The Great Debate

What GM’s contract victory means

By Paul Ingrassia
The views expressed are his own.

General Motors won.

That’s the bottom line from the new four-year contract with the company ratified by the United Auto Workers union yesterday.

GM retained the two-tier wage system that allows it to start new hires at $16 to $19 an hour, above the current starting wage but far below the $32 an hour for UAW veterans.  Premium-paid skilled-trades workers, such as electricians, can be offered buyouts and be replaced by standard production workers at new-hire wages.

And GM got clearance to offer pension-buyout plans to UAW retirees, providing “maximum optionality,” its chief financial officer declared.  That’s atrocious English, but it’s good business.

After 65% of GM’s U.S. workers voted for the new contract yesterday, GM declared that its break-even point in North America wouldn’t increase and that the profit impact of the new contract would be “minimal.” The union hung its hat on 6,000 factory jobs “added or saved” during the four-year agreement, and bonuses of at least $11,500 per worker.

If that sounds like a great trade-off for GM, which it is, the outcome is about as much as a surprise as Vladimir Putin returning as Russia’s president or euro zone leaders continuing to grapple with Greece. The negotiating odds were stacked in the company’s favor.  The UAW gave up the right to strike at GM and Chrysler until 2016, as a condition of the government bailout of both companies. And the union was chastened by Detroit’s near-death experience in 2009, finally realizing that “job security” measures such as paying workers indefinitely not to work actually destroyed job security.  Numbers don’t lie: the UAW’s GM ranks have shrunk by nearly 90% over the past 40 years. There are 48,500 GM workers covered by the new contract, compared to the 400,000 workers who waged a 67-day strike in 1970, forcing GM to grant them a 30% wage hike over three years.

The uncharted waters of government ownership

lou-lataif– Louis E. Lataif, a former president of Ford Motors of Europe, is dean of the Boston University School of Management. The views expressed are his own. —

Government ownership of General Motors (60% U.S. and 12% Canada) will be fraught with difficulties.

Given the large taxpayer stake in the company, it will be impossible for elected officials to stay out of the fray. Congress inevitably will interject itself in business decisions affecting employment, the kind of vehicles the company builds, or the company’s position on nationalizing health care – just as it is now asserting itself on the question of dealership closures.

from The Great Debate UK:

GM: Chapter 11 or bust

David Bailey- Professor David Bailey works at the Coventry University Business School and has written extensively on globalisation, economic restructuring and industrial policy, with particular reference to the auto industry. The opinions expressed are his own. -

GM declared itself bankrupt on Monday in one of the largest bankruptcies in U.S. history, in an attempt to seek protection from creditors.

The firm has stacked up over $80 billion of losses in the last four years, also swallowing some $20 billion in cash from the Obama administration. It is likely to need another $30 billion before emerging from Chapter 11 substantially slimmed down and free of debts.

Fiat’s over-ambitious expansion strategy

– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

Could Italy’s cash-strapped Fiat, Europe’s sixth auto maker, build a workable alliance with Chrysler and Opel to become be a profitable global player? Or would it be a marriage of losers, doomed to fail?

Fiat CEO Sergio Marchionne has made clear that his interest in Opel, the European arm of ailing General Motors, is more than just a well-timed tactic to get better terms in the alliance he is negotiating with troubled U.S. number three Chrysler. Chrysler faces likely bankruptcy if a deal is not clinched by April 30.

Revival of U.S. automaking awaits if UAW will follow Toyota

morici– Peter Morici is a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission. The views expressed are his own. –

General Motors and Chrysler are on the anvil of history. United Auto Workers President Ron Gettelfinger holds the hammer and will determine whether they emerge more competitive or shattered in pieces and sold to foreign investors.

In December, George W. Bush granted $17.4 billion in temporary loans on the condition those firms convert two-thirds of their debt into equity. Another condition was to persuade the UAW to accept stock for one half of what these companies owe to fund retiree health care and align wages, benefits and work rules with those of the Japanese automakers operating in the United States.

Bush’s auto plan will test Obama’s union loyalties

morici– Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.  The opinions expressed are his own. —

President Bush has agreed to lend GM and Chrysler $17.4 billion on the condition these firms complete a plan to accomplish financial viability.

The agreements set goals for automakers: converting two-thirds of their debt into equity; paying company stock to fund one half of the Voluntary Employee Benefits Associations, which fund retiree health care benefits and remove these costs from future liabilities; aligning wages, benefits and work rules with U.S. Nissan, Toyota or Honda operations.

Bail out the car buyers

diana-furchtgott-roth1– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed are her own. —

As disastrous auto sales figures for November were reported this week, the Big Three auto companies–GM, Ford, and Chrysler–told Congress that they want government loans to keep from going bankrupt.

The pleas of General Motors and Chrysler were the most urgent.  Ford allowed that its cash position was better and that it might get through 2009 without tapping the federal line of credit it seeks.

Don’t let U.S. automakers delay restructuring

morici– Peter Morici, a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission, testified before the Senate Banking Committee on the proposed bailout for the domestic auto industry. The following is his written testimony to the committee. The opinions expressed are his own. —

The domestic automobile industry has two major components—the Detroit Three and the Japanese, Asian and European transplants that also assemble and source components in the United States and Canada. Both contribute importantly to the vitality of our national economy. Ensuring these companies have the means to compete globally is vitally important.

The gradual erosion of the market shares of the Detroit Three over the last several decades stems from higher labor costs—having origins in wages, benefits and work rules–poor management decisions, and less than fully supportive government policies. Although the U.S. government has been sympathetic to the needs of the industry, the industry has fallen victim to currency manipulation and other forms of protectionism in Japan, Korea, India, and China.