective plants throughout the duration of that model's life.
One Settled, One Ratified
The UAW also announced yesterday that its GM members had ratified the tentative agreement reached with that company after a brief two-day strike, roughly two weeks ago. The agreement reportedly passed with 66% of production workers voting in favour, and 64% of skilled trades workers voting in favour of the four-year contract.“We entered these negotiations with a clear mandate from our membership”, Gettelfinger said in a statement. “With their help and solidarity, we were able to achieve our goals. We protected jobs, wages and benefits for both active and retired General Motors workers—and we helped protect middle class manufacturing jobs in communities throughout the United States”, he added. GM's new contract will expire on 14 September 2011.
Outlook and Implications
The brief, short-lived strike at Chrysler had an almost surreal quality to it, and was practically over before it had even truly begun. Workers were out on strike for a total of just over six hours; no disruptions to Canadian or Mexican facilities have been reported, and all plants are back up and running today. The similarity with the brief, mostly painless GM strike two weeks ago that led to a quick settlement raises questions. Some reports have indicated that the UAW actually had an agreement settled in the early afternoon, not much more than an hour past the strike deadline. If this is the case, it begs the question of why the UAW leadership did not simply call for a strike deadline extension, and instead let the workers walk out. If both sides were that close to a resolution by the 11:00 deadline, did a strike really prove useful in pushing Chrysler to a final settlement, or were the strikes at GM and Chrysler simply staged theatrics that would do little to harm the companies but would potentially do much to foster solidarity among union members? By boosting union members’ spirit before announcing a settlement, the union leadership perhaps hoped that this would make it easier to push through a contract less favourable to its membership, by showing that the negotiators had fought and won against the company's demands. Whether or not the strikes were truly tools being used to push the automakers into a final settlement or simply theatrics for the benefit of fostering solidarity may never be truly known, but it does beg the question of what might be in store for the last automaker to finalise a contract—Ford.
The implications for Ford cannot truly be deduced until the full details of the Chrysler contract are known, and more specifically how the details of the contract differ from those of that approved at GM. If initial indications are to be believed, Chrysler avoided the product investment guarantees that GM made, which cover the next four to five years and outline where products will be built at all of GM's U.S. assembly plants. Chrysler needs more flexibility to move production around and consolidate plants to fight overcapacity, not set plans that lock product into specific locations. If the early reports are true, Chrysler seems to have won that flexibility with the next generation of its vehicles. Chrysler was reportedly not able to secure the universal two-tier wage system that GM won, instead only applying it to the Mopar Transport trucking company. Chrysler had reportedly wanted to disband that in-house shipping company, outsourcing jobs there to the myriad companies that currently service the auto industry. However, with those drivers covered under UAW contracts, that needed to be part of the new contract. It is also surprising, if reports are accurate, that Chrysler approved a healthcare trust for its retiree benefits. If Chrysler won the ability to fund the trust at US$0.70 on the dollar, as GM did, then it would be contributing roughly US$13.0 billion to the trust fund. It will be interesting to see what Chrysler won for such a cash outlay, given that its new owners Cerberus Capital Management were not expected to support such a move.
What Will it Mean for Ford?
This is the question now on everyone's mind—with GM and Chrysler out of the way (pending Chrysler's ratification of the new contract), will the Ford negotiations be painless, or should we expect a strike there as well? Since a strike was not expected at either GM or Chrysler, any speculation on the upcoming Ford talks would be a shot in the dark. However, some things are known about Ford's condition going into the talks: it differs from GM and Chrysler in that it is likely to seek more wage reductions to bring down manufacturing costs. The company is amenable to a voluntary employee benefits association (VEBA) like the one at GM, but may find it challenging to fund such a venture. With the entire company (including its assets, buildings, and brands) mortgaged for US$24 billion last year in order to fund ongoing operations and new product development in the wake of massive North American losses, many wonder what the company has left to sell or mortgage in order to finance whatever part of the US$31 billion in retiree liabilities that it will be required to pay. Ford is arguably in the most dire straits of the “Detroit Three” automakers, with sales plummeting, new products not finding buyers, and future products seemingly too slow in arriving. Whether this will inspire the union to increase concessions to the “Blue Oval” remains to be seen.