Labor Talks '99--Watershed negotiations may reshape the industry

Score one for the United Auto Workers union. The 2002 Chevy Cavalier/Pontiac Sunfire small cars that were expected to lead a manufacturing revolution at General Motors Corp. instead have turned out to be the first casualties of this year's contract negotiations between the UAW and the U.S. Big Three, one of many signs that this rendition of triennial labor talks may turn out to be more lovefest than unrest.

In mid June, GM revealed it would delay the development of a new Cavalier/Sunfire until at least 2004, in effect scrapping its controversial Yellowstone program that was to see modular assembly techniques introduced into two new plants in Lansing, MI, and Lordstown, OH, at least for now.

GM says it is delaying the small cars because it wants to reallocate more engineering resources to developing new light trucks. But it is more likely that the flap over Yellowstone has pressed the automaker into totally rethinking the program, throwing off by two years or more the timetable for its new small cars.

Yellowstone had struck such a raw nerve with the union that the automaker earlier pledged to no longer use the word. And it turned Yellowstone's mastermind, Small Car Group General Manager Mark T. Hogan, into the invisible man, forbidding him to even discuss the process.

The sudden decision to abandon its modularity push on the eve of the start of the contract talks is the clearest indication to date that GM may not be willing to go to the wall with the UAW on very many key issues this time around. Modularity - which shifts work now done at the assembly plant to suppliers - has been a hot point with the UAW for the past six months. And it's apparent the automaker now understands it must bring the UAW in on the ground floor, as it develops plans to trim $1,000 per unit off the cost of building small cars.

The move won't come without a stiff price and later may be looked upon as another GM blunder. The Cavalier/Sunfire, 5-year-old designs that are getting only a minor tweak for 2000, could end up casualties in the small car segment because of the program delay. New, more sophisticated arrivals already here or on the way that may lure away potential Cavalier/Sunfire buyers include the Ford Focus, Toyota Echo and Dodge/Plymouth Neon.

But even product program strategies are taking a back seat for now to labor harmony, as the two sides get set to hammer out new pacts that some say still could very well reshape the industry as the new century approaches.

"It's really going to be watershed negotiations," says Gary Chaison, an industrial relations professor at Clark University in Massachusetts. "These are the ones to watch."

Mr. Chaison is one of many industry watchers who see employment reduction efforts, the battle over modularity and parts subsidiary spin-offs as incendiary issues that could cause sparks to fly.

But like in an over-hyped hockey game where much-anticipated brawls never materialize, these talks may proceed with more of a whimper than a bang. Record auto profits and neither side with the stomach for another strike the magnitude of last year's 54-day GM walkout are two major reasons that the volume of bargaining table rhetoric has been turned down a notch.

Still, there is a great deal of strategizing taking place. In the end, the pacts could allow the UAW to bolster its thinning membership ranks - first by helping it get its nose under the tent wall of some of the most vehemently anti-union suppliers through the move to modularity (see sidebar, p.35), and second by providing an avenue into U.S. transplants, a trip that could begin in the parking lot of DaimlerChrysler AG's Mercedes plant in Alabama (see story, p.41).

And while the potential specter of an eventual industry downturn looms large, GM, Ford Motor Co. and DC could be faced with wage demands they haven't seen since 1978, as the UAW - egged on by today's stratospheric paychecks for top executives - goes after its share of the industry's record profits.

"(Big Three executives) have been there up to their sleeves (in money). I want to get up just this high," says UAW President Stephen P. Yokich, pointing to the middle of his forearm.

A bigger slice of the industry's soaring profits is just one piece of what Mr. Yokich and his team of negotiators have on their list. Just as important to the union are stiffer and stronger employment guarantees, which could have a huge impact on GM's efforts to close plants and bring its facilities on a productivity par with Ford. It's less of an issue at Ford and DC, both of which would accept higher job guarantee formulas, industry observers say, if it means not having to swallow huge wage hikes.

"GM would pay 5% (a year) if they could avoid employment guarantees," says Sean McAlinden, an automotive labor economist at the University of Michigan's Office for the Study of Automotive Transportation. "They have no backbone. When you still think you have another 40,000 jobs to eliminate in North American operations, you don't care (about a couple extra points in pay)."

Other key issues in the talks to replace the current contract, expiring Sept. 14, include changes to health care benefits, improvements to pensions and the freedom for workers at spun-off auto parts subsidiaries, such as Delphi and eventually Visteon Automotive Systems, to transfer back to their parent companies.

Bargaining points are similar north of the border, where the three automakers are negotiating simultaneously with the Canadian Auto Workers union. As in 1996, the UAW and CAW say they will coordinate their bargaining so as not to step on the other's toes, likely meaning they'll select different strike targets (see sidebar, p.75).

Considered one of the more explosive issues leading up to the talks was the Delphi question. Both Delphi and Visteon would like to bring wages for new hires down from $20 per hour to closer to $14 in order to be more competitive with other independent suppliers. But that isn't likely until the next round of negotiations, post-2000, if then. This time around, Mr. Yokich is insisting that Delphi accept a pattern contract, and the partsmaker already has indicated to Wall Street that will be the likely outcome.

That appears to be OK with the financial movers and shakers, who understand that the real gains will come at the local level. While under the GM pattern, Delphi still could cut its hourly wages if it can hammer out local deals for a second-tier pay scale. A "new product" provision in the contract allows automakers to set a lower hourly wage for people hired in for new work. The UAW already has shown a willingness to be flexible at the plant level, recently agreeing to a 50% cut in the workforce at a Dayton, OH, brake plant. And Delphi has some additional whipsawing leverage by way of a two-tier wage package it has at some plants represented by the International Union of Electrical Workers.

But first GM and the union have to settle on the "effects of separation." This is where flow-back rights, pensions and fund splits for Delphi workers will be determined. Delphi estimates about 3,000 workers will transfer back to GM when they get the chance, and that as many as 7,000 may call it quits by Oct. 1 when they still can retire as GM workers. Depending on their skill levels, losing 10,000 employees could be a blow to Delphi, so the supplier already has guaranteed it will match GM retirement benefits line-for-line in the new contract. It also pumped up its pension funding by $600 million on June 14, lessening the $2 billion shortfall that had some wary workers ready to abandon ship for GM.

GM may have scored big points with the UAW in scrapping the Yellowstone program, and it could further improve the relationship if it pledges to help the UAW organize some of the more ardent anti-union suppliers in any re-cast version of Yellowstone that bubbles up from the national talks.

The UAW could be persuaded to accept a form of modularity, a process that relies on suppliers to build large component modules such as complete doors and instrument panels, as long as its members are taken care of and its overall membership is not seriously reduced. Years ago it was the increased use of robotics in auto plants that threatened union jobs. While the machines did eliminate some people, the UAW gained higher-paying skilled trade positions to maintain the new equipment. The automakers also agreed to a "30 and out" plan that allowed workers with 30 years seniority to retire.

GM earlier had indicated a willingness to encourage major suppliers to accept the union in exchange for the UAW's cooperation on modular assembly. This would mean that companies such as Magna International Inc., with only one of its 83 North American plants unionized, might have been forced to accept greater UAW representation or risk losing any or all of its four Yellowstone module contracts.

Modularity already exists at Ford and DC plants. DC, for example, has been using modular assembly to build the low-volume Dodge Viper since 1992 and the Plymouth Prowler since 1996. There is no paint shop or assembly line, because the Vipers and Prowlers are shipped into the plant in 14 modules that are assembled by 57 UAW workers. GM most certainly will point this out during negotiations.

Another way the union could get into supplier plants is through parts boycotts, similar to what happened to Johnson Controls Inc. in a dispute over organizing rights in 1997. Ford had asked JCI to recognize the union after the UAW became upset when Ford shifted seat and other parts assembly to JCI. JCI did, but it touched off the strike when it rejected the union's proposal for higher wages and better benefits at the recently organized plants.

Workers at the two JCI plants walked off the job and then asked Ford to reject seats made by replacement workers JCI had hired. Not wanting the JCI labor dispute to spill into its profitable Expedition/Navigator plant, Ford agreed and temporarily sent the work to Lear Corp. Twenty-four days later, JCI gave in.

As with previous negotiations, the prospect of a 4-year national contract, something the UAW hasn't seen since the 1950s, appears to be on the table. But once again it's not likely to take root. Although Mr. Yokich must retire when his current 4-year term ends in June 2002 - the same time the next round of labor talks would be getting under way should a typical 3-year deal be signed - the UAW doesn't appear concerned about going into those negotiations with a new administration.

Automakers, not wanting to lose bargaining leverage, also aren't publicly indicating a longer-term pact is something they need. Ford shied away from the chance to negotiate a four-year deal during the 1996 talks.

"A longer contract is a two-edged sword," Mr. Yokich tells WAW. "If you get a longer contract and something happens to the economy, you know who is going to be crying and screaming that you have to come back to the bargaining table? The companies. We have been there."

Mr. Yokich says if the Big Three were to pony up a 10% annual wage increase, he'd sign on for more than four years. But he knows that won't happen. At best, a 4-year deal likely would bring the UAW a 7% to 9% pay increase over three years and a lump sum payout of 3% in the fourth year, industry observers say.

Other issues include plant closings and overtime. GM has at least two assembly plants with uncertain futures, including Baltimore and Oklahoma City. And workers at its Saturn Corp. subsidiary in Spring Hill, TN, reportedly are upset with plans to move Saturn engine production up to Lansing for future-generation cars.

Ford also says a couple of its plants are "on the bubble," including engine plants in Cleveland and Lima, OH, where it has excess capacity. And Ford says it's still searching for a replacement product for its Lorain, OH, facility, where the Thunderbird and Cougar once were built. That's a move that could offset job losses at either engine plant.

In return, the automaker wants help from the UAW to reduce absenteeism, particularly at its Michigan Truck plant in Wayne, MI, where the profitable Expedition/Navigator are built. Ford may seek to expand its use of temporaries as a possible remedy there, something the union historically has frowned upon.

Mr. Yokich also wants Ford, as well as GM and DC, to reduce reliance on overtime. Ford is the overtime leader, preferring to run its factories with longer days rather than permanently expand its payroll. Mr. Yokich says the Big Three could have hired 86,000 new workers by cutting back on overtime. But the issue once again may be dead on arrival, with individual union locals and their members unwilling to give up the extra pay overtime brings.

Another hot spot for Ford is that new contract at its Batavia, OH, transmission plant joint venture with ZF Friedrichshafen AG. Under the pact, as Ford workers retire from the facility they'll be replaced by temporary workers who eventually will come under a separate, lower-wage contract with the joint venture, dubbed ZF Batavia. But Mr. Yokich still is steamed about the anti-union tactics the German transmission maker's management waged against the UAW's effort to organize a ZF plant in Alabama.

"ZF is an anti-union company that put an anti-union drive on against the UAW, and we are not too sure we aren't going to have an anti-union problem at Ford," Mr. Yokich says. "Ford has some serious problems at the bargaining table. That is one of them. If you think we are going to agree to deal with an anti-union company, they've got another thing to talk about with us."

The UAW also is wrangling with DC over organizing Mercedes-Benz's factory in Vance, AL, and its Freightliner Corp. heavy-truck factory in North Carolina. DaimlerChrysler Corp. President Thomas T. Stallkamp says that the company will remain neutral when it comes to the UAW's efforts to organize the Mercedes plant. But Mr. Yokich contends that isn't happening.

"They haven't been neutral," he says. "Right after they said that, they still put anti-union stuff in the plant. It is absolute nonsense."

The UAW also may seek a change in the way profit sharing bonuses are computed. DC workers have been grumbling about losing an average of $2,000 from their bonus checks last year. The losses were due to the executive payouts from the merger, which were deducted as an expense from last year's Chrysler earnings. GM's poor performance in North America has kept its workers on the bottom rung of the bonus ladder.

As for who will get to set the pattern for the new contract, Ford again appears to be the front-runner. But don't rule out German-owned DC, which may be looking to translate smoothly handled negotiations with its American workforce into a more red, white and blue image for the company.

GM appears less likely to be in the driver's seat, even though it has cooled its criticism of the UAW. Vice Chairman Harry J. Pearce admitted just this spring that the automaker bears the bulk of the responsibility for last year's costly strike. GM lost about $2 billion and badly damaged its efforts to recover its dwindling U.S. market share.

"With the worst relationship among the three companies, you can't be a pattern maker," Mr. Yokich says.

Maybe not, but if GM put the right offer on the table, the UAW certainly would give the company a second look.

"I could lay out a case for GM," says former UAW President Douglas A. Fraser, who now teaches at Wayne State University in Detroit. "You could argue that GM would love to settle first to show the world that they can establish a good relationship. The advantage to the union is that GM is more willing to settle. If GM wants to settle you can make a better deal."

Ford, of course, hopes its strong relationship with the UAW will give it the inside track to set the pattern for GM and DC. The No.2 automaker will try to use that to its advantage as it works to iron out terms for its eventual Visteon spin-off. Both sides predict this one issue could be among the most contentious during negotiations.

The University of Michigan's Mr. McAlinden predicts the union will name DC as its honorary target, the first company with which it negotiates a final contract, but then take whatever numbers it gets back to Ford to officially set.

Relations between the union and DC are not as good as they are at Ford, but they're also nowhere near as strained as those between GM and the UAW. DC has added 15,000 hourly jobs since 1991, and the company has either announced or completed almost $5.5 billion worth of new plant construction and plant expansion. And the former Chrysler accounted for more than 50% of DC profit last year, putting the company's U.S. operations in no mood for labor unrest.

That's a sentiment shared by the others as well.

"The (GM) strike last summer will serve as an inoculation against any strike this summer," says Scott Merlis of Wasserstein Perella Securities Inc. in New York. "There will be a lot of rhetoric. But at the end of the day, the UAW will get a little more security, outsourcing say, pension increases and up-front bonuses. It's the proven formula for compromise."

- with David E. Zoia, Brian Corbett and Frank Washington