By Roland Jones Business news editor
updated 10/16/2007 8:10:41 PM ET 2007-10-17T00:10:41

After weeks of negotiations, the “Big Three” U.S. automakers look close to sealing historic new labor contracts with the United Auto Workers (UAW) union, restructuring the expensive benefit costs that the industry has enjoyed for decades.

On Monday, General Motors said a new four-year contract it has agreed with the UAW will transfer an estimated $46.7 billion worth of retiree health care liability from the company to the union and significantly reduce labor costs, improving its ability to invest in new products and technology.

But the path to the historic deal with the union — reached last Wednesday as Chrysler clinched a similar, albeit tentative, deal with the UAW — was interrupted by two high-profile strikes at GM and Chrysler in the last three weeks, and observers are wondering what’s going on with the nation’s largest auto union.

Last Wednesday, 45,000 unionized workers walked off car production lines and out of warehouses in a nationwide strike against Chrysler, but they were back at work the next day. Two weeks earlier, a strike against General Motors over the same labor contract negotiations — the first in nearly forty years — concluded two days later. Ford has yet to agree a new labor contract with the union.

The short strikes may have been more for show than an actual inability of the parties to agree on a new labor contract said David Cole, chairman of Center for Automotive Research in Ann Arbor, Mich.

“It’s hard to know what the real rationale was for the strikes, but it seems they were something designed to show that what the automakers and the union had agreed on was really important,” Cole said. “Now they can go to their members and say we have made concessions on wages and on health care costs, but we have fought for an agreement on job security.”

By making concessions that allow GM to reduce its costs, placing the company on a more even playing field with Asian rivals like Toyota, the UAW has freed it up to develop new products. At the same time, the UAW has secured a slate of impressive job assurances from the automaker, which has pledged to build certain new cars in certain plants, guaranteeing work for UAW members, albeit at a lower pay rate, Cole said.

GM’s agreement with the UAW means it has transferred responsibility for auto workers’ health care costs to the union in the form of a funded trust, while a tiered wage structure means that when workers retire they will be replaced with new workers that have a wage and benefit structure half what it is for current employees, reducing costs for the automaker. On a per car basis that amounts to a saving of about $300 per vehicle for the new wage structure and about $700 per vehicle for the health care reduction, Cole said.

“This will take a few months to a year to be realized, but when it comes to GM and Toyota their costs will essentially be close to zero, and that’s why we think this is a big step; a transformational step,” he said. “If GM had the same health care costs that Toyota has it could bring out five new products a year with the money they’d save, that’s how significant this is. So the UAW, by bringing together this deal, they have enabled American automobile manufacturing to compete against anyone in the world. And with the high value of the euro and the weaker dollar you could even see automobiles build here and sent to Europe.”

In its recent negotiations with the UAW, Chrysler agreed to put $10.3 billion into a union-run trust to cover $19 billion in future retiree health care expenses, while Ford is expected to ask for something similar from the UAW. In the end, the union had little choice but to concede to the demands of the automakers notes Peter Morici, professor of economics at the University of Maryland.

With the same wage and benefit structure the Big Three would either have to cut more jobs or see productivity decline, and if one of them goes into Chapter Eleven bankruptcy the union risks losing more benefits, as a bankruptcy judge could remove all workers’ health care benefits. Worse, if one of the companies goes through bankruptcy and emerges as a leaner operation it could drive the other two into bankruptcy, he said.

“The real question is whether this is the last giveback for the union,” he said. “If we have a recession, Toyota is capable of cutting costs and prices to remain competitive, and that could take away all the efficiencies that the Big Three got from their UAW contract deals.”

Next at the negotiating table with the UAW is Ford, which has announced a net los of $12.6 billion for 2006 and saw sales fall 21 percent in September. Given Ford’s difficulties, observers expect UAW President Ron Gettelfinger et al to be easier on the company.

Cole speculates that the broad framework of the deal agreed to with GM and, tentatively, Chrysler, will be used for the Ford, agreement, “plus something else.” That could come in the form of bigger breaks on their health care discount, a profit-sharing plan to offset wage cuts, or possibly putting executives and hourly workers on the same bonus plan.

“Until all the deals are ratified, none of this is certain, but Ford is in the process of dealing with all this now,” Cole said. “They need something more than GM and Chrysler and I think they will get that because Gettelfinger used to work at Ford and he knows it’s in a tougher spot, and Ford’s workers know that too.”

Despite the bluster of the strikes, Cole says that the UAW’s Gettelfinger has brokered a “transformational labor agreement” with the nation’s big automakers, which although it is packed full of concessions, like lower pay for new workers, caps on raises health care reductions, will serve to keep the union viable at a time when it is seeing is membership shrink and some are questioning its long-term prospects.

“There’s no question that when all is said and done, Gettelfinger has negotiated a deal that will save the union and keep these automotive companies out of bankruptcy,” Cole said. “He has accomplished a spectacular task, because it’s hard to adapt a union to new business models, but I think he has done it. The union was betting its future success on this deal and I think [Gettelfinger] has done that and secured its future.”

The Associated Press contributed to this report.


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