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Published: Sunday, 7/13/2003

Bargaining time at Big 3

BY GARY T. PAKULSKI
BLADE BUSINESS WRITER
Buyer incentives such as rebates offered at Brown Pontiac on Central Avenue in Sylvania Township have cut into profits. Buyer incentives such as rebates offered at Brown Pontiac on Central Avenue in Sylvania Township have cut into profits.
ZAPOTOSKY / BLADE Enlarge

With labor negotiations opening this week between the UAW and U.S. car makers, escalating health-benefit costs appear to be an issue that could propel the two sides into a head-on collision.

The financially pressed Big Three need relief on a benefit estimated to cost them a combined $9 billion a year.

But Ron Gettelfinger, president of the United Auto Workers, has said over and over that he won't allow employers to shift health care costs to workers, as other firms have done with premium-sharing plans and higher co-pays.

“The only time I'm going backward is when I'm in my car backing out of a parking spot,” he quipped during a meeting with reporters at the union's Solidarity House headquarters in Detroit last month.

But as wide as the division would appear, negotiators for the union and the Big Three will find a way around it, analysts predict.

“Over the last few contracts, you've seen the union and the manufacturers being much more understanding of each other's positions and much more knowledgeable about each other's problems,” said Bruce Belzowski, senior research associate at the University of Michigan's Office for the Study of Automotive Transportation in Ann Arbor.

It is unlikely the UAW president will retreat from his stance on health care, but company strategists probably will offer cost-saving proposals acceptable to the UAW, he said.

And although anything is possible, few in Detroit are betting on a strike when contracts covering 275,000 union members expire Sept. 14 at General Motors Corp., Ford Motor Co., and the Chrysler unit of DaimlerChrysler AG.

The talks, which officially open Wednesday, will be closely followed in northwest Ohio and adjoining areas of southeast Michigan, where tens of thousands of blue-collar and white collar jobs depend on the uninterrupted production of cars, trucks, and sport-utility vehicles.

The three companies directly employ 13,800 people at six plants in Toledo, Maumee, Perrysburg Township, Defiance, and Lima.

The area is home to thousands of Big Three retirees, who likely will be watching closely for any developments on health coverage.

Through a combination of corporate history and union politics, Daimler's Toledo Jeep assembly operation and its 4,400 hourly workers aren't covered under the UAW's national contract at the firm.

But the plant's UAW Local 12 is expected to adopt most wage and salary terms in separate negotiations now under way.

National negotiations will have ceremonial openings this week at the headquarters of each of the three manufacturers.

Talks open first at Chrysler, on Wednesday at its offices in Auburn Hills north of Detroit. The UAW president and Chrysler President Dieter Zetsche will shake hands over the bargaining table in a session that mostly is a photo opportunity.

Lead negotiators will be introduced. No proposals will be exchanged. However, subcommittees consisting of representatives of each side will soon get to work on assigned topics such as wages, health care benefits, work rules, and safety issues, said Dan Bodene, a DaimlerChrysler spokesman.

The scene will be repeated Thursday at GM and Friday at Ford.

Each automaker likely will make its case over the next several weeks for why it should be the UAW's lead or targeted company. The target, which the union typically doesn't announce until just before Labor Day, then becomes the focus of the talks, and settlement terms often then are applied as a pattern to the other two.

So each car maker generally prefers to be the target to try to tailor a contract to suit its needs, rather than being asked to accept terms negotiated by a rival. The risk is that if a settlement can't be reached by the deadline, a strike could occur.

The Daimler spokesman declined to speculate on the outcome of talks. “We need to see how things are going to shape up once we get a set of proposals to look at,” he said.

Despite improved relations between union and management, the bargaining is unlikely to be a cake walk, said UAW Regional Director Lloyd Mahaffey, who oversees representation of union members in Ohio. “It's likely to be a very difficult round of negotiations,” he said.

If the union decides that it can get the best terms from the car maker in the greatest financial health, then GM probably will be chosen this year, said Mr. Belzowski, of UM.

He quickly added, however: “GM is doing a little better than the others. No one is doing great unless your name is Honda and Toyota.”

The competitive challenge presented by the nonunion Japanese transplants, as in past years, is expected to offer a backdrop to negotiations.

A leading industry consultant, Harbour and Associates Inc., reported last month that GM made $701 on each vehicle sold in North America, compared with $1,581 by Honda and $1,214 by Toyota. DaimlerChrysler managed only $226 a vehicle and Ford lost $114 on each car, in part because incentives offered to lure buyers also hurt profits.

The Japanese transplants also were more productive. It took 21.83 hours for workers at Toyota to assemble a vehicle, compared with 24.44 at GM, 26.14 at Ford, and 28.04 at Chrysler, according to Harbour.

Meanwhile, U.S. firms continue to lose market share to European and Asian producers, according to financial analysts at Standard & Poor's. Comparing the first five months of 2003 to the same period in 2002, Chrysler fell to 13.5 percent from 13.9 percent and GM to 27.3 percent from 28.1 percent. Ford recorded a slight gain to 21.1 percent from 21 percent.

In a report late last month, Standard & Poor's noted that sales have been weak recently despite financing incentives and other heavy discounting. The one bright spot, the report said, is that U.S. car makers are selling more higher–priced vehicles with better profit margins.

S&P analysts said they weren't overly concerned about upcoming auto talks but warned that a long strike or a new contract with “particularly detrimental terms” could damage the firms' credit ratings and increase their costs of borrowing.

Each of the U.S. car makers faces different pressures:

  • Pension plans at GM, which has 2.5 retirees for every worker, were underfunded by $19.3 billion at the end of 2002, despite a $5.8 billion contribution to those plans and other retiree benefits plans last year.

  • Ford has excess manufacturing capacity and wants to close five U.S. factories and scale back 11 others. The moves would eliminate 12,000 jobs.

  • Chrysler, which produces more of its own components than the other car makers, has said it would like to sell some parts plants.

    The current contract prohibits plant sales and closures and imposes severe financial penalties on layoffs.

    There has been speculation in Detroit that the UAW would agree to relax these restrictions in exchange for help from the Big Three in unionizing supplier plants.

    Neil DeKoker, who represents 317 firms that make parts for the car makers, said suppliers have heard the talk and are not happy.

    “Anytime you have two parties at a table making agreements that affect a third party who is not at the table, it would be a serious concern,” said Mr. DeKoker, president of the Original Equipment Suppliers Association, of Troy, Mich.

    He conceded that less than 25 percent of the organization's members are unionized, but added: “Labor market strategy is that of the company and it is a critical part of the business strategy.”



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