General Motors' tentative contact with the United Auto Workers will rid the automaker of some of its biggest costs. The new deal won't level the playing field with foreign competitors, but observers say it gives the company a fighting chance.
RENEE MONTAGNE, host:
It's hard to compete in a tough market when your costs are much bigger than the other guys. That's a problem General Motors has faced for years. This week's tentative contract with the United Auto Workers will rid GM of some of its biggest costs. The new deal won't level the playing field with foreign competitors, but observers say it gives the company a fighting chance.
NPR's Frank Langfitt reports from Detroit.
FRANK LANGFITT: When contract negotiations began in July, GM was looking for a new kind of relationship with its union. Yesterday, it went a long way towards getting one. David Cole heads the Center for the Automotive Research, an industry think tank in Ann Arbor. He says what makes this contract different from the past is this: It isn't driven by the demands of workers, but by the demands of the market.
Mr. DAVID COLE (Center for Automotive Research): It really does represent a fundamental new business model of labor management relations, and I think it recognizes perhaps the most important element of job security is a profitable company over the long term.
LANGFITT: The biggest change in the contract is the shift in responsibility for retiree health care costs. The company owes more than $50 billion to its retirees. Under the contract, GM will pay 70 percent of that into a trust fund; then the union will take control and the company will be able to write those huge obligations off its books. But Cole says that for GM, health care isn't just a crippling cost.
Mr. COLE: It's really more than that. It locks up investment in new products. And to put some scale on that, if General Motors, for example, had Toyota's wage structure or benefit structure or health care cost, that is roughly equal to five new products a year every year.
LANGFITT: GM wants to take advantage of that savings. Art Schwartz is the company's general director of labor relations.
Mr. ART SCHWARTZ (General Motors): We're going to have more cash available that we can invest in the business, bringing out new models, new technologies - what you have to do to succeed in a very, very highly competitive automotive industry - and that's going to give us even, even better products.
LANGFITT: David Cole says GM has already made progress in that area. The car of the year at this year's North American International Auto Show was the Saturn Aura. If the prospects for GM look brighter today, the other Detroit companies face a tougher road, even if they get a similar deal from the union, as expected. Chrysler, for instance, is no longer part of the multinational Daimler-Benz. It's just a North American company.
Mr. COLE: I think Chrysler is probably too small in the kind of an integrated global environment that we have today.
LANGFITT: Cole says one option for the company is to find a big partner.
Mr. COLE: Of course another option ultimately for the owners of Chrysler is to break it up into pieces. It maybe worth more in its parts than - when they're all collected together.
LANGFITT: That's the kind of uncertainty that Detroit companies face today. It's also an uneasy time for workers. But one thing the new GM contract provides is some job security. In exchange for the union taking over retiree health care, the company promises to maintain the current level of union employment - 73,000. Many workers are wary of the new contract, which is up for ratification beginning this weekend, but others recognize the market has changed.
Mike Bell works at GM's Cadillac plant in Detroit.
Mr. MIKE BELL (GM Employee): Everybody understands that GM needs to make more money, be more profitable, be competitive, and it's, you know, it's a free market and free trade now, so I mean it's stiff competition out there and there's so many different vehicles. You didn't have that in the '70s and '80s. There's, you know, millions of different models to pick from, sizes, you know, engines, different colors, different looks, different styles, so you know, that's just the way it is now, you know. Everybody out there are trying to make a buck, you know?
LANGFITT: If anything, the U.S. auto market may only become more competitive. But with this new contract, GM stands a better chance than it did before.
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The United Auto Workers and General Motors tentatively agreed Wednesday to a contract that ends a two-day strike — the first nationwide walkout against the automaker in 37 years. Both sides said they are pleased with the new contract, which has yet to be approved by the union. Here are a few of the highlights:
Legacy Costs: The new contract transfers responsibility for retiree health benefits from GM to the union. Under the agreement, the UAW will hire a financial company to manage the health care trust. That allows GM to clear a $50 billion liability from its books — which the company says has hindered its ability to raise funds and compete against foreign rivals. Still, GM will have to pay about 70 percent of that obligation — some $35 billion — to fund the new health-care trust.
New Workers: New unionized workers in certain non-production jobs would be hired at lower wages. That could be a big help for a company that spends upwards of $70 an hour on wages and benefits for janitors. In exchange, the UAW gets a commitment from GM to keep union employment at the current level of 70,000.
Signing Bonuses: GM workers will receive a signing bonus worth thousands of dollars to accept the deal. But those workers give up their cost-of-living adjustments, and the company gains more control over setting future salaries. Job Security: The new contract "will absolutely protect their jobs and keep jobs from being reduced," said UAW President Ron Gettelfinger. He offered few specifics, but said the number of jobs at GM would be "pretty much the same, if not higher" when the contract concludes in 2011. But job protection provisions don't go into effect until after GM completes a planned restructuring— which includes cutting 30,000 jobs and closing all or part of a dozen plants by next year.
The United Auto Workers and General Motors Corp. agreed to a tentative contract early Wednesday that ends a two-day national strike — the first against the automaker in 37 years.
The union and automaker confirmed that the deal creates a GM-funded, UAW-run trust fund to administer retiree health care, but the two sides gave few details.
GM said in a statement that the deal will make it significantly more competitive and provides "the basis for maintaining and strengthening its core manufacturing base in the United States."
The company went into the negotiations seeking to cut or erase what it said is about a $25-per-hour labor cost disparity with its Japanese competitors.
"This agreement helps us close the fundamental competitive gaps that exist in our business," Chairman and Chief Executive Rick Wagoner said.
The union said the agreement with the nation's largest automaker was reached shortly after 3 a.m. and the strike was called off about an hour later. The deal means UAW workers will head back to their jobs at around 80 GM facilities across the nation. The union went on strike Monday when talks broke down, ending GM's production and causing layoffs and shutdowns at parts factories.
The contract must be reviewed by local UAW presidents and will then be subject to a vote of GM's 74,000 rank-and-file members, including more than 2,000 at GM's assembly plant in Arlington, Texas. The agreement is expected to set a pattern for contracts at Ford Motor Co. and Chrysler LLC.
The strike was the first such nationwide action strike against GM during auto contract negotiations since 1970. The UAW last struck GM in 1998, when a 54-day work stoppage at two plants shut down production across the country.
Remaining Competitive with Japan
GM went into the negotiations seeking to cut or erase what it said is about a $25-per-hour labor cost disparity with its Japanese competitors.
The tentative deal includes GM's top priority in the negotiations — shifting most of its $51 billion unfunded retiree health care obligation to a UAW-run trust. GM would pay about 70 percent of that obligation, or $36 billion, into the trust fund, called a Voluntary Employees Beneficiary Association, the person briefed on the talks said.
The union would then invest the money and take over the health care responsibility for about 340,000 GM hourly retirees and spouses.
"I'm pleased to say that we have a VEBA in place that will secure the benefits of our retirees," UAW President Ron Gettelfinger said at an early morning news conference inside the union's Detroit headquarters.
Deal Needs Union, Government Approval
Gettelfinger said he's confident of ratification and that voting could begin this weekend.
The UAW's national negotiating committee and executive board for GM both have unanimously recommended ratification, Gettelfinger said.
"We're very comfortable with this agreement, and we're happy to be able to recommend it to our membership," Gettelfinger said. Union leaders will be briefed on details Thursday and Friday, he said.
The UAW may also decide Thursday whether to begin talks first with Ford or Chrysler. Those talks can begin before the GM contract is ratified, Gettelfinger said.
After ratification, the VEBA memorandum would have to be approved by the courts and would be reviewed by the U.S. Securities and Exchange Commission, GM said.
"There's no question this was one of the most complex and difficult bargaining sessions in the history of the GM-UAW relationship," Wagoner said. He thanked the UAW bargaining team for its work in reaching the agreement.