Wednesday, April 13, 2005

UAW tested by giveback demands

Gettelfinger must find way that protects jobs as Big Three push for health benefit cuts.

By Eric Mayne / The Detroit News

Ron Gettelfinger, UAW President On the table • GM wants relief from health care expenses, which are expected to increase $300 million to $5.6 billion in 2005. • Executives want an equitable, across-the-board, competitive health care plan for salaried and hourly workers. • GM's 38,000 U.S. salaried employees paid 27 percent of their total health care bill last year, while GM's hourly workers paid 7 percent of their health care expenses. The average worker at a large company paid 32 percent of their health care costs last year. • Under the UAW pact, GM hourly employees enrolled in a traditional health care plan have annual out-of-pocket costs capped at $250 for individuals and $500 for families; office visits are not covered. Enrollees in PPOs are subject to 50 percent co-insurance payment for office visits. • UAW workers at GM have co-payments for brand drugs of $10; $5 for generic drug co-payments. Sources: UAW, GM, Center for Automotive Research Yield on health benefits? Should United Auto Workers President Ron Gettelfinger give in to GM's demands for cuts in UAW workers' health care benefits? Yes, without concessions more jobs will be in jeopardy No, don't surrender hard-won benefits Get results and comments Error processing SSI file Comment on this story Send this story to a friend Get Home Delivery

United Auto Workers President Ron Gettelfinger faces the biggest test of his career over one of the toughest issues ever to hit the American auto industry -- runaway health care costs.

At a critical summit Thursday in Dearborn, top executives from struggling General Motors Corp. are expected to push Gettelfinger for cuts in UAW workers' top-flight health care benefits.

If the former chassis line repairman from Kentucky agrees to cost sharing, he could be accused by hard-liners of surrendering benefits won over decades of bargaining between the union and Detroit's automakers.

If he stands firm, he may win points from the rank and file but push GM deeper into financial trouble, which would jeopardize thousands of UAW jobs.

"There's a lot of sleepless nights connected with it -- Ron's got tremendous pressure," said Owen Bieber, UAW president from 1983 to 1995. "People, in general, resist change. Any time you have to change something, that's asking people to accept the unknown to some degree."

GM faces a 2005 health care tab of $5.6 billion -- up from $5.2 billion in 2004 -- and is bracing for a first-quarter loss of $850 million.

Company executives recently said health care for UAW workers needs to be more in line with its coverage for salaried employees.

Last year, GM's 119,000 hourly workers paid 7 percent of their health care costs while the automaker's 38,000 U.S. salaried employees covered 27 percent of their health care costs. During the latest round of contract talks with Detroit automakers in 2003, the union's top bargaining priority was to resist efforts to shift health care costs onto workers.

While it would be rare for the union to reopen the GM contract before it expires in 2007, industry experts say Gettelfinger is likely to strike a compromise with GM.

Gettelfinger is a creative and practical negotiator who has found ways in the past to appease automakers without rankling his membership.

Following weeks of negotiations, he recently approved an agreement to allow Chrysler to begin charging UAW members modest deductibles and some new co-payments. The deal could save Chrysler tens of millions of dollars.

The UAW is already giving GM a break on hiring workers. The union's contract requires GM to hire one worker for every two who retire. But the UAW has allowed GM to cut its hourly work force by more than 6,000 since 2003 without hiring replacements.

As Gettelfinger weighs the health care question, he faces critical issues on a number of other fronts.

Delphi Corp. -- the world's largest supplier and a former GM subsidiary -- wants more relief on labor costs from the UAW, even though the union agreed last year to allow the company to establish permanently lower wages for hires.

Visteon Corp., a former Ford subsidiary, negotiated the same two-tier wage scale that allows it to hire new employees at starting wages of $14 an hour.

The moves were designed to make the two suppliers more competitive and preserve U.S. factory jobs.

But Gettelfinger faced severe criticism from some UAW members who said the two-tier wage agreement is an affront to the union's tradition of equal pay for equal work.

And critics pointed out that despite the UAW's historic concession on wages, Delphi and Visteon remain saddled with problems.

"The notion that we can become more competitive by cutting wages is questionable," said Harley Shaiken, a professor at the University of California at Berkeley who has studied organized labor. "What's certain is that the flip side of lower wages is lower purchasing power."

Henry Ford's milestone decision in 1914 to pay his workers $5 a day was a monumental move.

"Henry Ford didn't say, 'Why don't we cut wages in half and we'll sell more Model T's?' " Shaiken said. "He doubled wages. And every newspaper in the country and all his competitors, just about, said it was going to be ruinous. The next year, Ford Motor Co.'s profits went up."

For GM and Ford, the urgency to rein in costs is growing. Major Wall Street rating agencies are on the verge of lowering the automakers' creditworthiness to below investment grade. New car and truck pricing remains weak industrywide and is depressing revenue growth. And both automakers want to avoid painful cuts in product development and are therefore targeting other expenses.

"It's absolutely necessary," said David Cole, chairman of the Ann Arbor-based Center for Automotive Research. "They're faced with continued erosion of market share and the lack of reasonable profitability -- not just for manufacturers, but for suppliers."

Chrysler, Ford and GM controlled 70 percent of the market in 1999. Last year, they owned just 60 percent.

GM says its 2005 profits could fall as much as 80 percent as lower sales and rising health care costs batter its bottom line. Ford has also been forced to cut its earnings guidance because of slumping SUV sales and higher commodity and health care expenses.

The Big Three's course is "not sustainable in terms of the cost differential between the international companies and the domestics," Cole said.

Asian and European automakers are guarded about their U.S. employee health care costs, but the Automotive Trade Policy Council estimates they spent about $1.6 billion in 2003. Chrysler, Ford and GM -- whose payrolls that year totaled 395,000 hourly workers, more than six times that of their competitors -- paid out $10 billion.

GM's U.S. health care tab now represents $1,600 of the total cost to build a typical car or truck -- a burden Toyota Motor Corp., Honda Motor Co. and Hyundai Motor Co. don't face.

"The union leadership is well-aware of this situation," Cole said, pointing to a deal the UAW negotiated recently with heavy equipment manufacturer Caterpillar Inc. that subjects workers and retirees to health care co-payments.

GM and the UAW could also agree to link co-payments to company profits. Higher profits would mean lower co-payments, Cole said.

Gettelfinger declined an interview request, but he has signaled a willingness to come to the table on health care.

"We clearly recognize that rising health care costs are a serious problem for working families and many of their employers," Gettelfinger said in a recent statement. "However, we believe it is increasingly clear that America's health care cost crisis cannot be resolved at the collective bargaining table. The only way to bring health care costs under control -- and provide affordable, quality health care for every American -- is through comprehensive national health care reform."

Gettelfinger's supporters say he has little choice but to be more flexible than in the past.

"You could always say that he could be harder," said Rocky Comito, president of UAW Local 862 in Louisville. "But it's a changing world. It is a business for both sides."

The intense pressure to control labor costs was underscored again last week when Bo Andersson, GM's purchasing chief, urged the automaker's suppliers to consider setting up shop in China, where workers make pennies per hour.

No matter what happens in the near-term between GM and the UAW, workers are girding for the most contentious round of bargaining in years when they return to the table to hatch out new master agreements in 2007.

"Most of the members feel like the next contract is going to be a doozy," said Paul Haver, president of UAW Local 845, which represents Visteon workers in Sterling Heights. "They're numb. It's almost like they're waiting for the roof to cave in."

With GM, Ford and Chrysler ceding ground to rivals, Shaiken said the UAW's basic tenets are in jeopardy. Since the 1950s, the union's Big Three contracts have featured three pillars: seniority recognition, annual wage hikes or lump-sum payments and compensation for cost-of-living increases.

"Whether the core principles will be in place in a decade, that's a pretty key question for everybody," he said.

Buzz Hargrove, president of the Canadian Auto Workers, an independent offshoot of the UAW, said it's a fallacy to suggest that union compensation is at the heart of GM's and other automaker's problems.

"(Unions) can't deal with currency problems," Hargrove said. "We have no control over the price of oil and gas that's driving people from SUVs and half-ton trucks back into smaller vehicles where the companies, especially the American companies, make very little, if any, money."

For the union, the idea of granting concessions to Detroit automakers carries risks. It has struggled and failed for years to recruit thousands of workers at U.S. plants operated by Asian and European automakers. If it backs down with GM, the union's promise of richer benefits would be damaged.

"Gettelfinger has got a long track record," Shaiken said. "He can be militant, and he can be pragmatic. But he's not someone that you're going to fool."

You can reach Eric Mayne at (313) 222-2443 or emayne@detnews.com.