Both Union, GM Feeling Pressure to End Strikes
Pressure mounted Monday on General Motors Corp. and the United Auto Workers to settle the two strikes that are crippling GM’s North American car and truck production.
Negotiations are intensifying as GM’s annual two-week summer vacation ends next Monday. Unless an agreement is reached before then, GM may find it difficult to resume production promptly and limit the dispute’s financial damage.
The strikes are already taking a toll on GM’s profits, sales and market share and threaten key new model introductions. Analysts warn that a prolonged walkout could permanently damage GM, the nation’s largest industrial concern.
The nearly 5-week-old dispute is the most expensive ever for any U.S. auto maker, costing GM $1.2 billion in June alone. Those losses could surpass $3 billion if the dispute lingers into August, analysts say.
GM has warned that sales could plunge by 40% this month and its market share could slip from 31% to 25%, below Ford’s for the month. Vehicle stocks would be largely depleted by August, and GM would begin losing customers to rivals in droves.
The strikes, the latest in a string of local contract disputes that have repeatedly hobbled GM production, are the longest against any U.S. auto maker since 1970, when a UAW strike shuttered GM’s factories for 67 days.
Given all of this, GM is getting heat from some Wall Street investors frustrated with its labor strategy. In addition, dealers and suppliers are increasingly restive as they face strike-related losses.
At the same time, the UAW is facing the growing financial worries of members idled by the strikes. Most of the laid-off workers are collecting unemployment, amounting to only about one-fifth of normal wages.
The UAW argues that it is striking to save union jobs. But there are questions about whether the union’s militancy in Flint, Mich., may force the auto maker to close inefficient factories and cut jobs faster than it otherwise planned.
If an agreement is reached in a few days, GM could promptly begin readying plants to resume production next Monday when its annual two-week summer factory shutdown ends. But if the strikes last beyond then, analysts say, GM’s losses will rise at a rate of nearly $80 million a day.
“The losses mount significantly if the strikes roll into August,” said David Andrea, analyst with Roney & Co. in Detroit.
Douglas Fraser, a labor professor at Wayne State University in Detroit and a former UAW president, agreed that the next few days are a key period in the negotiations.
“There is intense pressure on both sides to settle,” he said.
The strikes by 9,200 workers at two parts plants in Flint have had a ripple effect, leading to the shutdown of 26 of GM’s 29 assembly plants in the United States, Canada and Mexico and the layoff of 161,200 workers.
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Suppliers have also idled thousands of workers, and GM dealers are beginning to report shortages of vehicles--particularly popular, high-profit sport-utility vehicles.
There are signs that settlement talks are proceeding with greater urgency. GM and UAW spokesmen reported modest progress in negotiations during the weekend. Talks are continuing daily.
“We want to get this done by early this week,” said a GM negotiator involved in the talks. “But it’s very complex and will be difficult.”
The negotiations are taking place on several levels. The main talks are centered at the striking plants in Flint, where negotiators are trying to resolve disputes over the local contracts.
Another set of discussions is taking place between top-level GM and UAW negotiators. Gerald Knechtel, GM’s vice president of labor operations, and Richard Shoemaker, UAW vice president and chief of GM negotiating, are focused on trying to reach a broad agreement that can be applied to contract disputes at other plants.
GM has also dispatched negotiating task forces to Dayton, Ohio, and Indianapolis, where the UAW is threatening strikes.
The Flint strikes, ostensibly about local contract violations involving health and safety issues, are largely centered on the UAW’s concerns about job cuts and GM’s demand for greater efficiency.
Wall Street generally has backed management’s push for efficiency improvements, but there is a growing frustration with GM’s inability to develop an effective labor strategy without provoking a union backlash. GM has been hit with 12 local strikes since 1996.
“If they got a labor productivity problem, they should fix it,” said Maryann Keller, an analyst with Furman Selz. “It shouldn’t take management years and years and years to fix it.”
GM’s biggest concern now is that the strikes will interfere with the introduction of the full-size Chevrolet Silverado and GMC Sierra pickups. The high-volume, high-profit trucks are to go on sale in September.
The strikes have already cost GM production of 227,000 vehicles. Even with a settlement this week, the company could lose 175,000 more vehicles this month because of parts shortages and delays in getting some assembly plants back up to full production.
Nicholas Lobaccaro, an analyst with Merrill Lynch, estimates that GM can recover about two-thirds of the potential 400,000 vehicles not produced in June and July by employing overtime later in the year. But if the strikes go into August, only about half the lost production can be regained. He estimates that GM’s losses will reach $2 billion if the strikes are settled by mid-month and up to $3.4 billion if the dispute lingers into early August.
Continuing strikes will also give Ford Motor Co. and Chrysler Corp. a better chance of capturing GM customers. Lobaccaro estimates that Ford could squeeze another 80,000 vehicles out of its factories in the next six months; Chrysler could produce 50,000 more cars and trucks.
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The longer the disputes last, the more difficult it becomes for the two sides to reach a compromise that can be credibly presented as achieving their objectives, labor experts and analysts said.
GM needs to convince investors that any agreement would give it the flexibility to lower manufacturing costs and improve plant efficiency. Analysts estimate that high labor costs are a prime reason that GM makes $900 less per vehicle than Ford.
The UAW, which since 1970 has lost half its membership to downsizing, must demonstrate to its members that going to the mat with GM can save existing jobs while securing promises for future work.
On both sides, there is an understanding that any extended strikes will only ensure that GM will lose market share and the UAW will lose jobs.
“Both sides realize that the longer it goes, the deeper the hurt,” said Harley Shaiken, a labor professor at UC Berkeley. “There is not a lot of hunger for a long strike.”
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