Global Insight Perspective | |
Significance | News sources announced late on Thursday (13 September) that General Motors has been chosen by the United Auto Workers (UAW) as the strike target for the current four-year contract negotiations. |
Implications | Chrysler and Ford have both signed indefinite contract extensions of the current agreement until the negotiations between the UAW and GM are finished. Strike preparation instructions have gone out to the local organisations, and picket signs are being printed in the unlikely chance that a strike will actually be called. |
Outlook | The chance of a strike is still low, but more uncertain is how Ford and Chrysler will react to the negotiated contract with GM, given the very different needs of the three automakers going into this round of negotiations. While all three could benefit from reduced healthcare costs that a VEBA would provide, all three come from different positions of strength and with different goals for the new contract. |
Late yesterday (13 September), the United Auto Workers (UAW) union announced that it had chosen General Motors (GM) as its lead target for finalising a new four-year contract. The Detroit News and Detroit Free Press both reported late on Thursday that several UAW local presidents had received calls from the international team stating to be prepared for a strike, and that GM had been chosen as the target. Placards were being printed in preparation for such an event, a typically standard procedure when negotiations have entered the final phases in the past. The current contract with the UAW is set to expire at midnight tonight, but both Ford and Chrysler have announced that they have signed temporary extensions of the current contract. "The UAW and Ford have agreed to continue bargaining past the contract expiration," Ford spokesperson Marcey Evans told the Detroit News.
The UAW has traditionally employed a pattern bargaining approach to the talks, in which one company is chosen as the lead and a contract is hammered out that is then used as the framework for the remaining two. In this case, GM would be the lead negotiation target, a contract for which would then be brought to Ford and Chrysler for approval. GM is reportedly the company that pushed hardest for a Voluntary Employee Benefits Association (VEBA) fund in order to divest the company of the future healthcare liabilities that currently drag down its balance sheet. Reports state that the company offered between US$0.65-$0.67 on the dollar to eliminate its liabilities, but that the union is holding out for a higher level. The Detroit News reports that Ford offered a similar amount. Funding the VEBA has been a point of contention as well, as automakers have offered a mixture of cash and stock to fund the nearly US$112 billion in liabilities, a combination that the UAW has been hesitant about due to the volatility of company stock.
Outlook and Implications
The choice of GM as the strike target is an interesting one. It is currently the strongest of the Detroit Three automakers, well into its turnaround plan and just now starting to see the results of several years of efforts to consolidate platforms, trim development, improve product, and cut costs. The UAW's idea must be that of all the Detroit Three, GM is in a position where it will not want to jeopardise the momentum it has gained in its turnaround by risking a strike. However, the actual possibility of a strike is low, given the pragmatism with which the UAW has approached these most recent negotiations and the pattern seen at the contract negotiations for suppliers as well. The printing of placards and phone calls telling locals to prepare for a strike is mostly just predictable procedure, meant to follow the playbook in case of something going very sour. But with neither party really in a position to be able to afford a strike, the likelihood of a temporary contract extension while the parties continue to negotiate is much more likely. In the unlikely event that a strike does occur, it would be very short lived, and may actually do GM some good in reducing what have become rather sizeable inventories in the last half of the year.
But the UAW also takes a risk in choosing GM. While it may be the most financially sound of the Detroit Three, and perhaps the best able to fund a massive VEBA to secure health benefits for retirees, it is also the most internationally capable of the Detroit Three. In other words, GM has been able to streamline and coordinate its efforts globally to start operating like a truly global company. This could spell trouble for the UAW, which is trying to keep manufacturing in the United States in the face of serious labour and healthcare cost pressures. GM has global capacity and operations that would make moving vehicles outside the United States for manufacture a relatively easy thing to do—a case in point is the company's Lordstown (Ohio) plant that manufactures the compact Chevrolet Cobalt and Pontiac G5. With small car profitability extremely difficult to maintain in a U.S. plant, the likelihood of the next generation of that vehicle being assembled offshore in combination with export models globally is higher than not, should push come to shove. Similarly, the company's Kansas City assembly facilities that currently build the Saturn Aura and Chevrolet Malibu could easily find themselves competing with foreign plants that assemble the Opel Vectra, should GM not receive the kind of labour and healthcare concessions it is seeking.
But as to what happens with Ford and Chrysler after the negotiations come to a finish with GM, this is yet to be seen. While the two companies have signed temporary indefinite extensions to the current contract in order to secure production as GM's negotiations continue, the situation this year is very different than any time in the industry's history in terms of the health of the participants. GM, Ford, and Chrysler all have very different needs at the moment. All companies need long-term healthcare relief, but whether or not Chrysler is willing to accept a massive cash payout in order to secure that long-term relief is unclear given the short-term directives coming from new owner Cerberus Capital Management. Ford is in less need of labour concessions, having garnered some sizeable help from the new work rule agreements that it has negotiated at all of its U.S. plants. Those new agreements are expected to save the company nearly US$500 million annually. So with differing needs at the Detroit Three automakers, a successful contract negotiation with GM is by no means a guarantee that the book has been closed on the next four-year contract with the UAW.