The United Auto Workers, as threatened at 1:45 a.m. this morning, went on strike against General Motors at 11 a.m. today, Eastern time. The proximate cause of the strike appears to be a failure to agree to the union’s “job security demands.”
In 1998, a UAW strike against General Motors was a disaster to the company, costing market share that the company never recovered. Moreover, the company ended up settling on terms that would prove costly in future years, accelerating its financial decline.
It might seem that 2007 has similarities to 1998. As then, GM is on the cusp of important product launches upon which it is betting a lot: the new Chevrolet Malibu and the new Cadillac CTS. GM has an advertising campaign budget for the CTS alone of $60 million. The Malibu is the company’s first credible shot at Toyota and Honda, and the company believes it can be a contender. It is not going to want those product introductions to be harmed.
But it is memory of 1990 that probably is bearing on the minds of management at GM the most.
In 1990, GM settled to avoid a strike. So then-Chairman Bob Stempel settled with the UAW, giving the union just about what it asked. Among them: the infamous “jobs bank” that paid almost as much for being laid-off as working, and provisions extending health-care benefits indefinitely for retired workers. That contract turned out to cost so much that the Board of Directors fired Stempel and GM’s then-President, Lloyd Reuss.
GM’s management today not only doesn’t want to repeat that mistake, it wants to undo it.
This time, however, it believes it is in the driver’s seat. It has the money to take a long strike. Moreover, it has the ability to use the strike as an opportunity to accelerate plans to move production away from domestic plants and to foreign ones.
The message that would send would be unmistakable. GM has excess capacity in the United States, so it’s got room to close domestic plants quite easily. Moreover, GM’s management has the support of the company’s institutional investors, who expect a contract that’s going to make the company competitive again. GM’s stock price has been rising because the market expects GM’s management to get a good contact.
Then there’s the, “hell, the fall will probably kill you” part. In the movie “Butch Cassidy and the Sundance Kid, the heros are being chased by a posse, eventually being cornered at the edge of a cliff with a long, shear drop to a river below. They’re outnumbered and have no chance against the posse. Butch is for jumping into the river. Yet, the Sundance Kid wants to make a stand, even against the impossible odds. Eventually, he admits that he can’t jump because he can’t swim. “Hell, the fall’ll probably kill ya,” responds Butch.
Though it has received very little attention in reporting about these contract negotiations, the position of the domestic automakers is very similar to that of Butch and Sundance. They are facing the government and the expectation that substantially higher fuel economy standards are going to be imposed on them. Even if they escape that, states are beginning to impose their own fuel economy standards in the guise of regulating O2 emissions, and the state regulations amount to environmentalist wish lists.
The car companies face a very uncertain future, even if they do win the contract negotiations. Many in Congress and the state legislatures seem intent on legislating cars out of existence, or at least those made in America. If they don’t win the concessions they need from the UAW now, they won’t be able to survive the costs of complying with the government regulations on the horizon.
The strike could be a very long one. GM can’t afford to cave this time.