Detroit Pursues Sweeping Cuts In Union Talks

The Wall Street Journal

Detroit Pursues Sweeping Cuts In Union Talks
Big 3 Cite Wide Cost Gap With Asian Auto Rivals; Threat to Export Jobs
By JEFFREY MCCRACKEN
June 14, 2007; Page A1

Detroit's Big Three, facing their worst crisis in decades, are seeking unprecedented concessions from the United Auto Workers union in a bid to narrow what they say is a $30-an-hour labor-cost disadvantage against Asian rivals like Toyota Motor Corp. and Honda Motor Co., auto executives say. The unusually tough stance by General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group marks their latest attempt to stanch heavy losses in their North American auto operations. It also sets up a potential showdown with the UAW -- which has a 70-year history of winning progressively richer contracts for its members -- as the two sides prepare for contract talks that start this summer.

(snip)

GM, Ford and Chrysler have eliminated about 70,000 UAW jobs over the past two years through buyouts and other means. The three, which currently employ about 210,000 of the UAW's 520,000 active members, say they pay union workers $70 to $75 an hour, when wage, health-care and pension expenses are factored in. By comparison, according to Big Three estimates, Toyota and other Asian auto makers, pay $40 to $45 an hour at their U.S. plants, which together employ about 62,300 nonunion workers.

"We need to eliminate most, if not all...like 80%" of the gap, says a senior automotive executive involved in labor planning. "It has to be gone by the end of the contract, or doing business in the United States is unsustainable." All three domestic auto makers "will move investment in plants and people outside the country" if they don't bring U.S. labor costs in line with those of Toyota and the other foreign auto makers, the executive said... The Big Three's competitive problems extend far beyond labor costs, a point UAW bargainers have made in the past and will likely make again. Union leaders have said the auto makers should invest more in improving the quality and design of their vehicles. The three companies allowed quality to deteriorate in the 1980s, a stumble that still haunts them by hurting their standing with consumers. Detroit also resorted to discount-driven marketing, undermining its profits and cheapening the image of its brands. Moreover, the auto makers have been slow to respond to shifts in consumer tastes over the past two years; a sharp rise in gasoline prices caught them with too much of their production capacity devoted to trucks and sport-utility vehicles that got relatively poor mileage.

Mr. Gettelfinger, the UAW president, has been maneuvering for two years to soften the potential blow to the union's more than 700,000 active and retired members, agreeing to mass buyouts, some cuts in retiree health-care benefits and moves to improve factory-floor efficiency. Former and current union officials say Mr. Gettelfinger prefers to make smaller, less dramatic sacrifices that still add up to substantial savings, concessions such as changing work rules to allow for outsourcing of jobs such as janitor or materials handler or restricting the amount of time a union worker can remain unemployed but on full pay in the industry's so-called Jobs Bank. Such moves can save an auto maker tens of millions of dollars per plant.


(snip)

The UAW has made significant concessions to save jobs in other industries. The auto makers are studying a six-year deal the union reached with heavy-equipment giant Caterpillar Inc. in January 2005 which allowed the company to pay new hires between $10 and $15 an hour, compared with $20 and $22 for previous hires. UAW-Caterpillar workers must pay some of their health-care costs for the first time and get annual bonuses but no raises over the term of their contract. "A deal like the Caterpillar contract would take out $7 to $10 an hour of that $30 gap," said one senior automotive executive familiar with plans for the UAW talks.

(snip)


URL for this article:
http://online.wsj.com/article/SB118178643572134789.html (subscription)