Special Coverage

Management Briefing Seminars

TRAVERSE CITY, MI – General Motors Corp. wants so badly to reduce its health-care costs, the auto maker may trade away other contract concessions it needs from the United Auto Workers union.

So says Sean McAlinden, chief economist for the Center for Automotive Research, assessing the current round of contract talks.

He says GM particularly is fixated on cutting health-care burdens for its huge retiree ranks.

“There is a danger in bargaining that GM wants this health deal so badly, it will trade all else away,” McAlinden tells the Management Briefing Seminars here.

That includes going soft on other big issues, meaning GM will have less leverage to negotiate for a scaled back Jobs Bank (which guarantees full pay for laid-off workers) or a 2-tier wage structure similar to that previously accepted by workers at suppliers Delphi Corp., Visteon Corp. and American Axle & Mfg.

McAlinden offers a bleak picture if GM, Ford Motor Co. and Chrysler LLC fail to get major concessions from the UAW during contract talks that began last month.

He predicts the three auto makers as rapidly as possible will shift vehicle production to facilities in Mexico, South Korea and China.

But he says that is “expensive, takes time and is an inferior solution to reaching an agreement.”

Union concessions are necessary, but not altogether sufficient, he says. Even with major givebacks, the three domestics will face significantly higher labor costs than Toyota Motor Corp.

McAlinden calculates total hourly cost (with benefits) for an average Big Three skilled-trades worker at $63.55, compared with $47.50 for a Toyota counterpart in the U.S.

He says the domestic auto industry is suffering from the UAW’s past successes at the bargaining table. One in four auto jobs has been lost as auto makers reduce their workforces amid fewer sales and shrinking market share.

That has reduced UAW membership to less than 200,000, the equivalent of GM’s workforce, alone, at one point.

Yet, Detroit’s labor costs remain high – $28 billion annually “or $33 billion if you add legacy costs,” McAlinden says.

He says the UAW leadership is pessimistic about the auto companies’ chances of survival and about management competency.

The deadline for contract settlements is Sept. 14. McAlinden says things will get interesting once tentative agreements are reached and sent to the rank and file for ratification.

He estimates 50% of UAW workers “believe in” union President Ron Gettelfinger, but 40% “believe he works for Toyota or the People’s Republic of China,” McAlinden says facetiously. “That remaining 10% is very important.”

It is likely the union and auto makers will reach ratifiable agreements that “will get them through the next four years, barely,” McAlinden says.