Posted by: David Welch on May 8, 2008
General Motors is down with O.P.P. By that I mean, Other People’s Problems. The company is stepping in to help stop a two-month old strike at American Axle and Manufacturing Co., one of its key suppliers. In an SEC filing, the company said today that it will spend up to $200 million for buyouts and early retirement deals for workers at American Axle, according to Bloomberg.
That should grease the wheels to stop the strike, which has idled or slowed production at 10 GM assembly plants. It’s easy to see why GM is doing it. GM claims that the strike cost the company $800 million in earnings and $2.1 billion in cash in the first quarter. So spending $200 million to help end the strike was comparatively a small price to pay.
But should GM intervene to help parts makers with labor problems? It’s pretty tough to make that argument. GM had to help bankrupt Delphi Corp. The auto maker spun Delphi off in 1998 but still had contractual obligations to the parts firm’s union workers and retirees. That isn’t the case at American Axle, which was formed by company Chairman Richard Dauch when he and some investors bought some weak-performing axle plants from GM in 1994. Dauch has done wonders for those parts-making operations. But he has also had 14 years to make sense of his labor deals and diversify the company to get more than 20% of its business from someone other than GM. He hasn’t. So after spending some $8.3 billion helping Delphi get out of bankruptcy and restructure, GM has to help him get end a standoff with the UAW. The only way this makes sense is if Dauch settles the strike, gets lower labor costs and passes some of the savings on to GM.