General Motors Corp. (GM) has been swinging the budget ax a lot lately. The No. 1 carmaker has demanded large price cuts from suppliers, helping drive some into bankruptcy. It has jacked up health costs for salaried workers and slashed thousands of their jobs. But its union workers and retirees have mostly gone unscathed. Its 460,000 unionized factory workers and retirees still have a top-dollar medical plan, and no one gets laid off without getting most of their pay indefinitely.
Now GM is knocking on the union's door. Management wants to slice its health-care tab. But big cuts could mean taking the contentious step of reopening GM's four-year labor deal with the United Auto Workers, which expires in 2007. Just getting UAW members to pay the same health-care contribution as white-collar workers would save billions over the years, noted GM North America President Gary L. Cowger on Mar. 23 at the New York Auto Show. The company already has raised the issue with union leaders, and it will be discussed at a meeting between GM's top brass and union leaders scheduled for Apr. 14.
GM's request puts UAW President Ronald A. Gettelfinger in a bind. If he stiff-arms management, the company's auto business likely will slide deeper into the red, jeopardizing union jobs. But persuading union members to give big concessions will be exceedingly difficult. As far as they're concerned, much of GM's current financial woes stem at least as much from management missteps as from the company's retiree burden. What's more, workers at Ford Motor Co. (F) and DaimlerChrysler's (DCX) Chrysler Group (DCX) would probably have to take a cut, too, since the union tries to keep wages and benefits uniform among the Detroit auto makers to avoid one undermining the others. Problem is, Chrysler is riding high just now, so UAW members there will see no reason to give.
Most damaging of all, big health concessions could seriously undercut the UAW's ability to sell itself to nonunion workers at the fast-growing transplants, the U.S-based factories owned by foreign auto makers. The union has recruited about 15,000 new auto-parts workers in recent years. But it has routinely struck out at the likes of Toyota (TM), Honda (HMC), and Nissan (NSANY), largely because the foreign carmakers are careful to remain competitive with UAW wages and benefits -- including health care.
If the union gives too much on its first-rate medical benefits, it will have a tough time telling nonunion workers that the UAW can safeguard medical coverage. And it needs to recruit them to maintain its grip on the industry. "It would be a real blow to the UAW's organizing efforts at the transplants if it agrees to cut health benefits a lot," says Sean P. McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich.
The result: Gettelfinger must find a way to help GM without going so far that he upsets members -- or the union's recruitment strategy. One possibility is for the union to give GM relief from its pledge to pay up to 95% of wages to the thousands of workers on layoff. "We'll be responsible, but no one is going to be a pushover," says one union insider. Indeed, whatever concession he makes puts him in the uncomfortable position of having to sell his members on what amounts to a company bailout. After all, GM's expected $2 billion loss from its auto business may be more than offset by $2.5 billion in finance profits this year. So the problem may not seem dire to rank and filers.
It's true that GM is weighed down by the huge burden of paying pensions and health costs for 340,000-plus union retirees. But the transplants more or less match the union's costs for current workers. So union members see the legacy costs as something GM has run up by failing to protect its market share with a competitive product lineup.
This is, in fact, what's behind the latest crisis. GM has relied on large pickups and sport-utility vehicles, while foreign rivals pushed harder with more efficient crossover SUVs. GM's new cars -- the Buick LaCrosse sedan, Chevrolet Cobalt compact, and Pontiac G6 midsize car -- are seen as dull and haven't sold well. And while GM invested $4.5 billion in a troubled Fiat (FIA), its rivals invested in fresh models.
The dilemma is that GM needs the help, no matter who's at fault for its woes. Medical insurance for its union retirees will bite $5.3 billion from the company's North American pretax automotive profits this year -- $1 billion more than last year. Right now, GM's salaried workers pay $100 a month in co-pays for their medical premium, plus $10 for generic drugs and $25 for brand-name prescriptions. Union members make no co-payment for the premium and smaller drug co-pays. Just getting UAW members to agree to a $100 a month co-pay on the premium would save $550 million a year. Matching the white-collar payments down the line would save GM $1.2 billion a year, McAlinden estimates.
To catch a break, GM must find a way to help Gettelfinger sell a deal to his members. "Management will have to convince union members that this will save jobs in the long run," says University of California at Berkeley labor economics professor Harley Shaiken. It will also have to persuade the union that giving up a little won't jeopardize the UAW's long-term position in the U.S. auto industry.
By David Welch in Detroit