UAW Strike May Be a Short One, Analyst Says

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The contract standoff between General Motors and the United Auto Workers union that has brought a national strike may be short-lived, says auto industry analyst David Healy. The Burnham Securities analyst says that despite its standing inventory, GM has plenty of motivation to avoid a long strike. Robert Siegel talks with Healy.

ROBERT SIEGEL, host:

How great is the gap between GM and the UAW? How long might it take the two sides to come together and go back to work?

We're going to hear now from David Healy, who is the auto industry analyst with Burnham Securities. He's talking to us from Sierra Vista, Arizona. Welcome to the program.

Mr. DAVID HEALY (Auto Industry Analyst, Burnham Securities): Nice to be here.

SIEGEL: As we've heard, well, health insurance is a very, very big issue here. The union says the strike is all about job security of the 73,000 members of the UAW, who work for GM. How many can the company guarantee jobs to?

Mr. HEALY: Well, I think the company is really in a difficult spot as far as absolute job guarantees are concerned because assembly workers are at the mercy of the retail sales for the industry and GM's market share, so they can't continue building them for any great length of time if they're not selling at the dealer level.

SIEGEL: Mm-hmm.

Mr. HEALY: The old contracts have had, for years, a provision called the job's bank, or supposedly temporarily unemployed autoworkers can get full or nearly full pay. There is not a very high number of people in the job's bank as far as GM is concerned. It's a continuing cost that the companies would like to get rid of. And I think, probably, this is one of the sources of disagreement. The major issue, the health care cost for the retirees, has probably been settled or nearly settled.

SIEGEL: That's supposed to be an item on the table, the price tag of somewhere in $50 billion, as I understand it.

Mr. HEALY: That's the liability for health care for retirees that GM is carrying on its balance sheet. And, of course, the related costs are several billion dollars a year on the income statement, and probably, the benefit cost are the major differential between the Japanese companies like Honda and Nissan and Toyota that built cars in North America versus the Detroit Three.

SIEGEL: But I've read that one of the sticking points there is would the company's contribution to that be in GM stock. In other words, would the viability of the trust that would fund the health insurance liability of the company depend on the value of GM stock?

Mr. HEALY: To a certain extent, yes. I think that very likely there will be some dilution of newly issued stock. In other words, I don't think that GM has $50 billion in its checking account. And I think that the major contributions will have to be covered by borrowing, and perhaps, issuance of stock.

SIEGEL: Now, put us into the position here of the UAW. Their membership at GM is by the fifth of what it was at the beginning of the 1990s. The entire field of being autoworker has taken a big beating at the U.S. automakers. Can they conceivably hope to come through this negotiation without ultimately losing further jobs down the road?

Mr. HEALY: My guess is that with the normal productivity in the industry, and perhaps, some more shrinkage of GM, the workforce will shrink further, although I think it will stabilize after a few years. The union has apparently decided over the years to protect their current membership at the expense of the total number of union numbers at GM.

SIEGEL: Is there a danger here that a strike in which the issues dividing labor and management seem easily bridged by some numerical compromise? That, in fact, this could go on longer than anyone wants it to go on.

Mr. HEALY: Well, there's always that risk. But my own feeling is that the membership will run out of money before GM does. And, you know, my guess is that you'll have a short strike.

As far as the costs are concerned, the total North American shutdown, which is what will result fairly quickly, will cost GM in terms of a net income penalty of about $350 million, or thereabouts, per week of strike, so there's a lot of motivation to get this thing settled.

SIEGEL: Well, David Healy, thank you very much for talking with us.

Mr. HEALY: You're welcome.

SIEGEL: David HEALY of Burnham Securities, talking with us about the UAW strike against GM.

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