GM vs. the UAW: Mutually Assured Destruction?

Around Detroit, a strike between General Motors and the United Auto Workers became known as "the doomsday scenario." The cold war analogy—particularly apt in a town that can't seem to pull itself out of the 20th century—was a way of dismissing the very idea that a strike could happen in contract talks this year. It was mutually assured destruction, the thinking went. Surely, the union won't fall back on that old weapon, which it hadn't pulled out of its arsenal in nearly 40 years. And then, when the unthinkable happened on Monday and GM's 73,000 workers walked off their jobs, it was simple to see the situation as the death rattle of an institution in denial, incapable of recognizing its own irrelevance. When UAW President Ron Gettelfinger told the television cameras that he felt compelled to call a strike because he'd been "pushed off a cliff" by GM, it was easy to see all of Detroit going with him.

But perhaps it's time to pull back from the precipice and see this strike for what it really is. It's all about posturing, on both sides of the negotiating table. Each side is out to prove to its critical constituents that it's driving a hard bargain. For Gettelfinger it's his dues-paying members, who have never felt more insecure in their jobs. (And for good reason: the hourly payroll at GM has dropped a breathtaking 70 percent since 1994.) For GM it's about impressing those fickle shareholders, who initially bid up GM stock this month anticipating big concessions from the union, but then sent it into a stall when a deal didn't materialize. At least one Wall Street analyst enthused Monday that GM's "get tough" stance with the UAW would lift the automaker's stock again. Apparently, there's nothing like people out of work to get investors excited.

Contract talks, in the end, are always about selling and spin. Once an agreement is reached, each side has to show how it got the better end of the bargain. Gettelfinger nearly forgot that two years ago, when he granted concessions on health-care costs to GM and Ford to help both automakers stave off bankruptcy. To prove to his union that the crisis was real, Gettelfinger, who holds a business degree from Indiana University, hired Wall Street investment bank Lazard Ltd. to go over the automakers' books. The rank and file were not impressed. All they saw was the auto companies saving billions and UAW retirees forking out more money to cover medical bills. When the deal was put up for a vote, it received a tepid endorsement of less than two-thirds of GM's workers, and it barely passed at Ford, receiving just 51 percent approval. (Conspiracy theorists within the union still contend that the vote was rigged.)

Against that backdrop, Gettelfinger has to prove he's not giving away the store in these contract talks if he is to have any hope of getting the deal ratified by his restive rank and file. And Wall Street hasn't helped by loudly proclaiming its certainty of a concessionary contract. There's nothing that kills a deal faster than using the word "concession." So Gettelfinger, who is nobody's fool in spite of all the Big Labor stereotypes you may have heard, is pulling out the big guns to rally the troops. "There has to be a little drama," veteran auto analyst Dave Cole told me last week, "to get this deal done."

But, you might wonder, isn't Gettelfinger shooting himself in the foot with those big guns? After all, GM is an ailing automaker that has lost $13 billion over the last two years and just got overtaken by Toyota as the world's largest car company. This strike will cost GM $100 million a day, as it loses production of 12,200 vehicles every day the strike drags on. And it couldn't come at a worse time, with auto sales hitting the skids amid the housing slump and credit crunch. GM loses money on every single car and truck it builds in America, for goodness' sake. This is no time for walking off the job, right?

Maybe not. The thing is, Gettelfinger's the guy who holds the key to GM's overcoming its yawning competitive gap with Toyota. GM pays its workers $75 an hour, when you include the cost of benefits. Toyota pays its workers $45 an hour with benefits. The biggest chunk of that cost gap comes from the fact that GM pays the health insurance for 540,344 retirees, while Toyota is on the hook for just 1,600 retirees. GM came up with a solution for that problem: turn over its retiree health-care plan to the union, which will administer the benefits through a special trust financed by the automaker.

Wall Street loves the idea, and, we learned yesterday, so does the UAW. In fact, according to Gettelfinger, it was the UAW that first proposed creating such a union-run trust two years ago. It would have saved the company $1,000 per car, says Gettelfinger. But for reasons GM is not explaining, the automaker turned down the union back then.

Now, after the bad blood over that 2005 health-care deal, Gettelfinger faces a much tougher task selling his members on the benefits of letting the company off the hook on its $51 billion retiree health-care obligation. No matter how much he reassures them that they'll be in good hands with the union controlling their medical care, the workers on the line just see it as another capitulation. So Gettelfinger needs more from GM to get the deal done. And what he needs most is what GM finds hardest to give: job security. Since 1994 GM has gone from employing a quarter-million people in America to just 73,000, as its share of the U.S. market has plunged from 35 percent to 24 percent. GM's factories haven't put out a Help Wanted sign in years, and, given the company's steady shrinkage, GM won't need as many workers at the end of this four-year contract.

But the mass exodus from GM's factories should be slowing, as the automaker has shown the door to nearly 35,000 people in the last 18 months. What GM needs now is to cut the compensation of those left behind. Creating a health-care trust does that. But, as all those striking autoworkers show, building that trust won't come for free. GM has to return the favor by committing to building some new models in America, like, say, that whiz-bang Chevy Volt plug-in hybrid electric car GM has been showing off. If GM and its union can't find an accommodation—and quickly—that doomsday scenario just might play out in Detroit.

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