Walkout at GM as talks go on
General Motors Corp. and the union representing 73,000 of its workers negotiated into the evening Monday, hours after the first nationwide auto industry strike in 30 years shut down the biggest U.S. carmaker.
The strike, which began Monday morning after contract talks failed to meet a union-imposed deadline, could threaten GM’s fledgling turnaround and the nation’s weakening economy.
It could also hurt the United Auto Workers, which is gambling that the first major work stoppage to hit the U.S. auto industry in nine years can force GM to grant concessions without pushing it over the financial cliff.
From picket lines in Michigan to dealerships in California, one question hangs over the strike: How long?
Some observers predicted that the strike would be over soon. “My feeling is that the two sides are pretty close and [the walkout] was pretty much a theatrical gesture by the union to get the company to budge,” said David Healy, an analyst at Burnham Securities.
The automaker seemed to expect a brief disruption, instructing dealers to continue with a sale that began last weekend and is scheduled to run through Oct. 1.
“They told us the discussions were going very well last night, and they are still very optimistic that they can resolve this in a short period of time,” Leo Bunnin, who owns seven GM dealerships in Southern California, said after a midday conference call with GM executives.
Wall Street has been betting on an accord, pushing GM’s stock up almost 19% in the last two weeks. The stock fell slightly Monday, when the overall market was down.
Talks between the company and the union lasted until 8 p.m. Monday and were to resume this morning.
Although details of the deadlock were sketchy, a key difficulty has been figuring out how to fund ballooning healthcare benefits for about 339,000 former GM workers and spouses.
But a disagreement over job security -- crucial to the union as GM slashes thousands of workers from the payroll as it restructures -- was the final spark.
“We were very disappointed in this round of negotiations to discover as we moved forward that it was a one-way set of negotiations,” UAW President Ron Gettelfinger said.
In a statement, GM said it was “disappointed in the UAW’s decision to call a national strike.”
GM, Ford Motor Co. and Chrysler have an estimated $90 billion in unfunded retiree healthcare obligations on their books. A major goal of the three in the current round of labor talks is to set up a fund that would take over those obligations and make the union responsible for future benefits.
The UAW contracts for all three automakers expired Sept. 14; though negotiations had begun in July. The UAW extended the deadlines for Ford and Chrysler and is focusing on its contract with GM because it is seen as the most financially stable of the Big Three.
The union’s strategy is to make a deal with GM and then impose the same terms on the other two.
GM is a behemoth, No. 3 in the Fortune 500 ranking of the nation’s biggest corporations by revenue -- behind Wal-Mart Stores Inc. and Exxon Mobil Corp. But its ranking as the world’s largest automaker is under assault by Japan’s Toyota Motor Corp., and its share of the U.S. market is down to 23% from 44% in the late 1970s.
By striking at GM, the UAW is taking a calculated risk.
“The union doesn’t want to get blamed for a bankruptcy,” said Ken Elias, a partner at consulting firm Maryann Keller & Associates. “It doesn’t want to look like it’s putting GM, Ford or Chrysler at a competitive disadvantage.”
It’s a particularly sensitive time for the UAW, which is trying to organize workers at Asian automakers’ plants in the U.S. Analysts said the union couldn’t risk appearing reckless. As it is, the UAW is struggling to maintain job security for its membership, which has shrunk from about 1.5 million in 1979 to a third of that today.
And it’s a crucial time for the U.S. economy, which is facing a credit crunch and a slowdown in the housing market. Although a prolonged work stoppage could squeeze economic growth, especially in the industry’s Midwest heartland, GM and other Detroit automakers don’t boast the make-or-break clout they once wielded in the economy.
The last time a strike in the auto industry contributed to a national recession was 1970, said John Lonski, an economist with Moody’s Investors Service.
“It underscores the degree to which the UAW has lost its market power” as GM’s share of gross domestic product has shrunk, Lonski said.
In 1998, a summertime strike by workers at two key GM plants -- which in effect shut down the company for weeks and cost it $1.3 billion in profit -- shaved GDP by an estimated 0.3% that year.
That 54-day walkout was the last major work stoppage at a U.S. automaker. The last nationwide strike in the industry targeted Ford in 1976.
Despite GM’s diminished importance to the economy, it directly employs about 280,000 people and thousands more through its network of independent parts suppliers.
Although a long strike “may not be enough to push the U.S. into a recession,” Lonski said, “it definitely will make it more difficult to avoid an economic slowdown.”
The strike came as GM was showing signs of recovering from the slump that had driven the top U.S. automakers to cut jobs as they lost market share to Asian rivals. GM reported surprisingly strong August sales last week and was considered to be ahead of Ford and Chrysler in rebuilding its business.
“There’s never a good time for a strike, but this in particular is a bad time,” said analyst Shelly Lombard of research firm Gimme Credit. “They’re only about a third of the way through their turnaround, and management doesn’t need this right now.”
A strike will cost GM $325 million to $350 million a week, according to Burnham Securities’ Healy. GM assembly plants in Canada and Mexico could feel the effects in a matter of days as the supply of parts from U.S. plants dries up. Although GM dealers have enough inventory to last as long as three months, some hot-selling models such as the Buick Enclave crossover sport utility vehicle are in short supply.
The roots of the conflict date to generous contracts signed by automakers during happier times. Now, the automakers say, escalating healthcare costs are making it impossible for them to compete profitably with Asian and European rivals, whose U.S. plants are often nonunion.
The Big Three say they are providing healthcare coverage for about 2 million current and retired workers and their dependents. By contrast, they contend, foreign automakers that have set up plants in the U.S. have about 1,200 American retirees on their books.
“The problem is that nobody ever envisioned the cost of healthcare going through the roof years ago when they did these contracts,” Elias said.
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martin.zimmerman @latimes.com
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(BEGIN TEXT OF INFOBOX)
General Motors Corp.
Founded: 1908
Headquarters: Detroit
Chief executive: G. Richard Wagoner Jr.
Employees: 280,000
U.S. union employees: 73,000
Brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Hummer, Opel, Pontiac, Saab, Saturn, Vauxhall
2006 revenue: $206 billion
2006 net income: $2.2 billion
Source: Times research
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What’s on the table
Labor costs: General Motors and other U.S. automakers say they need labor-cost parity with their Asian competitors to be profitable. The United Auto Workers union says labor is only about 10% of the cost of a vehicle.
Healthcare: The automakers want to establish a fund with a portion of their combined $90.5 billion in unfunded retiree healthcare obligations and let the union be responsible for future benefits. The UAW says it isn’t striking over the fund.
Job security: The union wants GM to promise future production and investment at U.S. plants. That’s a difficult proposition for GM because the automaker’s U.S. market share is shrinking and it is closing plants to match demand.
Source: Associated Press
