GM Labor Pact Sets Pace for Ford, Chrysler

Commentary

General Motors’ new contract with the United Auto Workers moves the U.S. auto industry off the mark and into a new era of relations with, and obligations to, its labor union.

Benefits that have been a way of life for generations of the rank and file now are beginning to fall into lockstep with other working-class Americans, who must share the burden of their health-care costs and other entitlements with their employers.

The Detroit Three’s decades-long collaboration with the UAW arguably set the standard for today’s middle class, with the implication that as the union goes, so goes a trickle-down effect that impacts the nation’s economy, and thereby all of us.

It also must be acknowledged the UAW has taken its own beating during endless rounds of restructuring by the Detroit auto makers that have seen a precipitous fall in union membership as plants close and manufacturing methods become more lean and mean.

Globalization has meant vehicles for export that once would have been built in the U.S. now are produced in the countries where they are sold, with parts and components also sourced locally. At the same time, proliferating free-trade agreements are allowing the auto makers to move into emerging markets sooner and more economically than first thought.

This, in turn, makes possible the import of more vehicles into the U.S. from the Detroit Three’s subsidiaries. In GM’s case, cars designed and built in Europe, Korea and Australia now are filling the gaps in its U.S. lineup. Chrysler has ambitions to bring in Chinese-made cars, while Ford continues to offer its European luxury models in North America.

At the same time, there is the growing encroachment of market share by foreign transplants here, unburdened by the Detroit Three’s legacy costs and so far able to stave off unionization of their plants.

Yes, GM’s contract, which covers 73,000 blue-collar employees, shifts the obligation for health-care costs of current and retired workers to the union.

But to get there, the company first must dole out enormous amounts of money.

By some accounts that could amount to an initial $34 billion, not including a reported $1.6 billion of “backstop payments” should the VEBA be in danger of depletion.

However, GM gets as good as it gives, with the likelihood of eventually shedding $50 billion in retiree health-care obligations, plus an historical agreement with the UAW that allows for a 2-tier wage system.

The stage now is set for Ford and Chrysler to take their place at the negotiating table. How events play out is anyone’s guess.

Is Ford healthy enough to follow GM’s bargaining pattern? Will Cerberus, Chrysler’s new private-equity owner, be willing to match the VEBA agreed to by GM and still make a profit when inevitably it sells the auto maker later on?

All of this creates an air of uncertainty under which bargainers for both sides must steer toward the future. GM’s new contract helps pave the way by evening the playing field with foreign auto makers in America, while also reaffirming the union’s relevance to the industry.

Yet, the ground will continue to shift as new waves of competitors, led by China and likely followed by Russia and Brazil, land on U.S. shores.

Whether or not the coming labor agreements provide GM, Ford and Chrysler the competitive edge required to be winners in today’s high-stakes market, the new pacts at least will make them stronger players down the road.

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