GM Takes Tough Stance on Issue of Outsourcing
With little sign of progress Wednesday in a nine-day strike that has crippled General Motors Corp.’s car and truck production and put more than 80,000 workers on the street, the dispute points to a toughened company ready to pay a heavy price to get its way.
The United Auto Workers Union has struck GM eight times in the last two years. Each strike involved disputes over manpower or job security--especially sending work outside the company, the stumbling block of the current strike at two brake plants in Dayton, Ohio.
In each case, GM caved in after a few days. But not this time.
“GM has drawn a line in the sand,” said James Harbour, an auto manufacturing consultant in Troy, Mich. “They are telling the union that it cannot dictate how they will manage their business.”
The change in GM’s demeanor can be explained by its financial health: The world’s largest auto maker is stronger than it has been in years. GM earned $6.9 billion in 1995. It holds about $12 billion in cash, has a fully funded pension plan for the first time in a decade, and appears determined to further lower its costs, despite the near-term consequences.
The auto maker’s newfound spine is being lauded on Wall Street, which has kept the company’s stock near its prestrike levels even in the face of huge strike-related losses and a perilous stock market. GM shares closed at $51.875, down 50 cents, in trading Wednesday on the New York Stock Exchange, after two days of gains. Before the strike began March 4, the stock stood at $52.625.
In fact, while the company teetered on the edge of a complete U.S. production shutdown, the president of GM Delphi Automotive Systems--the GM unit whose brake plants are being struck--made time Wednesday to speak to about 200 Wall Street analysts in Rye, N.Y., where he predicted further such battles if the outsourcing issue isn’t resolved.
“We must maintain a keen focus on ruthless cost cutting,” J.T. Battenberg told analysts, according to Bloomberg Business News.
Privately, some union officials have expressed surprise that GM has been willing to drag out the current strike, since a walkout would so quickly spread to other GM facilities. But GM’s obstinacy has not appeared to alter the union’s strategy.
“Any underestimation of our resolve on these issues would be a mistake,” said Richard Shoemaker, UAW vice president who handles GM negotiations.
Jim Hagedon, spokesman for GM’s Delphi Chassis System brake plants in Dayton, said the two sides met for a little over an hour Wednesday afternoon. Periodic negotiations are expected to continue, he said.
The Dayton plants supply brake systems and components to 90% of GM’s assembly plants in the United States, Canada and Mexico. The company produces about 100,000 vehicles a week and is a major contributor to the nation’s overall industrial production.
As of late Wednesday, the strike had shut down 21 of the company’s 29 assembly plants and halved production at another, and 44 of its 131 parts plants in North America had closed. About 82,000 workers have been affected by the work stoppage, most of them laid off.
Layoffs are also spreading to companies that sell parts to GM.
Lear Corp., which supplies seats to GM, has closed seven plants as a result of the strike. ITT Automotive, which makes brakes, wiper systems and other components, told 370 workers in New Lexington, Ohio, not to report on Monday. Layoffs have also been ordered by Johnson Controls and AlliedSignal.
Analysts have estimated that GM could lose $35 million a day in profit once all its plants are idled, which is expected to occur this week if the strike continues. But the cost may well be worth it if GM can make progress on the outsourcing issue.
“So what if you spend $400 to $600 million breaking the union if the payoff is $10 billion to the bottom line in a couple of years?” said Sean McAlinden, a labor economist at the University of Michigan.
“That is the message GM is sending to Wall Street,” McAlinden said.
But what GM sees as a cost issue, the UAW sees as one of job security. And it is the inability of the two sides to find a common ground that has caused the current eruption and is likely to be the main issue in national contract talks between the UAW and Detroit’s Big Three this September.
