GM settlement means “no more excuses”

Automaker closes cost gap, but is challenged to take advantage of the new opportunity

By Plant Engineering Staff September 27, 2007

By Bob VavraEditorPlant Engineering

The end of the GM strike could be just the beginning for the automaker and its union, and create a blueprint for other U.S.-based automakers. Or, historians will look on this strike as the beginning of the end of the importance of the American automobile in a global marketplace.

Most experts agree on one thing — General Motors is out of excuses for being able to produce a financially competitive car in the global market. The legacy health care and retirement costs were negotiated into the hands of the United Auto Workers part of the deal narrows the cost gap between GM and Toyota by about $1,000 per vehicle, dramatically closing the gap with Toyota. The Center for Automotive Research in Ann Arbor, MI, estimates that shifting GM’s $50 billion retiree health-care liability to the UAW and other savings in the contract will reduce GM’s per-vehicle cost for labor and benefits to about $2,300, just $400 more than Toyota’s.

“This means GM doesn’t have a lot of excuses any more,” said Rebecca Lindland to London’s Guardian news service. “They can’t point to spiralling healthcare costs or a disparity in retirement benefits. They have to perform.”

That view was shared by the Detroit Free Press, the hometown paper of America’s auto industry. “As second chances go, they don’t get much better than the agreement reached Wednesday by GM and the United Auto Workers,” an editorial in Thursday’s editions said. “The key, going forward, is for GM to use its new financial flexibility wisely. Invest it in girding for the future, rather than bailing out the mistakes of the past. And the United Auto Workers, now responsible for providing health care to some 320,000 retirees, has got to manage the risks of that burden carefully.”

For the rank and file, however, the talks after the strike were not about the legacy costs of retirement, but about the short-term impact the salary and job concessions would have on their careers. CNN quoted Lansing, MI union president Chris “Tiny” Sherwood as saying his members weren’t as concerned about the pension issue as other provisions of the new contract.

“They’re worried about the fact that they’ve eliminated the cost of living increases,” said Sherwood, who said that members have heard rumors about what’s in the deal. “They are worried about how the raises are in lump sums instead of increasing base pay. I understand why it was done that way though. There’s talk about a two-tier wage system for some new hires. But nine out of 10 haven’t mentioned the (pension costs).”

Wall Street did notice on Wednesday. GM gained $3.22, or 9.4%, following the settlement.