Thursday, August 25, 2005

GM, UAW work toward compromise

Automaker needs to trim billions of dollars in labor costs and overhead to battle foreign rivals.

By Brett Clanton / The Detroit News

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CHICAGO -- General Motors Corp. and the United Auto Workers -- two ailing partners dependent on each other for survival -- appear to be inching toward a cost-cutting compromise that could help preserve the future of both organizations.

But taking the last painful steps toward a deal won't be easy.

GM needs to slash billions of dollars in labor costs and other overhead to become more competitive with foreign rivals and to convince Wall Street that its future is secure.

The UAW is looking for a way to help GM get back on track without selling out the workers who built the company into a global powerhouse.

Those competing goals have loomed over the UAW's leadership meetings in Chicago this week.

On Wednesday, UAW Vice President Richard Shoemaker led a three-hour meeting with union officials from GM and Delphi Corp., the automaker's struggling former parts unit.

Shoemaker said the union is considering measures to help GM, but reiterated it would not agree to reopen its labor contract with the automaker before it expires in 2007, said union officials who attended the meeting.

Still, his comments were among the strongest signs yet that the two sides are moving toward a mid-term deal.

Shoemaker outlined GM's myriad problems but didn't say how far the union should go to help.

"He's come to the consensus that we have to do something. He's just in a quandary about what that something is," said Chris Sherwood, president of UAW Local 652, which represents workers at a GM plant in Lansing that builds the Cadillac CTS, SRX and STS.

GM has lost $2.5 billion on its North American auto business this year because of slumping demand for full-size SUVs, weak pricing and high fixed costs. It has asked the union to shoulder higher out-of-pocket health care costs as part of a plan to restore profitability in North America, its largest business unit.

GM's UAW-represented workers pay for 7 percent of their health care, on average, while the automaker's salaried workers pay closer to 27 percent.

Delphi has threatened to file for Chapter 11 bankruptcy by October 17 if the union does not provide relief from wage, health care and other benefits that currently average $130,000 a year.

The UAW has been skeptical about GM's woes and has hired outside auditors to make their own assessments of the automaker's financial outlook.

Yet Shoemaker, in discussions with union leaders this week, has painted a bleak picture of GM's financial outlook over the next two years, signaling to some that he is advocating a deal now rather than later.

While many union officials say they are prepared to accept higher health care costs for active members, they have drawn a line in the sand at increases to retiree health care benefit costs.

Of the nearly $6 billion GM pays in health care costs each year, about $4 million goes to provide health care benefits to the automaker's 365,000 retired union workers.

GM estimates its future retiree health care liabilities currently total $77 billion, and the company wants to reduce the figure by $20 billion, according to a UAW memo dated June 9 that was obtained by The Detroit News.

The UAW has proposed ways to save up to $12.7 billion by changing the level of co-payments and deductibles and other cuts, the memo said. But the UAW doesn't believe GM has the legal power to act unilaterally to amend health care benefits for retired union workers.

U.S. automakers and auto parts suppliers say rising health care and pension obligations for union workers are saddling them with additional costs that foreign automakers don't have.

"From our vantage point, the UAW is well aware of the troubles facing the Big Three and related suppliers and understands that the health care burden places them at an immediate disadvantage relative to the competition," Rob Hinchliffe, an auto analyst with UBS Investment Research, said in a report issued Tuesday. "However, the UAW also appears to believe, rightly in our view, that the challenges facing GM, for instance, are much deeper than can be fixed by a reduction in health care benefits."

Hinchliffe said the UAW is more likely to allow "aggressive plant closures and buyouts" - which could reduce GM's workforce by 7,500 over time -- than accept cuts to retiree benefits.

The UAW meetings this week have focused more on GM than Delphi, though Shoemaker on Tuesday addressed a group of union leaders at the troubled supplier.

While some union officials left the meeting believing that Delphi's threat of bankruptcy this month was a bluff designed to strong-arm the union into accepting concessions, Brian Johnson, an auto analyst with Sanford C. Bernstein & Co. in New York, takes the warning seriously.

"What's very clear is that either Delphi gets the concessions they want, or they file."

Several Wall Street investment firms have upgraded Delphi's outlook on the assumption that GM will bail out Delphi to prevent a bankruptcy filing and the possible interruption of auto parts to GM.

"Despite many unknowns about how a three-way deal between Delphi, GM and the UAW will be structured, we are increasingly confident that the Delphi restructuring will happen out of court," Lehman Bros. analyst Darren Kimball said in a research note last week. The firm said there is a 10 percent chance that Delphi will file for bankruptcy.

You can reach Brett Clanton at (313) 222-2612 or bclanton@detnews.com