GM, UAW Make Deal on Benefits

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General Motors has persuaded the United Auto Workers to give up billions of dollars in health care benefits so that the company can better compete. The concessions should go a long way towards helping GM cut costs. But analysts say the automotive giant has to do a lot more if it wants to start making money again.

STEVE INSKEEP, host:

General Motors has persuaded the United Auto Workers to give up billions of dollars in health-care benefits so it can compete better with the likes of Toyota and Honda. The concessions are intended to help GM cut costs, but analysts say the automotive giant still has to do a lot more to start making money again. NPR's Frank Langfitt reports.

FRANK LANGFITT reporting:

General Motors still sells more cars than any other company in the world. But so far this year, it's lost billions of dollars. GM executives say one reason is because the company spends far more on health care each year than its foreign competitors. CEO Rick Wagoner explains.

Mr. RICK WAGONER (CEO, GM): We would estimate that our health-care obligation is probably something in the tune of a $4 billion disadvantage vs., say, a Toyota. I suspect there'd be a similar number for a Nissan and maybe a Honda, too. And our view is that that's a heavy burden to carry, and, hey, these are good competitors.

LANGFITT: This week, GM got the United Auto Workers or UAW to agree to reduce health care for workers by $3 billion a year. The union, which did not return calls from NPR, will also work with General Motors as it cuts 25,000 jobs at US assembly and component part plants. Analysts say the deal is a step towards turning around a company that once symbolized American business. But David Sedgwick, editor of Automotive News, says high health-care costs are only part of the problem. For one thing, he says GM needs to build more cars people want to buy.

Mr. DAVID SEDGWICK (Automotive News): They have a big problem getting on the cutting edge of vehicle design. Their cars tend to be bland middle-of-the-road vehicles that are pretty good, but don't get anybody's attention.

LANGFITT: Sedgwick says it's sobering to watch a once iconic company struggle.

Mr. SEDGWICK: Once upon a time, they were the world's largest company, and you had a sense that their headquarters, in a way, was the center of the universe, and everyone had to react to GM. When GM would announce new prices in the fall, then Ford and Chrysler would fall in line. GM called the shots. Those days are over.

LANGFITT: One of the most striking things about the deal this week is that the United Auto Workers agreed to it. The union is one of the country's most powerful. Over the past half century, it has negotiated contracts that have made its members among the best compensated manufacturing workers in the world. This week's concessions came after months of negotiations. They also came two years before the union and GM are actually scheduled to renegotiate their contract.

Mr. HARLEY SHAIKEN (University of California): We'd have to go back to 1982 for something comparable to this.

LANGFITT: That's Harley Shaiken. He's a labor specialist at the University of California at Berkeley. Shaiken says the union's willingness to make concessions now is a sign of the times. He and other analysts say the thinking goes like this. The UAW recognizes that global competition and high labor costs are putting enormous pressure on US automakers. Shaiken says the union is willing to make concessions now to try to help the company survive so it can avoid massive layoffs later.

Mr. SHAIKEN: From the union's point of view, they know GM's in trouble. They want to preserve the gains they've won in the past, but they felt giving something now is the best way to preserve the basic principles they've been able to gain over the last 50, 60 years.

LANGFITT: The cost-cutting agreement between GM and the UAW is not final. Union members must still ratify it. But analysts say that with the UAW opening the door to health-care cuts, Ford and Chrysler may ask for similar concessions. Frank Langfitt, NPR News.

INSKEEP: This is NPR News.

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