By Michael Ellis
DETROIT, Sept 24 (Reuters) - The Big Three automakers and their top two suppliers could cut up to 50,000 jobs over the next four years under tentative union contracts reached last week and still fail to close the competitive gap with Asian and European automakers, analysts said.
General Motors Corp. , Ford Motor Co. and the Chrysler arm of Germany's DaimlerChrysler AG won the right to close or sell at least 10 aging and underperforming plants, which had been forbidden under previous contracts with the United Auto Workers union.
But that might not be enough to hold back the rising tide of foreign automakers, which grabbed record U.S. market share in August and many of which rack up most of their profits from the United States. The Big Three, forced to offer hefty marketing incentives to spur sales, struggle to make a profit on their U.S. automotive operations.
"Unless the Big Three break their pattern of deflation and market share losses, it is likely that each of them will experience reductions in profitability despite their restructuring efforts," Deutsche Bank analyst Rod Lache said in a recent research report.
Just as the labor talks intensified in early September, U.S. sales for the Big Three fell to a record low of 57.9 percent of U.S. vehicle sales for August. Foreign automakers dominate car sales, and are gearing up to sell more pickup trucks and large sport utility vehicles, a stronghold of the Big Three.
According to summaries of the contracts released by the UAW, GM could close one U.S. assembly plant and one parts plant and Ford two of each, while Chrysler won the right to close or sell four parts plants. But Wall Street had expected more.
"The Big Three gained some ability to close plants. However, the amount and timing appear to be somewhat disappointing," Morgan Stanley analyst Steve Girsky said in a report.
LABOR COSTS RISE
In exchange, the union won moderate increases in wages and cash bonuses for its members and held its ground on health care coverage. A typical auto worker will earn $17,400 to $18,500 more during the four-year contract, according to the summaries.
Goldman Sachs analyst Gary Lapidus said the Big Three and its top parts suppliers could cut up to 50,000 jobs over the next four years, which could raise the productivity at Ford, Chrysler and particularly GM to "world-class standards."
"We are also reasonably certain that it doesn't likely matter," he said, asserting that productivity gains will be offset by higher cash wages.
Lapidus calculated that, under the new contracts, Big Three wages will grow at a compound annual rate of 4.8 percent, the highest rate in 15 years.
Analysts estimate that the Big Three's inefficient plants and heavy health care and pension expenses won in previous contracts give Japanese automakers a $1,000 to $1,200 cost advantage on every vehicle they build.
Sean McAlinden, chief economist with industry consultants Center for Automotive Research, said the Big Three could end up cutting more than 50,000 jobs. "The union will be lucky if that's all it is. What if market share continues to decline?" he said.
If the U.S. automakers continue to lose market share, the Big Three can take heart that the UAW showed during the negotiations that it recognizes that the future of both the union and the U.S. auto industry depend on their collective health, analysts said.
Unlike UAW negotiations of the past, the union never mentioned striking during the talks and wrapped up deals in record time, illustrating a united front to make the industry more competitive.
"The talks proceeded in a remarkably amicable fashion. The UAW clearly understands the pressures the companies are under, and that is a good thing," said UBS analyst Saul Rubin.