General Motors is on a financial footing solid enough to satisfy UAW demands in its tentative contract with the union, industry experts believe.
Details of the agreement announced late Sunday are being withheld pending a meeting in Detroit of the UAW’s GM Council, which is made up of local union presidents representing the automaker’s 52,700 hourly workers in the U.S.
“We believe that this agreement will present stable long-term significant wage gains and job-security commitments to UAW members now and in the future,” union President Dennis Williams says in announcing the tentative 4-year deal.
Union officials said months before the talks began that GM no longer could plead poverty, and their claims were borne out when the automaker last week reported third-quarter earnings of $1.4 billion.
Art Wheaton of the Industrial Labor Relations School at Cornell University says in an e-mail that the tentative contract likely reflects GM’s greater profitability than that of FCA US, whose UAW members ratified a new 4-year agreement last week.
“I think (GM) can afford the same or better improvements (than in the UAW-FCA contract) but GM has other priorities that need attention,” Wheaton says. “The (fund) for retiree health-insurance benefits needs cash. The pension funds are underfunded. I think GM and the UAW would be wise to stabilize long-term commitments.”
The tentative GM deal likely offers UAW members a bigger ratification bonus, Wheaton says, but adds: “The record profits may not last so they should save some profits for a rainy day. They could also opt to invest in more jobs and production instead of big pay increases.”
Williams has made it plain the UAW is looking for more investment by both GM and Ford in their U.S. factories, a demand met by FCA in the new contract ratified by union members last week after an initial agreement was rejected.
GM responded to the UAW demands by announcing a series of investments in plants around the country, capped off last week by saying it would add 1,200 new jobs for a second shift at its Detroit-Hamtramck, MI, assembly plant in first-quarter 2016.
Harley Shaiken, a labor expert at the University of California-Berkeley, says the high cost of health care remains a substantial issue for the automakers. But with the status quo basically unchanged in the FCA contract, neither GM nor Ford bargainers are likely to address the issue directly.
Sean McAlinden, vice president of the Center for Automotive Research in Ann Arbor, MI, indicates both GM and Ford appear reconciled to the likelihood their labor costs will remain higher than their competitors for the foreseeable future. Even with the average hourly labor cost at FCA rising at the end of the new contract to roughly $54 per hour from $47 per hour per hour last year, that is still lower than current rate at GM and Ford and is about the same as at Toyota’s and Honda’s U.S. plants, he notes.
The annual cost of the UAW contract probably will account for less than 5% of FCA’s operating revenue, Shaiken says. New contracts are unlikely to impose any larger burden on GM and Ford, he adds, noting Detroit’s automakers generally accept that a well-compensated workforce increases productivity and improves product quality.
GM CEO Mary Barra, whose father was a UAW member, elected last winter to pay union workers the full $9,000 in profit sharing they were owed from the company’s pretax earnings rather than reduce the size of the checks because of writeoffs related to the defective ignition-switch controversy. Under the existing contract, GM would have been within its rights to reduce the profit-sharing checks by up to 15%.
Forecasts of steady sales also ease the burden on negotiators. A WardsAuto forecast calls for October U.S. light-vehicle deliveries to reach a 17.5 million-unit seasonally adjusted annual rate, only the eighth time the 17 million-sales mark has been exceeded.
