BY KATIE MERX and TIM HIGGINS
FREE PRESS BUSINESS WRITERS
Huge pay cuts at Ford.
GM shifting production to Mexico.
Chrysler expanding on its week-old turnaround plan.
It's no secret that Detroit automakers are expected to push for
significant changes in UAW wages and benefits in the contract being
negotiated this year.
But one of the nation's top auto economists raised eyebrows Tuesday
among his industry colleagues when he suggested that hourly workers
may have to give up more than ever before to protect U.S. assembly
Speaking to auto industry and regional representatives Tuesday morning
in Ypsilanti, Sean McAlinden, the chief economist for the Center for
Automotive Research in Ann Arbor, said the Detroit auto industry is in
its darkest days and that decisions made in the contract being
negotiated this year will go a long way to determining how and where
the Detroit automakers do business.
Automotive analysts disagreed on some of McAlinden's predictions.
But on the heels of what could be the first year since 1991 that all
the Detroit automakers lost money, UAW mid-contract concessions and
buyouts became a reality and Toyota workers in Kentucky made more than
the average UAW member, the idea is gaining momentum that the very
nature of the contract between the UAW and Detroit's auto industry is
set to change this year.
Among McAlinden's comments considered most controversial by other
analysts were the predictions that:
· Ford Motor Co. may ask the UAW to cut wages and benefits by 20% in
the upcoming contract.
· Ford must list the rest of the plants to close under its Way Forward
restructuring plan in the 2007 contract.
· Nearly 90% of the current GM hourly workforce will leave by 2011,
giving GM leverage to win more changes from the UAW or result in more
U.S. jobs transferred out of the country.
"Productivity will not solve these problems," McAlinden said. "We'll
have to change prices -- that means wages, benefits. The problems are
too large to rely upon gradual productivity -- at whatever reasonable
rate -- to make a difference."
In 'dire straits'
The issue is most pressing at Ford, where McAlinden said it looks like
the automaker may need wage and benefits costs cut by as much as 20%
-- for annual savings of about $1.4 billion -- to survive. "We're
really, really worried about Ford," he said. "They'll know by summer
if their cash burn accelerates so much that they will need special
Ford lost a record $12.7 billion last year on falling sales of pickups
and SUVs. And in an internal report to employees last week, Ford
acknowledged that it achieved only one of four major targets in its
turnaround plan in January.
While Ford more than achieved its overall cost reductions, the company
missed its sales objectives and did not hit its targets to reduce
material costs. It also hasn't hit its objective for "engaging
Less than half of the company's employees, about 47%, have confidence
in Ford's future. The company is aiming to improve that to 60% this
Analysts agreed that Ford is in "dire straits" but say it's dangerous
to speculate so specifically -- and early -- about the concessions
"All you can say for certain, is that there will be tough demands and
there will be differences," said Harley Shaiken, a professor at the
University of California at Berkeley who specializes in labor issues.
Gerald Meyers, former chief executive officer of American Motors Corp.
and a professor of business management at the University of Michigan,
said: "There is some merit to the claim now, because the industry is
in such dire straits and descending with such speed into new
He said he believes Ford will "probably try" to get 20% concessions,
but doesn't think they'll win them.
And if the UAW gives in to concessions for Ford, it would likely lead
to concessions for GM and Chrysler.
"They know full well that if they give it to Ford, then they've got to
give it to GM," he said. "This pattern thing that was originated by
the UAW is now coming back to haunt them."
Ford also has said it will close seven plants it has not yet
identified. If it can't specify which ones in this contract, doing so
later could be costly, he warned.
Behind the scenes
When the UAW contract expires in September, Ford's number of active
UAW employees will have declined by 41% in four years to 55,000,
McAlinden said. GM's UAW headcount will have declined by 39%, to
76,000, and Chrysler will have dropped by 30%, to 46,000, he said.
And by 2011, McAlinden forecasts, 90% of GM's current hourly workforce
will be gone.
GM spokesman Dan Flores would not discuss negotiation strategy or
describe the ages of GM's UAW labor force.
He did acknowledge that about 17,000 hourly workers are already
eligible to retire under the contract's 30-and-out provision.
Ford and the UAW also declined to comment about McAlinden's
The high expected turnover of hourly workers from the Baby Boom
generation gives GM leverage, McAlinden said, to win more changes from
the UAW in exchange for building the Saturn Astra in its Lordstown,
Ohio, assembly plant, instead of moving it to Mexico or another non-
GM insiders and analysts said the automaker is considering Lordstown
for as the potential assembly site for the Astra and Chevrolet Cobalt.
But the company also is building a new small-car plant in Mexico,
which McAlinden and other analysts agree could handle the Astra.
"I think the people in Lordstown are hoping that they can get it, but
I wouldn't rule Mexico out," said Erich Merkle, director of
forecasting for IRN Inc. "I just don't know -- a small-car plant here
in the U.S., I just don't know that you have a lot of future ... from
a cost perspective. You are not dealing with a whole lot of margin."
McAlinden also indicated a belief that the Chrysler Group's
restructuring plan, announced last Wednesday, could grow to include
closing more plants than previously announced -- including Detroit
Axle and Toledo Machining.
"We think the plants that were listed as possible shutdowns under the
'03 agreement ... will potentially be put into that count," McAlinden
In 2003, Chrysler Group and the UAW signed a four-year contract that
allows for the Toledo facility to be sold with union approval.
Chrysler had also originally proposed to close or sell Detroit Axle,
Mt. Elliott Tool & Die and DaimlerChrysler Transportation, but the
final contract protected those facilities, the UAW's 2003 contract