What’s General Motor’s real strategy?
The United Auto Workers yesterday warned General Motors that it would set a deadline for walking out on strike if the pace of negotiations does not increase. Negotiations between the United Auto Workers and General Motors have slowed to almost a crawl, recessing yesterday without significant progress. Neither side is near the point of calling it an impasse and both sides have been very quiet about the talks and the areas of disagreement. They may just be arguing over the details – there are a lot of details involved, of course - but the sense is that it’s bigger than that.
GM appears to have the upper hand, though its corporate history always leaves one expecting management to cave. Word is, however, that the UAW has agreed to assume the GM retiree health care benefits through GM’s funding of a VEBA. Though there is still ostensibly some dickering over the price, both sides know that GM will pay whatever it takes and that it has the money. So that doesn’t seem to be what’s stalling an agreement.
Nor does it appear that the impasse is over establishing a “two-tier” pay scale. GM wants to be able to pay less for janitors than for line workers and less for new hires than currently employed workers. The UAW would prefer not to do that, but it really doesn’t care all that much. It’s the workers currently employed who will be voting on ratification of the contract, not somebody hired two year from now. As long as the company is a union shop, the UAW has no real incentive to block a deal over a two level pay scale.
The problem is outsourcing, and it is one that could break this deal wide open.
This life or death for both GM and the UAW.
The UAW needs to keep production of GM’s North American market vehicles in the United States and Canada.
GM needs to be able to build those cars in China, India, and elsewhere.
Both GM and the UAW see the federal government forcing smaller and lighter vehicles upon the American public, whether or not the public wants them. Even without legislative action, the upward movement of gas prices is will change the nature of the cars buyers demand. The automakers see the future as very different from the immediate past.
Though Mercedes-Benz and now BMW are attempting to break through the image, most Americans equate small with cheap. The future of the American market, particularly in the East where 60% of the United States population is concentrated, is thought to be small, energy efficient cars. Automakers see the field as highly competitive, with ample foreign competition and thin profit margins.
Chinese and Indian automakers are already gearing up for cheap cars aimed at emerging countries. Those manufacturers are not currently aiming at the United States market, where crash and pollution regulations make it more expensive to market vehicles. But, it is only a matter of time. General Motors has invested heavily in production aimed at emerging markets and is ideally situated to redirect some of that production toward the United States.
That, of course, is exactly what the UAW fears. There is little advantage to the union if it preserves wages, only to have jobs disappear overseas. Even the lowest level of pay for a UAW job will be many times higher than the pay for the same job in China.
That is why Ron Gettelfinger, earlier this week, blasted China as a repressive society run by dictators. He explicitly accused China of artificially keeping wage standards low by forcing people to work – functionally, accusing China of using slave labor.
GM and Ford both threatened the UAW with moving all production out of the United States if the automakers did not get a health care deal. Having conceded on health care, Gettelfinger cannot concede on job security. In his public comments before the negotiations began, he telegraphed job security as the UAW’s number one issue. He can make every other concession seem like a triumph, billing the VEBA as a way of protecting retirees against the risk of the manufacturers bankruptcy, but he cannot make outsourcing anything but a defeat. He’s won’t even try: Gettelfinger has reportedly told GM negotiators that his membership will not ratify a contract with the other concessions if it doesn’t protect job security.
As a practical proposition, Gettelfinger is right. A VEBA protects retired autoworkers, not those currently employed. Benefits to those currently employed are illusory if there is no assurance that the job that provides them will be there next year, or the year after. If that’s the issue, the UAW will never have more bargaining power than it has right now. A strike now makes more sense than waiting until the next contract expires and then trying to preserve what jobs are left.
General Motors and the other Detroit automakers have rightfully contended that UAW members are vastly overpaid for what they do, at least in comparison to those working in the United States for Toyota, Honda, and BMW. But the union’s claim that its members are as efficient as any auto workers anywhere is also valid. The difference in productivity is partly attributable to the efficiency of the physical facilities. The brand-new Tundra plant is more efficient than the plants that make Silverados, all of which are decades old.
In the ultimate analysis, making financial concessions makes no sense for the union unless GM is going to reinvest some of the saved money in improving its own competitive posture, including investing in infrastructure in the United States and Canada. Moreover, GM will be giving away a potential competitive advantage if it does not invest in domestic production, an advantage that other carmakers continue to recognize. (Only last week, Volkswagen said it is likely to build a plant in the United States.)
In the end, Gettelfinger might be saving GM from itself.