A ray of hope from Tonawanda: new 'global' GM engine could help keep labor peace

Barely a footnote in an announcement that had been expected for months, General Motors Corp.'s decision to build a new global 4-cyl. engine in Tonawanda, NY, holds an important clue in the vexing search for competitive labor peace with the United Auto Workers union.

The UAW's contract expires on Sept.14. The union hadn't named a strike target at press time, but no matter who's selected, the bargaining at GM promises to be intense.

What role might the Tonawanda decision play? Some background may be helpful.

In trumpeting its decision to let Saturn Corp. build a bigger car by the turn of the century in Wilmington, DE, GM merely confirmed the inevitable. Project Innovate, the in-house code for the endeavor, has been under study for at least a couple of years.

Saturn urgently needs a larger, more refined vehicle. Lacking other offerings, many of its intensely loyal customers may migrate back into the Hondas and Toyotas from which they came. And it saves 2,600 jobs in Wilmington that might have been in jeopardy beyond 1999.

The 2.2L, dual overhead-cam engine that will power the new car has been developed jointly by GM engineers in the U.S. and Germany. A variation will be used in the Opel Vectra and perhaps eventually in other European or South American models. That's why this program is important to GM's tenuous relations with the UAW.

GM may or may not be ready to build an engine in the U.S. for export. But this new engine will go into more than just the new Saturn. It could eventually become the company's primary small-car and compact pickup powerplant in North America.

Blocks and heads will come from its Massena, NY, foundry, using the same lost-foam casting process made famous by Saturn at Spring Hill, TN.

Additional production sites will be considered as the global program expands.

The operative word is global. For UAW leaders, the word usually conjures images of Mexican maquiladoras and Chinese joint ventures capturing what once were middle-class American jobs. Then there's the constant pressure to match independent suppliers paying workers in South Carolina barely half the union rate.

And make no mistake about it. There will be more jobs lost in GM parts plants over the next three years. The UAW's wage-and-benefit package, averaging $43 an hour, remains a liability as Delphi Automotive Systems prepares to bid head-to-head against Tier 1 suppliers paying $15 to $25 an hour, including benefits. Remember, Delphi President J.T. Battenberg III wants half the company's revenue to come from outside GM by 2002.

A study by analyst David J. Andrea of Roney & Co. says that GM's cost per vehicle is $883 greater than Chrysler's and $314 higher than Ford's simply because it makes more of its parts in house. While some of that reflects engineering and management salaries, much of it is labor.

Practically the only jobs the UAW realistically can protect at GM are in the core manufacturing areas of assembly, powertrain and stamping. That's why there's hope in the Tonawanda decision.

"The UAW can be more competitive in powertrain production because there's more value added," says Mr. Andrea. "The Tonawanda decision is the kind of investment commitment GM can provide in exchange for other concessions on outsourcing. You have to start somewhere."

There are about 4,200 hourly workers at Tonawanda, says UAW Local 774. Supplying the Saturn Innovate engine will mostly preserve those jobs rather than add new ones, says a GM spokeswoman.

By itself, that won't be enough for UAW President Stephen P. Yokich and UAW Vice President Richard Shoemaker to give much ground. They can't sell a contract to people losing their jobs making spark plugs in Flint by saying all they have to do is wait until a future engine program might create a job in Tonawanda, NY, or Toledo, OH.

Privately, UAW officials acknowledge that they may be better off when Delphi sells a business to a company better prepared to invest in it.

Take the example of American Axle & Manufacturing Inc. (AAM), which bought five former Delphi Saginaw plants in Michigan and New York in September 1993. Hourly workers remained under the umbrella of the UAW contract with GM, although about half of the nearly 7,000 employed at the time of the sale have since moved to other GM plants.

This year the union and AAM, led by former Chrysler Corp. manufacturing vice president Richard E. Dauch, will try to hammer out a separate agreement that both respects the UAW's right to exist and enables AAM to compete with Tier 1 rivals such as Dana Corp., TRW Inc., Eaton Corp. and Rockwell Automotive.

It won't be easy, and there's no guarantee those AAM workers will make the same wage as their former GM colleagues after this year. But AAM has hired 3,500 new workers to replace those who transferred within GM, says a company spokesman, and added another 1,400. For a union whose active Big Three membership has plummeted from 1.5 million to 803,000 since 1979 (its ranks among independent suppliers have shrunk from 400,000 to 100,000 since 1976), new members are its only link to the future.

AAM is privately held, and does not have to disclose its profits, but employees who took part in a labor-management conference with Mr. Dauch last spring say the company is firmly in the black.

"They've shared financial information with us that we'd never see from GM," says William P. Webster, former president of UAW Local 2093 at AAM's prop shaft plant in Three Rivers, MI. "With Delphi we were a non-core business. With the new guys, prop shafts, axles and forges are all we do. Our people can compete. I don't need the security of a corporation that has closed 50 plants in the last decade."