When the Big Three sit down this month to hammer out a new contract with workers, reducing healthcare costs is expected to be the driving issue for the automakers.
General Motors Corp., Ford Motor Co. and Chrysler Group together had some $90 billion in underfunded retiree health obligations at the end of last year. The car companies, which have been losing ground in the U.S. market to Asian rivals in recent years, say they must reduce those so-called legacy costs to stay competitive.
“If your market share decreases and your competitors have a cost advantage because they don’t have the same legacy costs, all of a sudden you’re in a very tight spot -- which is where we find the Big Three today,” said Bruce Belzowski, a researcher at the University of Michigan Transportation Research Institute.
Talks on a deal to replace the current four-year agreement with the United Auto Workers -- which expires Sept. 14 -- will begin officially July 20 and 23 with traditional “handshake ceremonies” between the various negotiating teams.
But the posturing has been going on for weeks, with the two sides laying out their respective arguments in background sessions with reporters and detailed briefing books.
The automakers point out that they are providing healthcare coverage for about 2 million current and retired employees and their dependents. GM alone spent $4.8 billion on healthcare last year -- second, it says, only to AT&T; Corp. among U.S. corporations. That money could’ve built four assembly plants or launched six new vehicle programs, GM says.
By contrast, the companies say, foreign automakers that have set up vehicle plants in the U.S. -- with almost exclusively nonunion workers -- have around 1,200 retirees on their books.
“Based on the magnitude of the cost, healthcare will continue to be a discussion point for GM and the UAW,” said GM spokesman Dan Flores, who called the difference between U.S. automakers and their Japanese counterparts in health costs “a significant competitive gap.”
How much the UAW will be willing to give up is unclear.
Under current President Ron Gettelfinger, the union has agreed to contracts that have required workers to pay premiums for health insurance that used to be free.
Last month, UAW members working for struggling parts supplier Delphi Corp. ratified a contract that included concessions on wages and worker healthcare costs.
“The UAW has proven through the Delphi deal that they are willing to compromise and negotiate, taking a more pragmatic approach than has been seen from the union in the past,” consulting firm Global Insight said in a July 5 report.
There’s no guarantee, of course, that flexibility will extend to the workers at GM, Ford and Chrysler.
Younger workers, in particular, may have expectations that are hard to reconcile with today’s industry environment.
“They look at folks who retired in the past and don’t always understand that they are operating under a different set of rules,” said Sandy Ageloff, head of Towers Perrin’s Southern California health and welfare practice.
As the talks near, stories have started to circulate among the rank and file about tension mounting inside local union offices. Tales of screaming matches between workers and bargaining officials have become common, and the anecdotes of physical conflicts between the two are growing.
“People are tired, tired of giving things up,” said Gary Walkowicz, 57, a Ford employee for 32 years. The Detroit resident works as a repairman at a Ford truck plant in the suburb of Dearborn, Mich.
“It’s obvious that the companies are pushing real hard for the concessions,” Walkowicz said. “No one’s talking strike yet. But I’m ready to speak out against the concessions. And so are a lot of others.”
Although a strike would be devastating to the automakers -- especially Ford, which lost a record $12.6 billion last year -- economists say it wouldn’t have the effect on the U.S. economy that it did back in the day.
“The last time I can remember that a strike at one of the Big Three automakers caused a national recession was in 1970,” said John Lonski, chief economist at Moody’s Investors Service.
The Big Three are really not so big any more. GM, Ford and Chrysler are now referred to within in the industry as the Detroit Three, reflecting the rise of Japanese automaker Toyota Motor Corp. into the top ranks of the U.S. car market.
The American companies, once so dominant that they accounted for almost all U.S. auto sales, now account for only half of their home market. Their sales are on track to fall for the eighth straight year, the first time that has happened since the Great Depression, Lonski said.
In recent years, the U.S. automakers were caught flat-footed when high gasoline prices turned customers away from their high-profit pickups and sport utility vehicles to fuel-efficient Asian cars. As their market share eroded, they lost billions of dollars, bought out tens of thousands of workers and shuttered assembly plants in the process.
Management’s missteps aren’t lost on UAW members, who complain that they are being asked to make most of the sacrifices to correct problems for which they aren’t solely responsible. Recent news accounts of executive perks, such the thousands that Ford spent last year flying Chief Executive Alan Mulally and family members on company aircraft, won’t make crafting a deal any easier.
The Big Three’s decline is reflected in the UAW’s dwindling membership rolls, which have shrunk to less than 540,000 from more than 750,000 in the mid-1990s. However, overall auto industry employment in the U.S. has actually grown slightly since 1990 to just over 1 million, according to Lonski, as foreign automakers’ growing payrolls make up for closures at the Big Three.
All three of the big U.S. automakers used to have plants in Southern California; the last one, a GM assembly plant in Van Nuys, closed more than a decade ago. The only major auto plant left in the state is a joint GM-Toyota plant in the Bay Area. The workers there are represented by the UAW but are covered by a separate contract.
The auto industry, of course, remains a potent force in Southern California, with thousands employed at dealerships, after-market suppliers and modifiers, design shops and corporate offices. Few of those are UAW jobs, however.
In Michigan, workers are bracing for the worst.
“We cringe every time Gettelfinger mentions something that’s going to be discussed in the negotiations,” said Gregg Shotwell, a 28-year veteran of GM and Delphi, “because it means that something else is about to go away.”
Zimmerman reported from Los Angeles, Huffstutter from Chicago.