#Uaw

One of the legacy costs that GM was not able to reduce in the bailout was pension costs, a whopping $128b obligation as of the end of 2010. And though the plan is “only” underfunded by $10.8b at the end of June according to GM, Kenneth Hackel, president of CT Capital LLC (and author of two textbooks on valuing securities) recently told Bloomberg

The financial risk because of [GM’s pension liability] is higher than people understand. The cold reality is if you used a conservative discount rate and you wanted to close out the plans, you would have to raise about $35 billion.

With GM’s market cap sagging into the low-$30b range (currently around $34b), the risk of pension liabilities growing larger than GM’s market capitalization is very real. And as lower interest rates and a weak stock market reduce pension fund returns, the obligations grow, in turn putting pressure on GM’s stock price. And it’s not like nobody saw this coming: a GAO report released in April 2010 issued dire warnings about the state of GM and Chrysler’s pension obligations. Now, according to the ace reporters at Reuters, GM and the UAW have hashed out a buyout deal giving workers the option of being bought out of their pensions. Which has us dying to know: what’s a UAW pension worth in cash?

Mid sized pickups allegedly were left for dead. Automotive News’ Product Editor Rick Kranz even accused Honda of “abandoning” its Ridgeline pickup. Now, the unloved segment is being resuscitated by – General Motors. And the UAW.

My divorce cost me some $50,000 in legal fees alone – not to mention the true price of my freedom. If I would have been an UAW worker, my employer would have picked up the legal bill. For decades, UAW workers enjoyed free legal services, courtesy of the employer funded UAW Legal Services plan. If workers agree to the labor contract hashed out with GM, they better get a divorce quick, because the legal freebies will be phased out in 2014.

At the height of “bailout fever,” after TARP had been instituted but before the automakers had been completely bailed out, one argument that we heard a lot of from Detroit’s defenders was “how can you begrudge the manufacturing base a few billion when speculators at the banks are receiving far more support?” At the time, the argument seemed to me like a convenient way to shift attention away from Detroit’s failures and undercut the argument that consumers, not a credit crunch, were responsible for killing off GM and Chrysler… but at least then it still had some validity. Fast forward to today, and history has stripped it of all relevance, as it turns out the banks will likely be picking up the automakers’ bailout tab.

As predicted, the hand-wringing over Sergio Marchionne’s letter to Bob King was not enough to derail the basic motivations for the UAW to reach new deals with the automakers. Last night the union agreed to a tentative agreement with GM, its pattern target for this, the first round of negotiations since the bailout. That agreement must be approved by the union rank-and-file, but if ratified, Reuters reports that it includes

• The re-opening of the idled Spring Hill, TN plant to build an unspecified “new product”
• $5,000 signing bonuses (at a cost to GM of $245m)
• According to the NYT, “significant improvements to health care benefits” are also part of the deal
• According to AN [sub], the union “successfully fought back efforts to make major changes — and weaken — our retirement plan.”

Chrysler CEO Sergio Marchionne’s petulant letter to UAW President Bob King sounded to me like a man angry with being kept waiting after a long flight, but according to the Detroit News, it has “derailed” the “carefully crafted timeline” for contract negotiations. To wit:

Sources close to the negotiations told The Detroit News that a deal was imminent with General Motors Co. when Chrysler CEO Sergio Marchionne sat down at his Mac computer and fired off a sharply worded letter to UAW President Bob King at 10 p.m. Wednesday, accusing the union leader of violating their gentlemen’s agreement to sign off on a deal by the 11:59 p.m. deadline.

Shortly after the letter was sent, talks stopped at both companies.

Chrysler and the UAW agreed to extend their current contract for one week. Talks resumed Thursday between the two sides, but nothing of substance is being discussed at the bargaining table, according to people familiar with the talks.

Actually, that’s not exactly what everyone is reporting…

The United Auto Workers and the Detroit automakers have been locked in negotiations for months now, as both sides seek to redefine their relationship in the post-bailout era. And though all sides have stressed the importance of avoiding intractable disputes in an alleged new spirit of cooperation, it seems that the prospects of a quick, painless conclusion to negotiations remains elusive. The UAW’s contracts with Chrysler and GM both blew past their deadlines at midnight last night, and Ford, the only manufacturer at theoretical risk of a strike, extended negotiations earlier this week. TTAC has not covered these negotiations in much depth for the simple reason that little information leaks out of them. But with contracts expiring and optimistic rhetoric crashing on the rocks of reality, the frustration is clearly starting to boil over. And who is surprised that Fiat-Chrysler CEO Sergio Marchionne is the first to let his frustration show?

Toyota closed the last chapters of the book on NUMMI, wrote a check for $6 million, and put the book to where it will collect the dust of history. According to Reuters, Toyota reached a $6 million settlement with former NUMMI workers.

The suit was brought by workers on medical leave when NUMMI was shut down in March 2010. It’s not that they had gone empty-handed. After GM had pulled out of NUMMI in June 2009 and left Toyota holding the bag, Toyota announced plans to pull out by March 2010. Toyota had negotiated a $281 million settlement-agreement with the UAW-represented workers, while GM was whistling Dixie.

At the time it was clear that some union brothers were more equal than others.

From the “sidelines” of the MBS conference in Traverse City Michigan, Wards Auto reports that Fiat-Chrysler CEO Sergio Marchionne is not keen on giving the UAW a board seat. UAW President Bob King has been pushing for VW Works Council-style representation on the Chrysler board, but as Marchionne explains

The best intervention that the unions or labor or organized labor can bring to the party is a support for the choice of the right leader to lead the organization… I understand Bob. I understand what he’s saying (but) we have to be very careful that we don’t exaggerate the value of co-determination

Co-determination gives rise to two decision-making bodies. The executive board makes decisions. And the unions sit on supervisory boards, one of which is the choice of the CEO. The most fundamental and difficult decision that a board makes is the choice of a CEO. If you make the right choice, issues with labor unions will not arise

Considering the UAW VEBA trust fund is the single minority shareholder in his company, Marchionne is admirably and typically frank in dismissing his union boss’s ambition. And since Marchionne doesn’t intend on retiring before 2015, his answer might as well have been “why do you need a board seat, when you have me?” But there’s another aspect to his argument that reveals that Bob King might have already doomed the union’s chances at a board seat.

Despite the fact that no transplant automaker has admitted to being in direct talks with the UAW, union boss Bob King told the Center for Automotive Research’s Management Briefing Seminar [via Reuters]

The vast majority of the assemblers here in the United States have at least agreed to confidential discussions. We’ve had productive discussions. The last thing we want is confrontation.

So, the issue isn’t that the transplants are all responding to the UAW’s overtures like Honda, which has said

Honda has had no dialogue with the UAW and has no interest in a discussion with them.

No, talks are happening with the “vast majority” of transplants… they just happen to be secret talks (which, at least in the case of VW, appear to be going nowhere). That in itself is strange, considering the UAW’s previous, highly-public approach to naming and shaming non-union transplant manufacturers. More likely: secret talks keep the union from losing face and the transplants from looking like “human rights abusers.” My how things change fast…

Don Jackson, manager of Volkswagen’s spanking-new plant in Chattanooga, dispelled rumors that unionization of the VW works is imminent. “No one from the UAW has visited the plant, or asked to visit,” Jackson told Bernie Woodall of Reuters. Jackson said that neither he nor anyone else at the new VW plant has been in contact with UAW representatives, and dismissed talks about the UAW representing workers at the plant as “speculation.”

The talks about a new labor deal between Ford and the UAW have barely begun, and both sides already utter the dreaded s-word: Strike.

One of the many defining differences between this year’s contract negotiations between the Detroit automakers and the UAW is a new possible concession on the table: boardroom representation for the union. Inspired by the German system of works councils and union representation on supervisory boards, UAW President Bob King told Bloomberg that

If I had a magic wand, I’d take the German law and put it in the U.S… Workers should have representation on the board

But, in a thoughtful editorial, the Detroit News’s Daniel Howes warns that board representation may be more of a challenge to the union than a benefit. Howes notes

The UAW’s pursuit of board-room seats, to the extent it becomes a key demand in this post-implosion bargaining season, is fraught with potential complications. Among them is the cultural misperception that what is deeply embedded in Germany’s corporate reality is easily transferrable to 21st-century industrial America.

With the Detroit Free Press reporting that combined Q2 profits for the Detroit automakers could hit $4b, the quadrennial negotiations with the UAW which opened today with a meeting between Chrysler and the union could be a tough slog. And because the profit outlook is mixed, with GM and Chrysler likely to improve profitability and Ford likely to see a drop in net takings, the long-standing tradition of “pattern bargaining” could come to an end. Ford currently pays about a dollar more per hour than GM and about $2 per hour more than Chrysler (which is partially owned by the UAW’s VEBA trust fund), and Ford also shoulders more of workers’ health care costs than its cross-town rivals. And UAW president Bob King admits

Being really blunt about it, when you don’t represent the overwhelming majority of an industry, which we don’t any more, then you can’t do pattern bargaining

Already unfairly disadvantaged by the UAW (Ford is the only Detroit-based automaker without a no-strike contract) and facing falling profitability, Ford is telling the union not to expect wage increases. But does that mean the union’s only choice is to bring GM and Chrysler up to Ford’s pay and benefit levels?

It was quite a coincidence when, just last week, Audi restated its interest in US production facilities on the same day that the UAW announced it was in talks to possibly organize VW’s new Chattanooga plant. At the time we noted that

With Audi execs insisting on the need for more US production capacity, a UAW win in a Volkswagen vote could have serious implications for the firm’s future expansion.

Turns out, it didn’t even have to come to a vote. Just over a week after CEO Rupert Stadler insisted that “It is totally clear that we need new production capacity in the U.S,” Audi has suddenly decided that things look nicer in union-free Mexico. Automotive News [sub] reports that Stadler wants a new Mexican plant to build the Q5 SUV, but notes that

it was still unclear if Stadler would have his way in the face of opposition from some of Volkswagen’s top managers, who wanted Audi to make use of the new VW plant in Chattanooga, Tennessee.

Did the UAW’s sudden announcement that it was in talks with VW’s global works council about organizing Chattanooga have anything to do with the decision? AN [sub] won’t say, but the timing can’t be ignored. Audi’s US production may just have been the first victim of the UAW’s transplant organization campaign.