Pact has GM on road to recovery
The deal that ended the two-day strike against General Motors Corp. on Wednesday won’t necessarily put GM back in the driver’s seat, but unloading some of its massive healthcare obligations will help GM compete with nonunion Japanese rivals -- while sending the United Auto Workers into new territory.
The proposed contract with the UAW, which 73,000 members will begin voting on this weekend, would shift the responsibility for retirees’ healthcare benefits to an independent, UAW-administered trust. That would take more than $50 billion in liabilities off the company’s books.
“This contract goes a long way toward giving GM the ability to compete,” said Harley Shaiken, a professor of social and cultural studies at UC Berkeley. “But GM’s success ultimately is going to depend on what it’s selling and what market segments it’s choosing to compete in.”
The automaker’s primary goal with the new contract was to narrow the roughly $25-an-hour disparity between its labor costs and those of Toyota Motor Corp. -- which is challenging GM for the title of world’s largest car company -- and others.
About half of the difference is blamed on the cost of maintaining health benefits for 339,000 GM retirees and their spouses.
“This agreement helps us close the fundamental competitive gaps that exist in our business,” GM Chief Executive Rick Wagoner said. “The projected competitive improvements in this agreement will allow us to maintain a strong manufacturing presence in the United States along with significant future investments.”
To reach Wednesday’s deal, the UAW offered some wage concessions and the company made some job-security pledges, according to people familiar with the situation. Although ballooning healthcare costs were the spotlight issue in the talks, a disagreement over protecting union jobs as GM restructures was the spark for the walkout launched Monday morning.
“Both sides walk away happy,” said Rebecca Lindland, an auto industry analyst with Global Insight Inc. “GM got some of the things they wanted and the union got some of the things they wanted.”
The most striking aspect of the deal -- which the union will use as a template for negotiations with Ford Motor Co. and Chrysler -- is its plan for taking care of healthcare benefits for retirees and spouses with a trust fund known as a voluntary employees beneficiary association.
GM would put about $35 billion into the trust fund.
Few details were made public, but other industries have turned to such trust funds in the past. Mine workers created a similar arrangement in the 1950s, said Nelson Lichtenstein, who teaches labor history at UC Santa Barbara, and Goodyear Tire & Rubber Co. and auto parts maker Dana Corp. recently transferred retiree healthcare costs to union-managed trust funds.
Such a plan may make sense in industries where the workforce is shrinking and older retirees make up a growing share of the healthcare pool, said Derek Guyton, a partner with Mercer Human Resource Consulting who specializes in retiree benefits. Some steel and airline companies might consider it, Guyton said, “but it’s not going to be a huge trend.”
For the UAW, the trust fund might be risky. If healthcare costs go up faster than expected or the fund’s investments tank, Guyton said, “their pot of money gets eaten away very rapidly.”
GM, Ford and Chrysler have a combined $90.5 billion in unfunded retiree healthcare obligations on their books.
One possible consequence of the healthcare deal: With GM and the UAW having tackled that problem for themselves, they might be less likely to push Congress to address the national health insurance crisis.
Lichtenstein called it “a vote of no confidence” in universal healthcare coverage. The trust fund would get GM “off the hook” in the national health insurance debate, he said.
The proposed contract also would create a two-tier wage scale, which would set pay lower for new workers hired into non-manufacturing jobs, such as janitorial and landscaping positions.
In return, GM reportedly has agreed to invest in its U.S. auto plants -- a job-preserving commitment that represents a victory for the UAW, given the company’s effort to reduce its domestic production capacity.
GM also will convert thousands of part-time workers to full-time status and give others bonuses.
“We’re very comfortable with this agreement, and we’re happy to be able to recommend it to our membership,” UAW President Ron Gettelfinger said.
GM has made strides toward improving its competitiveness. The number of worker-hours needed to build a GM vehicle in the U.S. declined to 32 last year from around 37 in 2002, according to Harbour Consulting. The number is about 30 hours at Toyota’s U.S. plants.
GM lost almost $1,500 on every vehicle it produced in North America last year while Toyota booked a per-vehicle profit of more than $1,200, according to Harbour.
Part of the difference is the result of the incentives that help move GM vehicles. The company has offered an average $2,905 in incentives for every vehicle it has sold this year, according to Edmunds.com, compared with Toyota’s average $887 per vehicle.
Incentives aside, GM has some hot-selling vehicles, including the Buick Enclave crossover sport utility, which helped the automaker record a surprising 6% gain in August sales.
Resolving at least some of its cost issues means that GM management “can’t point to healthcare anymore and say ‘We’ve been distracted,’ ” analyst Lindland said. “It puts the onus squarely on GM to continue their product resurgence.”
Some analysts said GM gave up too much to end the strike, which by some estimates was costing the automaker $100 million a day.
“Overall, GM was very, very uncompetitive before this deal and now is just very uncompetitive,” wrote Peter Morici, a business professor at the University of Maryland.
The union’s contract with all three automakers expired Sept. 14.
News of a deal was received well on Wall Street, where GM’s stock shot up almost 10%.