TOM WALSH: Now we see just how UAW deal saves GM
Last fall, General Motors Corp. cut a new contract with the UAW that
allows the company to hire thousands of hourly workers at less than half
of the combined wage-and-benefits cost of people they replace in
so-called noncore jobs.
On Thursday, GM gave notice that it intends to move quickly to reap
Chief Executive Officer Rick Wagoner told Wall Street analysts the
company will expand a voluntary buyout offered at some GM locations this
month to as many as 46,000 hourly workers nationwide in February.
Workers taking the buyouts will start leaving GM in March and April.
GM clearly would like to replace many departing workers with new
employees who are paid less under the Tier 2 wage-and-benefits structure
for workers not directly involved in vehicle assembly.
Such new workers would be paid $14 per hour to start and their all-in
cost, including benefits, would be about $26 an hour. That compares to a
base hourly wage of $28.12 and an all-in cost of $62 an hour for
existing employees, according to Sean McAlinden, chief economist for the
Center for Automotive Research.
"Rick is moving quickly and that's good. I think a lot of people will
take the buyout. It's something GM must do to be able to match Toyota on
labor costs," McAlinden said.
This round of buyouts, unlike other major downsizing moves by the
Detroit Three automakers in recent years, likely will not translate to a
significant net loss of jobs for the beleaguered state of Michigan.
Nearly all of these departing workers will be replaced, albeit at lower
wages with less-generous retirement and health care benefits.
The weakening U.S. economy, exacerbated in GM's case by losses in the
Residential Capital home mortgage unit of GMAC, of which GM still owns
49%, has driven GM's stock price down dramatically.
The share price was more than $40 last October, but closed at $22.84
Thursday, down a penny for the day.
With U.S. car and truck sales expected to be sluggish in the early
months of 2008, it's logical that Wagoner would turn the spotlight on
the inherent labor savings in the new UAW contract to give the financial
analysts some good news to chew on.
In an interview Monday, Fritz Henderson, GM vice chairman and chief
financial officer, told me that the skidding stock price has been "a
pretty painful ride" for GM shareholders. And although a dwindling stock
price can make for "a more difficult capital environment," Henderson
said GM is in a strong liquidity position and has no immediate need to
raise cash by borrowing.
GM has a much greater opportunity than either Ford Motor Co. or Chrysler
LLC to save big money in the short term by switching a big chunk of its
hourly workforce to the new Tier 2 wage structure.
That's because 63.5% of GM's UAW workers are eligible to retire in the
next five years, compared with only 30% of Chrysler workers and 31.2% of
Ford workers, according to McAlinden.
Depending on how many workers accept the latest buyout offer, GM could
fill nearly 17,000 existing noncore positions with cheaper workers, and
perhaps as many as 6,000 more if GM brings work in-house that's
currently done by outside suppliers, McAlinden added.
GM said in a statement Thursday that it plans to reduce labor costs by
$5 billion by 2011; McAlinden has pegged GM's potential labor savings at
What's not known yet is how many existing workers will take the money
and run; whether GM would sweeten the buyout terms to drive up the take
rate, and whether some UAW locals would try to slow down a massive move
to quickly shift a major portion of the workforce to Tier 2 compensation.
What's unmistakably clear is that GM intends to use the cost-cutting
clauses in its new union contract, sooner rather than later.