UAW, GM SHOWDOWN: Carmaker has pushed union-run retiree health care
With national contracts set to expire tonight, the United Auto Workers
on Thursday picked General Motors Corp. as the lead company in
negotiations for a new labor pact for domestic automakers, The Detroit
News has learned.
The union's decision puts GM in position to craft a new, groundbreaking
contract with the UAW that reduces labor costs and closes the
competitive gap with the Detroit Big Three's Japanese rivals.
Both Ford Motor Co. and Chrysler LLC were given indefinite extensions by
the UAW on their four-year contracts that expire at midnight, sources
close to the talks told The News.
Neither GM nor the UAW would comment publicly on the choice of the No. 1
Detroit automaker to lead the all-important negotiations -- and risk a
strike if a deal can't be reached.
By choosing GM, UAW President Ron Gettelfinger is banking that the union
can forge a pattern-setting agreement that will ultimately cover all of
the Big Three's 180,000 active workers and more than 400,000 retirees.
"If they're going to try to settle with one company and use that to
impose agreements on the other two, then it doesn't surprise me that
they picked GM," said Gary Chaison, professor of industrial relations at
Clark University in Worcester, Mass.
Since formal talks began two months ago, GM has been at the forefront of
negotiations to establish a massive, union-controlled health care trust
to administer spiraling medical costs for UAW retirees.
GM, Ford and Chrysler have combined retiree health care costs totaling
more than $90 billion.
By funding a union-run, Voluntary Employees' Beneficiary Association --
or VEBA -- the automakers could remove those costs from their ongoing
All three companies have been in nonstop negotiations with the UAW for
several days, but late Thursday afternoon the union turned its focus to
GM. People close to the talks said GM was chosen because it is healthier
financially than Ford or Chrysler, and had already cut a deal in 2005 to
trim UAW health care costs.
But GM is also on the hot seat now. If it fails to reach a deal soon,
the union could launch a strike that would cripple GM's operations and
torpedo its fledgling financial turnaround.
With the current labor contract set to expire tonight, GM likely will be
given an open-ended extension by the UAW during the bargaining process.
But any extension will be conditioned on continued progress toward a
deal. If the talks should falter at any point, GM would be vulnerable to
a union walkout.
Industry analysts said that a strike would be devastating to both GM,
which is losing money and market share in North America, and to the UAW,
which has seen its membership shrink dramatically in recent years.
"It's just not a realistic option for the UAW to strike," said David
Cole, director of the Center for Automotive Research in Ann Arbor. "They
have that arrow in their quiver, but to use it would be self-immolation."
Still, the possibility of a strike was cited Thursday in letters from
national UAW officials to plant-level union leaders representing workers
at the Big Three.
In the letters, the union's top negotiators at GM, Ford and Chrysler
warned workers to prepare for a strike unless "serious movement" was
made in the ongoing contract talks.
The letters -- signed by UAW Vice Presidents Cap Rapson at GM, Bob King
at Ford and General Holiefield at Chrysler -- said that "significant
differences remain on the table" as the talks enter their final stages.
"As the deadline fast approaches, we cannot tell you there will not be a
strike," King's letter says, using language nearly identical to that of
Rapson and Holiefield. "We continue to work diligently to avoid this
type of drastic step, but we need to see some serious movement from the
company. Unless this happens, a strike might very well be unavoidable."
The one-page letters included a single bold-faced sentence that
underscored the high-stakes at the bargaining table: "We know this: Our
active and retired members will be protected."
While the talks thus far have been conducted under strict secrecy,
people close to the negotiations have said that health care is the
pivotal issue for both the automakers and the UAW.
Executives at GM, Ford and Chrysler have said that the automakers must
reduce the estimated $25-to-$30-per-hour gap in labor costs between the
Big Three and foreign rivals led by Toyota Motor Co. The biggest
opportunity to slash labor costs is in health-care, the single,
fastest-growing expense for the domestic automakers.
GM, which has nearly four retired workers for each active one, has the
most pressing need to rein in health care costs. Wall Street analysts
have repeatedly focused on containing health care expenses as the key to
On Thursday, GM's stock jumped 10 percent on an upgrade by Citigroup and
media reports that a health care VEBA was a likely outcome of the UAW
talks. GM stock closed at $33.29, up $3.04.
At a speech in Detroit on Thursday, GM Chairman Rick Wagoner declined to
comment on the huge swing in GM's stock. "I don't read anything into
it," Wagoner said. "You'd drive yourself crazy worrying about it."
Wagoner also deflected reporters' questions about progress in the
negotiations. "As soon as we've got something to say, we'll let you
know," said Wagoner.
His comments came a few hours before the UAW formally picked GM as the
While lower-level negotiations will continue at Ford and Chrysler, the
biggest issues will be tackled one-on-one between the UAW and GM.
The health care trust is expected to be the centerpiece of any agreement.
People close to GM said the automaker wants to fund a VEBA at about 65
cents on every dollar owed for future health care costs.
But the UAW has yet to agree to a funding level for a health care trust,
and is said to want safeguards in the event that prescription drug costs
and other medical bills rise faster than projected.
One labor expert said Thursday that the union is concerned about a VEBA
running short of cash if medical costs escalate.
"They're aware of the risks, but they view the context as inherently
risky," said Harley Shaiken, professor of labor studies at University of
"If the VEBA runs out of money, there's no question the union would
(want to) return to the bargaining table."