UAW-Big Three Talks: The Clock Is Ticking
September 14, 2007

The United Auto Workers' contracts with General Motors (which the union selected Thursday as its strike target), Ford and Chrysler officially expires at 11:59 p.m. Friday.

What will happen as the clock strikes midnight?

Exactly nothing. At least as far as the outside world is concerned.

Ford and Chrysler have signed temporary extensions. And even with GM as the lead target and UAW’s local preparing strike posters, the talks likely will continue on past the witching hour and possibly days, if not weeks, thereafter.

Strike Unlikely

A strike is in absolutely no one’s best interest. And all sides know it. That makes the likelihood of a strike low. If one should occur, it surely would be short-lived.

For the UAW, the risk of jeopardizing the turnarounds of GM, Ford and Chrysler puts union jobs in peril as well. Further, the UAW has shown extreme patience and pragmatism with auto suppliers in terms of continuing to negotiate without striking. Look how long the UAW negotiated with bankrupt auto supplier Delphi to achieve its goals without a strike.

Targeting GM

Late Thursday, the UAW announced it had chosen GM as its target for first negotiating its new four-year contract. Detroit newspapers report that UAW local presidents have been told to prepare for a strike, which means printing placards

This is standard operating procedure.

And the selection of GM as the strike target comes as no surprise. It is financially the healthiest of the three, beginning to reap the benefits of its turnaround plan, started earlier than the other two. The union selects as its target the company it thinks it can get the best deal from, and use that deal as the pattern for its contracts with the other two.

As forecasting firm Global Insight points out, however, the UAW also takes a risk in choosing GM, which could best withstand and could actually benefit from a short strike to take down inventories. The firm’s analysts point out that GM has streamlined and coordinated its efforts globally so that it is operating as a true global company. That could spell trouble for the UAW. More easily than the other two, GM could shift capacity and operations offshore.

Global Insight uses GM’s Lordstown, Ohio, plant, as an example. The plant has a long history of cantankerous relations with GM. It now makes the 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, Global Insight notes.

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 labor and health care concessions it is seeking, the forecasting firm predicts.

Spiraling Health Care Costs

Clearly, one of the main issues in this year’s contract talks are spiraling health care liabilities, estimated at $112 billion combined for the Big Three.

Another reason GM was selected as the union’s target is that the automaker has pushed hardest for the formation of a Voluntary Employee Benefits Association (VEBA). The mechanism, created by federal law, allows a company to shift health care cost responsibilities to such an association, which is then managed by the union. The company shoves the costs off the books, and the union must be responsible for it.

Based on reports leaking out of GM-UAW talks, it appears the union is agreeable to a VEBA. However, the sticking point comes down to dollars and cents. How much will GM contribute to the VEBA? Media reports say GM has offered 65 to 67 cents on the dollar to eliminate its liabilities, but the union wants more. Ford reportedly has offered the same. Both have offered a mixture of cash and stock to fund the VEBA, a combination the UAW doesn’t favor due to the volatility of stocks.

The UAW reportedly also is pushing for a provision whereby automakers contribute more money if its initial deposit doesn’t cover the spiraling costs. Obviously, automakers want to make a fixed payment and be done with it.

Ford, Chrysler Next Up

More than any other year of negotiations, this round is different because of the differences in the companies and their varying needs.

The fact that Chrysler is owned by a private equity firm, Cerberus Capital Management, really changes the game.

While Chrysler needs health care concessions, it is not too hot on the idea of VEBA. Cerberus already went to the equity markets to fund its debut for buying Chrysler. It doesn’t want to come up with money to make a deposit in a VEBA.

Ford also needs help on health care but it wants work rule changes just as much.

At the same time, the UAW insists on maintaining pattern agreements with all three.

The best bet is all of the companies will get something tailored to suit their needs, but somehow the UAW leadership will sell it to its membership as pattern agreements.

Posted by Michelle Krebs at 6:25 AM under Chrysler , Commentary , Featured , Ford , GM , Toyota | Comments (1) | digg this | Seed Newsvine