UAW strikes at GM over lack of job guarantees

Behind Monday's decision to go on strike against General Motors, one issue loomed large for the United Auto Workers: job security.

That's the case even though another question – the large and uncertain cost of retiree healthcare – has been at the core of automotive labor negotiations for several months.

Both sides were willing to discuss an innovative way to put a cap on carmakers' retiree medical obligations.

But workers want some significant job guarantees in return. Now those workers, representing one of the nation's most powerful labor unions, have walked off the job and set up picket lines – the UAW's first national strike during contract talks since 1976.

It's easy to see why protecting employment is of such concern for the UAW. The production workforce at General Motors has fallen roughly in half since 1999, cutting the union's active membership there to just 73,000.

That same trend reveals why the company doesn't want to budge very far. It's been cutting jobs for years and is still losing money. So who's to say that more job cuts won't be needed in the future?

"The union leadership fully understands the seriousness of the situation," says John Wolkonowicz, an auto analyst at the consulting firm Global Insight in Lexington, Mass. "They're out to preserve jobs and preserve salaries for their members. They'll do whatever they can to achieve that."

The union knows that the fate of its members is linked inevitably to the health of GM and the other domestic automakers, Ford and Chrysler. Union leaders know that some significant concessions, such as on retiree healthcare, are necessary to help these companies prosper.

But they – and especially the union workers they serve – worry that concessions alone aren't enough. At a time of relentless global competition, they also want some assurances that GM and the others will invest in US plants and maintain US jobs.

"Obviously we're very concerned about this company," UAW President Ron Gettelfinger said Monday in announcing the nationwide strike against GM.

"But look," he added, "there comes a point in time where you've got to draw a line in the sand."

He said that as the talks wound down toward the Monday deadline, GM showed little flexibility when discussing job security or "economic" issues such as wages and bonuses.

What has been achieved, according to news reports, is progress toward the creation of a new healthcare arrangement for retirees.

Under the plan, GM would offload responsibility of retiree health benefits to a union-administered trust. GM would pay a large amount into the fund, but would not be liable if it runs dry trying to pay for care.

The issue is of vital importance to GM. And a deal there, at the largest US automaker, could set a pattern for Ford and Chrysler, which are also negotiating their first new contracts with the UAW since 2003.

The healthcare fund – known as a voluntary employee beneficiary association, or VEBA – would take on some $51 billion in unfunded retiree healthcare costs.

The two sides have been bargaining over how much GM should put into the fund and what portion of the money can be paid in stock rather than in cash.

Mr. Gettelfinger said the deal on a VEBA was not final, but he emphasized that the strike did not arise from that issue.

"The No. 1 issue here is job security," he said.

The issue resonates beyond the auto industry.

Manufacturing employment in the US has been declining for years, due to growing efficiency at factories and competition from foreign competitors.

Often the job shrinkage is happening by attrition, buyouts, and early retirement, not layoffs. But it has taken a toll from North Carolina textile towns to Pittsburgh steel mills.

The Big Three automakers now have more than twice as many union retirees as active union workers.

The union is hoping for company pledges to invest in GM's remaining US plants over the next few years and to maintain vehicle production at those plants.

One litmus test is GM's assembly plant in Lordstown, Ohio, which builds the Chevrolet Cobalt. Workers there fear that GM could close the plant after the 2009 model year and shift small-car assembly to Mexico.

But the companies want contracts that make economic sense in their current struggle against lower-cost Asian manufacturers with plants both abroad and in North America.

The healthcare deal "might make up half the difference" in per-car cost against key rivals, says Mr. Wolkonowicz.

Much depends on what the union pushes for with its strike.

If the UAW prods companies to offset healthcare containment with new pay incentives for workers, it could backfire on the union in terms of job security, Wolkonowicz says.

"That could cause [companies] to shift their investments more in directions where they can make money on it," such as Europe or Asia, he says.

The automakers might pledge to make certain efforts to retain North American jobs, says Joseph D'Cruz, an automotive expert at the University of Toronto. But the strike suggests that companies may have a difficult time meeting union hopes.

"I think they will want to maintain more flexibility" on employment than the union expects, Mr. D'Cruz says.

In the end, though, a long strike is not in either side's interest. And the current downturn in automaker profitability puts the union in a relatively weak bargaining position.

But a strike will allow the union to test fully how much it can win at the table.

That, in turn, may be vital in winning support when any contract goes to a vote with anxious union members.

"The membership realizes that business as usual is not an option," D'Cruz says.