The Ongoing Squabble Between General Motors & the United Auto Workers Union

This posting continues a discussion about General Motors and the UAW union covered in three previous postings:

If You Won't Deal With Economic Reality, Then It Will Deal With You (includes heavy dose of United Airlines information, too)

Outrageous Employee Compensation Liabilities Continue to Haunt General Motors; Will American Taxpayers End Up Paying the Bill?

Why the Big Three Auto Companies Could Easily Fail

In a mid-June article in the Wall Street Journal entitled GM Warns UAW on Health Benefits (available for a fee), the following was reported:

General Motors Corp. has warned the United Auto Workers that the auto maker could unilaterally reduce health benefits for UAW retirees unless the union agrees to various cost-cutting concessions before its contract expires in 2007.

GM has set a goal of reducing the burden of its annual health-care costs by $1 billion in 2005 and another $1 billion in 2006, from a current estimated annual rate of $5.6 billion. The company also is aiming to reduce its long-term retiree health-care liabilities, an obligation that it carries on its balance sheet, by $20 billion from about $77 billion. But UAW leaders, who have conducted their own analysis, claim that GM's targets are unrealistic, according to UAW officials.

GM is pressing the UAW to agree to concessions by the end of this month, according to people familiar with the situation. UAW officials have largely discounted that deadline, and there are growing signs that the UAW and GM Chairman and Chief Executive Officer Rick Wagoner could be headed for a clash.

At a UAW meeting June 9, according to two people present, UAW Vice President Richard Shoemaker told officials of union locals: "If GM does anything unilaterally, they'll have a very hard time making automobiles in this country. You can go back and tell your membership that."...

National UAW leaders informed local union presidents and other UAW officials at last week's meeting that GM believes it has legal standing to reduce the health care of its retirees. Whereas the current labor contract provides specific benefits the company gives its current workers, the contract is less clear about benefits for retirees, according to some industry analysts. The UAW disputes that position.

People familiar with the situation say GM has implied in meetings with UAW officials that it could reduce the retiree benefits if the union doesn't agree to several concessions that could help the company save billions of dollars over the next few years.

GM provides health insurance for about 1.1 million people in the U.S., of whom about 700,000 are covered under plans negotiated under the GM-UAW master agreement that expires in 2007. UAW members on average pay 7% of their health-care costs under those plans, compared with about 27% paid by GM salaried workers, according to figures provided by GM management. In March, the former head of GM's North American operations, Gary Cowger, suggested in a speech that hourly and salaried workers should be covered by the same plan. UAW officials have publicly rebuffed that suggestion...

...[S]aid Rob Betts, president of UAW 2151, in Coopersville, Mich., a Delphi plant that makes fuel injectors: "We believe that they don't have the right to do this. This money has already been earned. They can't take it from us. They owe it to us."...

The last time the UAW launched a major strike against GM, in 1998, GM production was crippled for nearly eight weeks and the disruption cost the company an estimated $2 billion...

...with GM's North American operations facing their worst financial crisis since the early 1990s and GM's debt rated at junk levels by two major credit rating agencies, Mr. Wagoner is under increased pressure to accelerate cost-cutting in GM's U.S. auto business. At GM's annual meeting earlier this month, Mr. Wagoner indicated GM will close more North American factories and continue to shed hourly workers through attrition...

In another Wall Street Journal article the next day entitled UAW Asks GM For More Time on Health Talks (available also for a fee), the following statements were made:

...In a joint statement, UAW President Ron Gettelfinger and UAW-GM Vice President Richard Shoemaker reiterated recent comments that the union won't agree to reopen its current contract with GM before it expires in 2007 in order to accommodate GM management proposals to slash the company's estimated $5.6 billion annual U.S. health-care bill.

But Mr. Gettelfinger and Mr. Shoemaker stressed a desire to maintain the spirit of cooperative labor-management relations that has largely characterized the UAW and GM management's dealings since a costly eight-week strike in 1998.

It "is in the best interests of all GM stakeholders for the UAW and GM to work together on these issues -- and to maintain the solid working relationship that we have worked so hard to build since 1998," the UAW leaders said in their statement.

"By working together, the UAW and GM have done a lot of important things over the past several years, including making dramatic improvements in workplace safety, productivity and product quality. It would be a huge mistake for GM to throw all that away by taking any unilateral action on health care benefits or other matters covered by our national agreement," the UAW leaders said...

One issue that could complicate talks between the company and the union is rank-and-file UAW displeasure at being asked to sacrifice benefits when Mr. Wagoner and other senior GM executives received bonuses for last year, and stockholders are still receiving dividends.

These people in Detroit are economic fools. 7% co-pays for union employees are an outdated historical artifact, especially when salaried employees are paying 27% - but the UAW won't talk about it until 2007 "because they owe it to us." Even if the payment of such benefits makes the company non-competitive in a global industry. No less outlandish is the continuing payment of bonuses to GM executives while they threaten to unilaterally reduce unionized worker healthcare benefits. As I have said before, these buffoons all deserve each other.

While the fools in GM management and the UAW union re-arrange the chairs on their economic Titanic, the competition is not waiting until 2007 to move ahead smartly. E.g., check out the newly built Hyundai plant in Alabama with its lack of healthcare legacy costs.

Here is another simple way to look at the issues here: Suppose you were a financial investor. Would you place your incremental investment dollar in the rigid, high-cost producer or the flexible, low-cost producer? Not a hard question to answer is it? And that's why GM's debt rating has been lowered recently to "junk" status, which means it is NOT investment grade debt.

If you won't deal with economic reality, then it will deal with you - on its own terms. In other words, GM and the UAW will either adjust their cost structure to be globally competitive and do it in a timely manner or they will die a well-deserved economic death.

Of course there is one other alternative for the more cynically minded: GM and the UAW can do little-to-nothing and then turn to the meddlesome U.S. government for a bailout like the airline industry has done.

But be very clear about the consequences of such a bailout - it won't make the underlying economic problem of being a high-cost producer go away and it will result in the working families and retirees of America paying what amounts to an extra tax so GM and the UAW can avoid making the kind of hard decisions American families make every day of the year to live within their budgets. Such a tax is neither fair nor just. And it makes no economic sense.

They need to get real in Detroit - all of them. And do it now.

ADDITIONAL INFORMATION:

Bankrupt pensions, extraordinary healthcare insurance benefits, outrageous demands by private and public sector unions, lousy decision-making by some management teams as well as misguided incentives and marketplace meddling by government have been discussed previously on Anchor Rising:

Public Sector Issues
Misguided Incentives Drive Public Sector Taxation
A Call to Action: Responding to Government Being Neither Well-Meaning Nor Focused on the Public Interest
Bankrupt Public Pensions: A Time Bomb That Will Explode
Why Truly Free Markets & Timely, Transparent Information Are Needed to Protect the Freedom of American Citizens
RI Public Pension Problems
The Cocoon in which Entitled State Employees Live
The Union's Solution for the Future: Get More People in Unions
Bankrupt Public Pensions, Part II
How Public Pensions Make People Well-Off at Taxpayers' Expense
Public and Private Unions
Now Here is a Good Idea
Be Watchful
Rhode Island Unions Again Resist True Pension Reform

Private Sector Issues
Government Meddling Creates Marketplace Distortions, Increasing Long-Term Costs
If You Won't Deal With Economic Reality, Then It Will Deal With You
Underfunding Pensions, Public and Private, can Hurt Taxpayers
Why Truly Free Markets & Timely, Transparent Information Are Needed to Protect the Freedom of American Citizens
Outrageous Employee Compensation Liabilities Continue to Haunt General Motors; Will American Taxpayers End Up Paying the Bill?
Why the Big Three Auto Companies Could Easily Fail
Airline Industry: How Government Meddling in Marketplace Costs Taxpayers & Consumers