GM Dealers Win Big with UAW Deal

Most pundits generally gave good grades to the Big Three auto makers for being able to reach relatively sound agreements with the United Auto Workers union last fall.

But if you're a General Motors dealer, you might have more reason to celebrate than your counterparts at Ford and Chrysler.

According to Sean McAlinden, a senior economist for the Center for Automotive Research in Ann Arbor, MI, GM was the big winner among the three domestic auto makers with the new UAW contracts.

Why does this affect you if you're a dealer? Most importantly, GM likely will be able to eliminate at least $1,500 from the cost of building a vehicle within the next couple of years, according to McAlinden's calculations.

By 2011, GM expects to have eliminated $5 billion in company costs. And that means potentially more sales and more profits for the dealer.

So how does GM accomplish this? The company is in a better position to eliminate current workers and then rehire at what is called the “Tier 2” wage level, which is approximately $14 an hour — significantly lower than the $28 an hour workers average today.

(Compare $28 an hour with what import auto makers pay their production workers in the U.S.: Toyota, $26 an hour; Honda, $25 and hour; and Hyundai, $21 an hour.)

Tier 2 is defined as any non-core functions that suppliers or vendors can do. With 48% of GM's current work force nearing retirement age, the auto maker can turn those jobs over much faster than can Ford and Chrysler.

Worse for Chrysler is the fact it will continue to pay hundreds of millions of dollars into its job bank this year — essentially paying workers to not work, according McAlinden.

Both GM and Ford will have reduced their jobs bank payouts to almost nothing this year.

Announced in mid-January, GM is offering buyouts to 46,000 of its 72,000 U.S. UAW employees. The auto maker likely will turn over at least 75% of its current work force by the time the current UAW agreement expires.

Of course, the question is whether GM can attract Tier 2 workers at $14 an hour. McAlinden's opinion? “I don't think so,” he says.

And there is the issue of the effect on GM's product quality as it turns over such a large number of its work force — not to mention it will be mostly unskilled labor that gets rehired.

By 2011, Ford and Chrysler should be in a better position to begin turning over a greater portion of their work forces.

And in 2010, all three companies will begin saving billions of dollars annually when they shift in the form of a Voluntary Employee Benefits Admin. (VEBA).

As the auto makers begin implementing their buyouts and subsequent production cuts, GM will become the size of Ford; Ford the size of Chrysler; and Chrysler just gets smaller in the next few years, McAlinden says.

The end result: fewer vehicles to sell, and fewer dealerships to sell them.