Are the UAW & the automakers going to do it again?
The contract currently being negotiated between the United Auto Workers union and Ford, General Motors, and Chrysler is not shaping up to be the revolutionary one that almost everyone believes is necessary if the domestic automakers – or the UAW - are to survive. It is, rather, shaping up to be a typical automaker-union contract, with only one significant difference from past contracts: the assumption of retiree health care benefits by the union in exchange for large lump-sum payments from the auto companies.
But, Chrysler may be turning out to be the wild card in the negotiations.
How badly the automakers are caving in to the union is unclear. It is reported by AFP that the talks have stalled over the issue of outsourcing. The union wants assurances that the carmakers will not increase the manufacture of components and subassemblies outside the country. The automakers are, so far, not willing to make that promise. Both Ford and General Motors, according to earlier reports, have threatened to move production out of the United States if they do not get the concessions they want in the current contract talks. The union, however, is making an agreement on retaining domestic production the price of its agreeing to a VEBA.
All three automakers have reportedly told the UAW that they want to set up VEBAs – a voluntary employee benefit association that would assume all of the carmaker’s retiree health care costs in exchange for a large lump sum payment by the carmaker – and Ford and General Motors are deadly serious about it. Chrysler, however, appears not to be nearly as interested, probably because it doesn’t have enough money to fund one.
The automakers cannot give the UAW the domestic production assurances it seeks without guaranteeing that they will remain uncompetitive with foreign nameplate producers. Even if the union agrees to the VEBA concept, the $1500 per car labor cost saving is only half the cost differential between domestic and foreign nameplate producers. Outsourcing is one way that automakers have of further reducing that cost disparity.
It is also being reported that the new Chrysler is pursuing an agenda different than that of Ford and General Motors and that this is significantly complicating the talks.
The Chrysler position has added an extra level of complexity to the negotiations, as the UAW doesn’t want to be seen as giving one automaker a better deal than the others. Similarly, no automaker wants another manufacturer to be getting a labor cost advantage as a result of the new contract. This is a major problem. If Chrysler cannot fund a VEBA, it is locked out of the single largest labor cost saving currently on the negotiating table.
Chrysler is clearly the unknown and unpredictable quantity in the current negotiations. Unlike Ford and General Motors, Chrysler is now privately owned. It need not, therefore, worry about the impact of the negotiations, or even a strike, on the stock price. Moreover, the investment banks that funded the purchase by Cerberus of Chrysler from Daimler are going to have a lot to say about the company’s position. They are currently sitting on $10 billion in Chrysler bonds that they have been unable to sell to investors. Though selling them soon is their goal, any contract deal that makes the long-term prospects of Chrysler appear dimmer than it is already will force the banks to accept deep discounts to sell the bonds. That means they will take large losses on the Cerberus deal, something they are probably going to resist.
That means that the only people to whom Chrysler’s management must really report are probably willing to let the company take a very hard line with the union. It is believed that the buy-out deal was premised on the expectation of substantial concessions from the union in these negotiations and that Chrysler management cannot accept anything less.
Public statements of Ron Gettelfinger, union president, made before the negotiations began indicated that the union was not willing to make significant concessions to the automakers in any area. Gettelfinger has repeatedly claimed that UAW workers are as efficient as any in the world, a point belied by the resistance of Toyota, Honda, and Mercedes-Benz to unionization of their American plants and by the consistent refusal of workers at those plants to vote for union representation.
Gettelfinger, who is an accountant by training, shows every sign of being too unimaginative to negotiate a contract that will really be of benefit to the UAW’s members. True job security for them exists only if the domestic automakers can be competitive in a world economy with products produced in the United States. Gettelfinger’s concept of “job security,” however, appears to be based on the same “featherbedding” concept that forced railroads to continue employing “firemen,” the people whose job was shoveling coal into a steam locomotive, long after locomotives converted to oil and even into the diesel era.
Gettelfinger also lacks the leadership capability necessary to sell a revolutionary contract to the UAW’s members. By making public statements indicating his opposition to concessions, Gettelfinger has both instilled an unrealistic expectation in him membership and confirmed in their minds the notion that any deviation from the form of prior contracts is a “concession.”
At Chrysler, in the meantime, the new owners have been bringing in new management blood. Starting with former Home Depot boss Robert Nardelli, a man with a reputation for cost-cutting, the company last week hired Toyota of America’s president, Jim Press, to run Chrysler’s sales operation as vice-chairman and co-president of Chrysler. The move further demoted Tom Lasorda, who had been Chrysler’s president when it was bought by Cerberus.
Expect Lasorda to leave Chrysler, and soon. Though nominally now in charge of the company’s manufacturing operations, Lasorda’s real function is leading the current contract negotiations. If the negotiations aren’t going Chrysler’s way, however, “good cop” Lasorda is going to get dumped by “bad cop” Nardelli.