The cost of doing business in Canada may be high for auto makers, but that isn’t stopping GM from looking to re-negotiate their contract with the CAW nearly a year in advance as a means of keeping production of the Chevrolet Equinox and GMC Terrain at the CAMI plant in Ontario.
Many people don’t realize that most of the “import” cars bought and sold in America no longer roll off a boat, but off an assembly line somewhere in the American heartland. Or at least in the North American heartland. It comes as an even bigger surprise that these cars are one of America’s most successful export products, going from American ports to many countries in the world – where people often are likewise ignorant of the car’s American origin. Read More >
There is a shiny new car factory in Chattanooga, Tennessee. People enjoy working at this Volkswagen factory. The factory is airy, there is a lot of space inside and outside the factory for expansion. However, it will be a while until it will make more than the Passat. The people in Tennessee had hopes for Audi moving in here. Instead, Audi decided on going to Mexico. When the new Golf MkVII comes to America, it will be made in Mexico. There is no other car in sight for Chattanooga. Why is the factory, one of the best specimens in Volkswagen’s vast global collection, losing out on new jobs? The Chattanooga Times Free Press thinks it knows the reason: Lack of free trade agreements. Read More >
Looking for a way to stop the chronic bleeding of money at it notoriously loss-making Opel division, GM has been crunching numbers to see what it would cost to close one of its European plants. Bad news for GM stockholders: Relief won’t come cheap, and it won’t come soon. Read More >
The UAW today released its complete “Principles For Fair Union Elections” [full PDF here], the document that it wants every transplant auto manufacturer in America to sign ahead of its organizing campaign which kicks off later this month. With so-called “card check” legislation dead in congress, the UAW hopes to shame foreign automakers who manufacture vehicles in America to guarantee certain concessions to the union that, having helped kill off its Detroit “partners,” now owns large stakes in the bailed-out successors to GM and Chrysler.
In the past the UAW has failed to organize a number of transplant factories, including Nissan’s Tennessee plants and Toyota’s Kentucky factory, and the introduction of these principles ahead of the next organization attempt signal’s the UAW’s perspective that “manipulation” by management prevented UAW organization in transplant factories. If bosses from Nissan, Toyota, Subaru, Honda, Volkswagen, BMW and Mercedes don’t sign onto these principles, they will be on the menu for the UAW’s new campaign… but are the principles worth agreeing to? Let’s take a look…
Earlier this week, newly-elected UAW President Bob King gave a speech before the Center For Automotive Research Conference, touting the deep changes that have transformed the union. The first half of King’s speech sounded a much-needed note of contrition, and highlighted the new spirit of cooperation between the UAW and Detroit’s management class. But a number of observers noted that the second half of King’s speech represents the flip side of the UAW’s new sense of responsibility for the fate of Detroit: a commitment to targeting the transplant factories that have made life hell for the union and the Detroit automakers alike. After all, nothing brings enemies together like a common adversary. But the UAW’s enemy isn’t just South of the Mason-Dixon line… it’s lurking within its own confused body politic.
Read More >
Recently, there have been voices that mentioned that the attacks on Toyota could be politically motivated. Let’s face it: Toyota has problems. So have other auto makers. There are marked differences in reaction to and treatment of these problems.
One of the tenets of warfare is that you never attack the innocent. You wait until your opponent bumbles. Tricking an “enemy” into doing something really stupid, and exploiting this to declare a “righteous” war, is as old as Julius Caesar. Being the “defender” makes you a winner in the war of public opinion. You need the public on your side to win a war.
Using an outside scapegoat to deflect criticism is the oldest trick in the book. Time and again, people fall for it.
The Japanese were docile, polite, and cautious when in came to Toyota’s troubles. The more surprising is today’s piece in the Nikkei [sub]. Usually, we don’t copy and republish whole pieces. But in the name of authenticity, and because the Nikkei is only available on-line as paid subscription, we make the whole piece available. Read More >
2008 was supposed to be a banner year for Hyundai. The company predicted a huge sales jump and promised a new flagship. And then 2008 actually happened. Sales were, well, you can guess that one. From a sales and PR point-of-view, the new, V8-powered Genesis was well received. From a sales perspective, not to much. Still, as one Hyundai Marketing VP put it, “if [consumers] aren’t forced to reconsider us, they won’t.” To paraphrase Elvis, perhaps we ought to give Hyundai a little more time. Meanwhile, the comparison between Hyundai and a young Toyota seem to have faded from view. In fact, you could make the case that Hyundai is more GM than Toyota. Well, if not you, me.
Perhaps one of the biggest similarities between GM and Hyundai: a disfunctional relationship with its organized labor. Actually, the comparison leaves the GM-UAW relationship looking downright touchy-feely. In 2006 alone, Hyundai lost 118,293 vehicles worth $1.75b due to strikes and walkouts alone. When it refused to pay year-end bonuses of 1.5 times the monthly pay (even though the production goal wasn’t met… due to strikes and walkouts) workers (wait for it) walked out.
Hyundai caved a few days later, with bosses calling the bonus as a “fresh deal” and “an opportunity to clearly recognize that appropriate remuneration can only come after workers achieve the goals.” But Hyundai management is well-trained by now. Their notoriously militant union has held a strike every year since 1987. Except for 1994. Maybe NAFTA scared them for a year. In any case, if the brand that was launched by Rodney King wants to join the Toyotas of the world, something will have to be done about its labor relations.
But Hyundai management doesn’t have much moral high ground from which to fight. The antics of President Chung Mong-koo would make Blagojevich blush. Mong-koo was convicted on $100m embezzlement and bribery charges–and then freed on the grounds that he could “contribute to the company and the national economy one last time.” Although his son Chung Eui-sun has left the top spot at Kia, he’s still considered the dynastic heir apparent to his headline-grabbing father.
Kia was supposed to provide an opportunity for Eui-sun to prove himself. That hasn’t panned out. High steel prices in Asia and union turbulence have played merry hell with Kia’s thin profit margins. “Kia’s profitability this year and its longer-term competitiveness depend largely on labor flexibility,” says Stephen Ahn of Woori Investments. His theory: it will be better for Eui-sun to keep his hands clean. With another Hyundai strike looming and some serious coming to terms with economic reality ahead, he may be right.
So Eui-sun will stay on as head of Kia’s overseas operations, busying himself with successful Slovakia operations and a giant factory under construction near West Point, Georgia. While basking in the glow of Kia’s new products, from the current Euro Cee’ds to their forthcoming cousins, the Soul, Forte/Spectra and YN. But even on the product front, more symptoms of “Big Company Syndrome” loom for the Hyundai conglomerate.
If the Genesis got people thinking differently about Hyundai, a super-Genesis will bring in the few remaining skeptics, right? That seems to be the thinking behind the Equus, the troublingly named, packed-with-technology, S-Class fighter. The car will clock-in with a reported price tag north of $95k. Luckily for Koreans, recent rumors of a stateside debut for the Equus means grey-market imports a la Genesis can begin.
Even at a lower price, the Equus reeks of “Big Company Syndrome.” Whereas the Genesis adds least some enthusiast rear wheel-drive panache to the Hyundai brand, the Equus is a staid limousine. Its owner (Chung Mong-koo?) will likely never stray from the back seat, as he or she is shuttled from payoff to “political fundraiser.” More importantly, a $96k car in the midst of an economic downturn doesn’t say anything positive about the Hyundai brand that the Genesis doesn’t. A budget S-Class is one thing, a Hyundai Maybach is another. And that’s before you start on the name.
In reality, Hyundai is letting Kia take over as the purveyors of cheap and cheerful. And as the “junior brand” picks up its game with the Forte and Soul, Hyundai is chasing the American brands with SUVs, Crossovers and RWD offerings. Product overlap between the two brands, a coming labor confrontation and untimely upmarket ambitions by Hyundai may be enough to take some shine off the Hyundai-Kia juggernaut. Moody’s is eyeing a credit rating cut for Hyundai-Kia, as a weak Won kept things from getting too nasty in 2008. This year will be tougher still.
One of the uncomfortable facts about the automobile industry: its pay rates have been exceptionally high almost from day one. That said, just how much of a factor worker wages (and the cost differences that go with them) have to do with Motown’s meltdown is debatable. One thing’s for sure: the United Auto Workers (UAW) refusal to re-negotiate their current contract– repeated within two hours of the President’s cramdown conditional bailout bonanza– puts it squarely in the firing line for both sides of the “debate.” When trying to understand their seemingly suicidal recalcitrance, history is our guide.
For all of its famous affect on “creating America’s middle class,” it’s important to remember that Henry Ford’s “five-dollar day” (actually a bonus program) was a solution to an intractable problem. Put simply, Crazy Henry had to hire 40k men a year to have 10k working.
There are two things that haven’t changed about auto assembly since those early days: assembly-line work is a grind (imagine doing the same thing, 500 times a day) and auto production requires a steady work force. The initial raise in pay was to give the worker a stake in sticking with a nasty job. Yes, the worker could be replaced. But replacing him slowed the whole process down.
While there have been epic debates, and not a little violence, over unionized automotive workers’ wages and conditions, they generally conform to a worldwide pattern. The type of union– “company” (tame), “trade” (often bribed into submission) or “Industry”– doesn’t have much effect on the outcome. Recent surveys revealed developed world hourly wages for assemblers as more-or-less equal. It’s the “other” stuff– health care and pensions– that makes the biggest difference.
In theory, the USA’s lower corporate taxes should compensate for the advantages enjoyed by automakers operating in countries where employees get their health care and pensions from their government. In practice, Detroit’s sunk by simple math. While The Big 3 have been reducing their total workers. their pool of retired ones has been growing. Ford, GM and Chrysler have more retirees than active workers. Which accounts for much of the “$75 an hour” numbers you hear quoted in the MSM.
Worse, The Big 3 have funded all these benefits on a pay-as-you go basis. Instead of setting aside funds to cover pension and health-care throughout a worker’s career, like a company-level 401K, Ford, Chrysler and GM have been paying their retirees out of current revenues.
This is the same “trick” the U.S. government uses for Social Security. But at least the tax base is growing (and not aging much). The Big Three have shrank and aged themselves into a huge problem.
In theory, the Mother of All Health Care pay-it-forward UAW VEBA fund should finally allow the 3 to put these “legacy” costs behind them (in another two years). Only they still have to fund the fund. Putting company stock in the fund in lieu of cash is going to be about as welcome a blanket smeared in smallpox.
Pay and pension issues can always be laid at the feet of the money-men, who never looked past the next quarter. Health care and pensions can be “finessed.” But union work rules are, apparently, forever. This could be Detroit’s Gordian knot.
Put simply, you can’t. The UAW work in accordance with a series of massive documents directly exactly what every employee is allowed to do, how they should do it and how it’s judged. Having to adhere to a book of rules that practically require a forklift (and designated “operator”) to carry makes anything resembling “management” a major undertaking.
But before we lay the blame completely at the UAW’s feet, let’s consider how management performed when the Union Slacker’s Guide to Life, the Universe and Everything didn’t apply. The California NUMI plant (Toyota Matrix/Pontiac Vibe) doesn’t count. Toyota runs the show there. Saturn is the exception that proves (i.e. tests) the rules.
For GM’s different kind of car company, The General hand-picked workers willing to dump the rules, and then had them build one vehicle for almost a decade. Later on, GM set up the Aztek/Rendezvous plant in Mexico (lower cost AND no restrictions). Bottom line: both ventures failed to sell enough vehicles to make their plants pay. As restrictive as the work-rules are, they seem to conform to standard Big Three thinking as much as management thinking conforms to them.
Perhaps the UAW’s greatest sin, then, is the fact that they’ve been “along for the ride.” More specifically, a seemingly endless supply of money has narcotized the union into suicidal apathy. Worse still, their public persona projects a sense of entitlement that’s toxic to all but their closest political allies.
The UAW’s protests that “we’ve done nothing wrong” is true as far as it goes. But not doing wrong is not the same as doing right. As we shall see.
In December of last year, a certain Peter Hart wrote an opinion column for Fairness And Accuracy In Reporting (FAIR). Hart decried the prevalence of polling in political coverage. Not only did he cast aspersions on the accuracy and reliability of polls, he identified them as a sinister threat to no less than “American Democracy.” “The more fundamental problem for the press — and for American democracy —” wrote Hart, “is that the media’s overreliance on polls encourages a kind of political conversation that prioritizes strategic consideration and tactics over substance.” He didn’t know how right he was. Today, Peter Hart Associates released the results of a poll of their own, gauging support for an auto industry bailout. Read the results in the Detroit News and you might be surprised. Read the poll itself and the Hart Associates client list, and that surprise should evaporate faster than Mr Hart’s ideals regarding polls and their cynical abusers.
Let’s start with the substance of the poll, which would probably send Karl Rove into an ecstasy of nostalgia. After the usual demographic and exclusionary (no media, no auto workers) questions, the first substantive query shows where things are headed.
How important do you feel the American automobile industry is to the American economy–extremely important, very important, somewhat important, not important, or not at all important?
Needless to say there’s no satisfactory way to answer this question, let alone any metric provided to measure “importance.” Anyone who knows nothing about cars or the car business knows there’s only one answer here: somewhere between “extremely important” and “very important.”
As the questions go on, they make it clear that this poll isn’t about ascertaining public opinion. It’s about communicating and legitimizing pro-bailout arguments. In Hart’s words, “the prioritization of strategic consideration and tactics over substance.”
You know the pro-bailout arguments; we’ve sliced them and diced them all over this blog. Presented in their most misleading forms as questions, is it any surprise that they poll… decently? Actually, the poll result’s relative ambivalence is surprising, considering how questions’ inherent bias.
“The federal government has recently provided financial aid to the insurance and banking industries to make sure that these industries do not fail. Do you feel that providing financial aid to ensure that the U.S. auto industry does not fail is more important, just as important, or less important?” Only 14 percent answered “more.” Just 55 percent picked the obvious “correct” answer: “just as important.”
The scaremongering picks-up as the poll goes on, with subsequent questions asking respondents to rate the “importance” of a host of possible dire consequences of industry failure. Not that there are any guarantees that a bailout would prevent or solve any of these sinister symptoms. Just “which ones scare you the most?” Of course, when these questions meet with even the tiniest amount of context, the Hart poll’s results begin to look like the PR stunt they are.
Alternatively, a Rasmussen poll which asks the respondent to examine the entire economy and base priorities from there finds that 45 percent of Americans oppose a GM bailout, with 20 percent undecided. The same poll shows that the automotive industry has actually fallen eleven points as a priority since March 2007. Oh yeah, and 80 percent were “concerned the government is getting too involved in the private economy.”
Again, this is in the context of the larger economic picture. Only by looking at the auto industry through the wrong end of a telescope could Hart achieve the results his clients paid for.
Bias is evident enough in the substance of the post (have a look for yourself). But a quick peek at Hart Associates’ online client list is the final piece of the puzzle. Politically, it’s all Democrats, many from automaker states (with their party affiliation left unstated). On the corporate front, Hart’s benefactors include “DaimlerChrysler,” as well as notorious federal teat-sucklers Boeing and Fannie Mae. Then there’s the United Auto Workers, the AFL-CIO, Teamsters, SEIU and other unions, large and small.
In short, Hart works for this country’s biggest bailout backers, from the worlds of industry, politics and labor. Including of course, the big Kahuna: GM. As the Detroit News puts it, “General Motors Corp. paid for the poll but had no input or review of the design, methodology, content or interpretation.” Then again, why would they handsomely reward Hart if he wasn’t pro enough to give them exactly what they wanted, without them asking?
In any case, opinion polling, as Hart himself lamented, is a dark art. He correctly identified its significant shortcomings a long year ago– only to appropriate the very tactics he denounced in aid of a multi-billion dollar giveaway to failing companies.
And they say the master’s tools will never tear down his house.
Buzz Hargrove doesn't mince his words. As demonstrated in Part 1 of this interview, the outgoing Canadian Auto Workers leader is fully aware of the Detroit domestics' dire financial peril. What's more, Buzz understands the balance between his members' welfare and the health of the automotive industry. Or lack thereof. "My first responsibility is to look after the interests of my members," Buzz admits. "But I tell my boys to look after the industry too. At every meeting." So, how's that going?
Not well. It's evident that Buzz Hargrove has little respect for the men who run the companies that employ his members. "We've made sacrifices. They have no sense of sacrifice."
"[Chrysler CEO] Bob Nardelli's big claim to fame, when he came in, was that he wouldn't need a big salary because of what he made at Home Depot. But today, he still won't disclose his salary." It reminds him of Lee Iacocca's first year as Chrysler chairman. "He came on saying he would only be paid $1/year. What he didn't tell you was next year he picked up $21 million. I'd take $1/year if you paid me $21 million the next year."
It's a credibility gap that irritates Hargrove and offends his political beliefs. "It's the guys at the top looking out for the guys at the top. That's capitalism."
Hargrove characterizes Ford CEO Alan Mulally and GM CEO Rick Wagoner as bright guys who understand the car business but can't get it done; they can't stop their companies' shrinking market shares. Again, Hargrove lets Chrysler's Nardelli have it with both barrels.
"I'm not convinced he's the right guy. It's a very complex industry. [Cerberus boss] Stephen Feinberg told me he hired him over Tommy [Lasorda] because he was the only one who admitted Chrysler was in trouble. That's true, but I'm not sure those are the best credentials to pick someone to run a multi-billion dollar business."
Cerberus itself was a source of controversy for Hargrove. Asked why he originally opposed the takeover and then supported it, Hargrove recounts a meeting with Feinberg. "They assured me they would continue to invest in Canadian operations."
"GM said the same thing," I counter.
Hargrove suggests it's not his fault that he took the auto execs at their word. Equally surprising, he isn't worried about the Canadian auto industry's future. I ask him if Canadian labour costs are scaring away automakers.
"That's completely ridiculous," he declares without hesitation.
"Chrysler just committed to making the new Caravan in Canada, Ford invested in Windsor, and GM committed the Impala. Labour costs are only a component. If it was such a big cost, we wouldn't have had any new investment. They've spent billions here."
You get what you pay for, according to Hargrove, citing Oshawa's quality ratings among the GM family of plants. As to what taxpayers pay for, Hargrove is unrepentant about asking for government bailouts.
"The CAW pays the educational costs for thousands of its members. We are one of the largest tax bases in Canada. When things are going well, we don't ask for taxes back. What we're asking for is our own money. All we want is for [the governments of Canada and Ontario] to respect that."
When I bring up the recent $350m investment announced by Canadian Finance Minister Jim Flaherty (and, oddly, current MP for Oshawa-Whitby), Hargrove's composure begins to fray.
"That's peanuts. That won't even open a bicycle plant. This is a billion-dollar industry."
"Flaherty never got it – not when he was at Queen's Park [as an MLA for Mike Harris' provincial government], not now."
Another political irritant for Hargrove: the current push for free trade. "The old Auto Pact turned an industry around for 20 years. The volume of imports in North America is so high, higher than Europe and Asia."
So high, in fact, that Hargrove rejects all comparisons to the heavily-unionized car industry of 1960s Britain. "It's two different industries completely." Hargrove points out that Europe and Asia didn't open their markets as freely as Canada and the USA, which gives them a huge competitive advantage on the global scale.
"They wanted to push through that free trade deal with Korea. I met with Stephen Harper and with Flaherty, and they could not disagree with me. These are free market guys. It was not a good deal for us."
Hargrove feels vindicated that the deal fell through. But he maintains that the current situation still favours foreign manufacturers.
All of which suggests Hargrove is leaving a bit of work behind for his eventual successor. Asked about the timing of his departure, Hargrove lays it out. "I've changed it so that retirement is mandatory at 65. It can be tempting to stay on too long. I have to set the example. My credibility is very important to me."
Buzz Hargrove describes himself as "full of piss and vinegar." Well exactly. The combative Canadian has been instrumental in his country's union movement since 1964, when he represented a couple of thousand employees in Chrysler's Windsor plant. Now, having announced his 2009 departure from the Canadian Auto Workers' (CAW) presidency, Hargrove's enthusiasm for the labour movement remains undimmed. "I still love it," he says. "If I were 55, not 65, I'd be doing this for another 10 years." That said, Hargrove doesn't think Ford, GM or Chrysler will last that long.
Hargrove first came to the national forefront in 1985, when he assisted then-Canadian-UAW director Bob White in the chapter's secession from the UAW, and the subsequent foundation of the CAW. Hargrove recalls the friction caused by the UAW's top-down approach. "They were going down a road we did not agree with," he recalls.
"They were of the opinion that it had to be the same deal for everyone. We're a separate country. Some of the concessions they made, on health, on strike pay, on benefits, we didn't need to make. In retrospect, it was the best decision we ever made," he declares. "We doubled our membership [from 125k to 255k], and the UAW has gone from 1.5 million workers to less than half a million today."
If the monumental UAW/CAW split is Bob White's legacy, Hargrove's is more difficult to define. He's been CAW president for sixteen years. During that time, through tough negotiation and currency fluctuation, Canada has become one of the world's most expensive places to build cars.
Hargrove acknowledges that it's a what-have-you-done-for-me-lately world. GM-Oshawa's fate will weigh heavily in history's judgment.
"One of my big goals was to take care of Oshawa before I left." Hargrove crossed that one off the list back in May, when GM promised to continue production in Oshawa. Then GM reversed course and decided to close the Oshawa plant. Hargrove claims he was stunned by the move. And he's still bitter.
"I don't know if it's Rick Wagoner or someone else, but someone at GM management lied [to us]. They sabotaged the deal."
As for GM as a whole, Hargrove continues to wax philosophical. "The decision making is day-to-day over there. You can't run a company of that size making decisions like that." As I scribble furiously, Hargrove pours it on: "They did it for the shareholder meeting to say ‘look, we're serious about cutting costs'. The stock jumped, but it went back down."
The parallel to the recent GM-UAW deal almost draws itself: "They did the same thing for the UAW. Well, they got their VEBA, they got their two-tier pay, they got job cuts, and the stock price went up to $35. Now, they still have their VEBA and the stock price is down anyway."
Hargrove was satisfied with Oshawa's eventual semi-reprieve, echoing local president Chris Buckley's assertion that the CAW made the "best of a very terrible situation." Still, Buzz admits the cordial relationship he had with Wagoner was "undermined" by the Oshawa events. The perceived slight prompted some unexpected candour.
"I told Rick it's not a question of if you're going to have to file for Chapter 11; it's a question of when."
My pencil literally dropped on the floor. This from the man whose accountants had a good old look at GM's books before the union signed their latest contract. Recovering, I ask Buzz for Wagoner's response to his comment: "Never."
"I know the reality when I sit down at the negotiating table," Buzz maintains. "You can't continue to lose market share and stay in business." Hargrove's delivered the same message to Chrysler and Ford. "They just haven't shown me how they plan to grow the business." Hargrove believes a Chapter 11 filing is unavoidable for all of Detroit's former Big Three. And he thinks sooner is better than later.
"They're delaying the inevitable. They will lose market share when they file because of consumer confidence, but they're losing it right now anyway. Everyone will take a haircut on what GM owes them, but it will allow them to retool and come out stronger."
Canada, he thinks, will be OK. "They're all making money in Canada… partly because of higher prices. It's the U.S. that is losing money, and it makes the North American numbers look bad. The assets, the plants aren't going to go away. The trustee will continue to make a hot-selling Impala until GM is ready to come back."
"What about the UAW?" I ask.
"The UAW already took a haircut on their last deal," he deadpans.
[Part 2 of this interview will run tomorrow. It will cover Hargrove's thoughts on Canadian labour costs, free trade, political involvement, Cerberus, Bob Nardelli, executive compensation and Hargrove's imminent departure.]
In the battle for the American automotive market, Detroit’s fighting for its life, rather than supremacy. The truth is that the so-called domestic automakers are under siege; their non-union competition forced them inside the castle walls a long time ago. And while Toyota, Honda and Nissan are busy unleashing new and improved vehicles to vie for U.S. customers’ patronage, Ford, GM and Chrysler are busy retrenching, regrouping and re-arming, dreaming of both past and future glory. And when they’re not doing that, they’re tearing each other to pieces.
The most recent and obvious evidence of Detroit’s internecine perfidy: Chrysler’s decision to cut 12k jobs, kill models and downsize production just five days after the United Auto Workers (UAW) ratified their new contract. Never mind that the move reveals the UAW’s complete betrayal of their own rank and file, who would have never ratified the Chrysler contract (if indeed they did) if they’d known of the wholesale slaughter to follow. The more important impact of this [necessary] bloodletting will be on Ford.
Now that Ford’s UAW members have witnessed the fallout from the Chrysler contract, they will never ratify an agreement without iron-clad job guarantees. And if you thought that deep-pocketed, privately-owned Chrysler needed a free hand to downsize production, pity poor Ford; the sickest, most vulnerable automaker in the biz. It’s mortgaged up to its eyeballs, losing market share by the minute and drowning in an ocean of red ink. You can see their cash burn from Cincinnati. FoMoCo can afford job guarantees like the average pistonhead can afford a Bugatti Veyron.
Could Chrysler have waited THREE WEEKS before swinging their mighty axe, so that Ford could have secured the same sort of no-strings-attached deal for their UAW members? Sure. And there’s only one reason Chrysler CEO Bob Nardelli didn’t stay his hand: to shiv his cross-town rivals.
If you read the reactions to yesterday’s Ford – UAW deal carefully, you can see the damage the Three-Headed Dog’s automaker has inflicted on The Blue Oval Boyz. "Our goals for this contract were to win new product and investment, to enhance job security and protect seniority,” pronounced UAW Veep Bob King, director of the union's National Ford Department. Yes, well, would the UAW be stupid/brazen/corrupt enough to ask its Ford members to ratify a guarantee-less contract after the Chrysler massacre? Not if you take UAW boss Ron Gettelfinger at his word: "We encouraged Ford to invest in product and people."
In fact, Ford needs to follow GM and Chrysler and invest in getting RID of products and people. They have too many brands, models, employees and production capacity to survive. While Ford’s new union contract includes a huge payment into the UAW’s inconceivably large, eminently lootable VEBA health care superfund– securing the automaker a cost-reducing two-tier wage system– Chrysler has made sure that Ford can’t downsize in time to reap its benefits.
And what of GM? It must be said that GM’s sitting relatively pretty in all this. With the help of the UAW management, they got away with making empty job guarantees to their union workforce (we’ll give plant X the new car– you know, IF there’s a new car). They’re now free to slice production to match demand, and slice they have. Even better, they’re eating Chrysler and Ford’s lunch.
Check out last month’s sale figures. Compared to October '06, GM sales rose by 3.4 percent. Did the market expand? No. Did Toyota, Honda or Nissan sales slip, indicating that The General’s much-hyped new or revised products harvested conquest sales from the transplants? Hell no. The salient stat is that Chrysler and Ford sales plummeted. While there’s no hard data on this, common sense suggests that American car buyers who tend towards domestics (a well-documented predilection) are switching their patronage to GM.
We’ve mentioned that old joke about the “buddies” chased by the bear who realize that they only have to outrace each other to survive. Well, there you go. GM’s in the lead and Chrysler’s tripped Ford. Which is all very well and good for The General and The Dog, but Ford still has a secret weapon (that nobody sees): bankruptcy. While GM and Chrysler have dropped some of their union-related baggage through clever negotiation (i.e. paying off the UAW VEBA-wise), Ford could lighten even more of their load through Chapter 11.
I don’t mean UAW pay or benefits; as [non-co-opted] union members maintain, that’s not the real issue. I mean dealers. All three so-called domestics are hamstrung by their bloated dealer network, which prevents them from consolidating models and killing brands. If Ford files, they can ditch their duff dealers, drop bad brands, beat-up (not remove) the UAW and emerge a far leaner and meaner carmaker than either Chrysler or GM.
Of course, none of this gets rid of the "barbarians" pounding on Detroit's gates.
In this morning's Detroit Free Press, Tom Walsh declares that United Auto Workers (UAW) president Ron Gettelfinger had to "flex worker's muscles" by staging a six-hour strikelet against Chrysler. Gettelfinger "felt compelled to deploy the biggest weapon in his arsenal, the strike" to get agreements from GM and Chrysler. Granted, a strike is any unions' ultimate bargaining tool. But get real. I've had doctor's appointments that lasted longer than the Chrysler "strike." Exactly what did the UAW accomplish yesterday– besides costing its members six hours' pay?
When Detroit was king of the American automotive hill, The Big Three were loathe to shut down an assembly line. Factories were churning out cars 24 hours a day; they were making billions by feeding the American public mediocre products based on other mediocre products. So the automakers gave the union pretty much whatever they wanted, just as long as they helped keep the money train on the track and on time.
Then them damned furriners showed up and spoiled the party. Fast forward forty years and everything is turned upside down. The Big Three Minus Twenty Percent are losing money on almost every car they produce in North America. Their "foreign" competitors have invaded their home turf. With the weak dollar, more automakers are threatening to set up operations stateside.
On the union side, UAW membership is the lowest its been in decades, as factories shut down and workers take buyouts. Apparently no one bothered to tell the UAW they no longer have the upper hand. At the UAW's bargaining convention in March, Gettelfinger said they'd fight in whatever way necessary in order to defend their members' pay and benefits, even "if need be, on the picket line."
Perhaps he should have taken Teddy Roosevelt's advice about soft talk and big sticks. After issuing nuclear option threats, Big Ron had no alternative but to call a strike at some time during the negotiations. He had to put his members' money where his mouth was.
So Gettelfinger decided he'd take on GM and call a strike. Industry analysts were all abuzz, speculating how long it would last. The more jaded amongst them wondered how long before GM followed protocol and caved to whatever demands the UAW was making. Two days later it was over.
UAW leadership claims the strikelet broke the logjam with GM and forced their employer to settle on terms favorable to the membership. In reality, shutting down production for two days did GM more good than harm. GM entered September with a 67-day supply of vehicles, most of them 2007 models. The strike gave them most of what they wanted– a two-tier wage system and a health care VEBA. AND it saved them two day's union pay and cleared a bit of inventory. When seen in this perspective, this UAW strike was, at best, a mosquito bite on an elephant's ass.
The six-hour coffee break at Chrysler was even more meaningless. Chrysler had a 72-day supply of vehicles going into September. Six hours didn't even give time for the impact wrenches on the assembly lines to cool down. The details of the agreement aren't available yet, but there's no way the UAW's token tantrum got Cerberus to change their mind on anything.
Ford's next. They had a 68-day supply of vehicles going into September. No question: they're in the worst financial shape of The Big 2.8. The Blue Oval Boyz will be demanding the most back from the union. How will the union respond? Based on performances so far, they'll probably have the workers bow their heads for a moment of silence on the assembly lines, and then capitulate on all fronts (as long as they get some more billions into the plunder-ready health care VEBA).
The Freep's Walsh sings Gettelfinger's praise. He claims Big Ron "is on the verge of doing something … historic, forging the most important UAW contracts since the GM sit-down strikes of 1936 – 37." David Cole from the Center for Automotive Research agrees: "When all this is over we'll look at Ron Gettelfinger and say this is an amazing guy to have pulled all this off."
The only thing Gettelfinger pulled is the wool over his members' eyes. The entire strike scenario was just a way to get them to buy into a contract that gave up a lot more than it gained. By having them walk a picket line, even for a few hours, he convinced them they had a part in making management cry "uncle." They'd look pretty foolish to reject a contract they went on strike to get.
And it worked. Sixty-six percent of GM's UAW workers ratified their new contract. Gettelfinger called the approval a "triumph." He crowed: "we helped protect middle-class manufacturing jobs in communities throughout the United States." Of course, in protecting them, he put their retirees' health care benefits at risk, lowered the wages for many of them and got unenforceable promises of future jobs. That doesn't sound much like a positive strike outcome to me, in either the short or the long-term.
The strike is over. The United Autoworkers Union (UAW) has announced they've reached an agreement with General Motors which will lead to a new contract for their members. Everyone's gone back to work. Everyone is happy, and all's right with the world– at least until the full impact of the agreement hits the workers. At that point, they might realize that they gave up two days' pay and got practically nothing in return. Let's see how it adds up.
The exact details of the agreement haven't been released. They won't be final until the members ratify the new contract. However, the Detroit Free Press has released what "a person briefed on the deal said" would be included in the new contract.
The biggest change: the establishment of a Voluntary Employee Beneficiary Association (VEBA). This health care superfund is designed to pay for UAW members' health care for "the next 80 years" (according to UAW boss Ron Gettelfinger). For GM, the VEBA
unloads transfers health care responsibilities to the union. Industry soothsayers are currently pegging GM's contribution to the VEBA at around $35b. That's substantially less than the over $50b bill GM faced.
The amount of cash vs. stock GM will use to pay for the VEBA is the big question hanging over this part of the deal. Even if GM has to pile on even more debt to git 'er done, the Street loves this VEBA. So it's a big win for GM– for now. Whether or not it will work out for the UAW is a whole 'nother story, as it puts the union into the unfamiliar position of administering their members' soaring health care costs and raises the possibility of massive fraud and mismanagement. Score: GM 1, UAW 0.
GM and the UAW disagreed over wage structures. GM wanted to institute a two-tier structure where new workers receive lower pay and different benefits from current workers' compensation. Of course, the union found the idea entirely unacceptable. And then gave in. However, since this fits right in with the "just don't mess with my benefits" mentality most UAW members exhibit, GM gets the win. Score: GM 2, UAW 0.
The UAW also agreed on different wage structures for "non-core" jobs: those workers who don't actually assemble vehicles. As compensation to non-core workers who currently enjoy full pay and benefits, GM will offer a "targeted special attrition program" to "relieve the pain of the wage reductions." In other words, GM will eventually pay some of their workers less. Score: GM 3, UAW 0.
The new contract doesn't include any wage increases per se, but it does include a $3k
bribe to accept the contract signing bonus. The signing bonus will cost GM much less than a strike or any other form of compensation. Score: GM 4, UAW 0.
The contract contains another bonus: lump sum payments over the last three years of the four-year contract. The bonuses are roughly equal to three percent of annual wages. That works out to an $1,800 payment for someone who makes $60K per year. It's still a lot cheaper than across-the-board raises and if it's tied to profits, well, what profits? Score: GM 5, UAW 0.
Other terms in the agreement include the "possibility" of GM maintaining the level of its union workforce in the U.S. and modifications to the jobs bank program. The details of the jobs bank changes aren't available yet, so it's too early to score that one. Getting even the hint of a promise that GM won't cut its UAW workforce is a major point for the union. Score: GM 5, UAW 1.
The UAW's national leaders will convene late this week to vote on the deal. The full membership will vote on it this weekend. The UAW's president is optimistic it'll be approved. "It's an agreement we're proud to recommend to our membership," Gettelfinger crowed. "This contract will be better in some ways; it will be different in some ways. Our retirees will be exceptionally pleased with the contract."
Different? Of course, GM CEO Rick Wagoner had his sound bite as well: "This agreement helps us close the fundamental competitive gaps that exist in our business. The projected competitive improvements in this agreement will allow us to maintain a strong manufacturing presence in the United States along with significant future investments."
Wagoner's statement reveals an inconvenient truth: GM management continues to see labor at the root of all their problems. Unloading retiree health care costs, not giving raises and paying new workers less won't close any "fundamental competitive gaps." To be competitive they have to offer a competitive product.
The new UAW contract may improve the bottom line for a few quarters, but until GM sorts out its brands, trims its dealers and starts designing world-class, brand-unique products for those workers to assemble, there's nothing any contractual fine-tuning can do to save the company's failing North American operations.