Huh? Wha?

Posted on September 24th, 2007 by Tim Eavenson | 7 Comments »
Filed under: Uncategorized |

Seriously, you turn your back for two months…

We know we promised you a full report on the UAW negotiations on the 24th…of July. In our defense, CE had to work out a few administrative details (see here) that took a little longer than expected. All of the sudden it was the 62nd day of the UAW negotiations, and we were sitting around talking about the Second Amendment or some other arcane, unused law like nothing was going on. Honestly, it’s not like they’re actually negotiating at the moment, so maybe we just saw this coming and didn’t want to waste space on the boring parts. All the same, we’re a little embarrassed.

Not as embarrassed as, say, Rick Wagoner‘s gonna be if this strike thing keeps up. Honestly, did anybody realize the UAW still knew how to strike? Of course, each side is blaming the other for the stoppage, but that’s not the interesting part of this story.

According to the New York Times, GM is in a much better position to handle a strike now than it has been in the past, but that’s really bad news for the company. Confused? We were. For the Times’ analysis, and some more stellar CE commentary, keep reading.

First, how great is Rick Wagoner’s name? That guy was born to run a car company.

Anyway, according to production guru James P. Womack, this strike is some kind of watershed moment, marking a change for better or worse in Detroit. He says that though GM has backed away from “defining moments” in the past, someone this time finally said enough’s enough. Ok, first: backing away from “defining moments” just shows that GM is still the leader of the American Auto Industry. Plus, as the Times article points out, the car company hasn’t done anything yet, and it has a, um, “spotty” track record of standing up to strikes. From the article:

In the past, its response, by and large, was to cave in to U.A.W. demands. That happened during the last big walkout, at two parts plants in Flint, Mich., in 1998. That seven-week standoff occurred when Rick Wagoner, the current chief executive of G.M., was president of its North American operations.

(What does this guy have a 10-year itch or something?)

G.M. never recovered the 31 percent market share it held before the strike, and was forced to offer rebate deals to get customers back into showrooms.

“G.M. has made deal after deal that didn’t deal with fundamental problems,” Mr. Womack said. “This time they have to hold the line on a contract.”

“Hold the line”? Yeah, we may not hold our breath. G.M. has about 2 months of reserves to hit the market – not exactly going to get the dealership guys their Christmas hams. Oh, also: the Times article fails to mention that Womack is the chairman (and founder, apparently) of the Lean Institute, which advocates Toyota Production System application to American industries. While there’s nothing wrong with that, we’re thinking he may have a little bias in defining those “defining moments”.

Regardless, it’s the other issue here that has the CE staff buzzing like a Halo 3 Mountain Dew Big Gulp: The link between GM’s financial difficulties and its negotiating ability. Again, from the Times piece:

G.M. is better positioned to handle a strike now than in earlier contract talks, though not for reasons that have to do with strength. With its operations shrinking in the United States, the majority of its sales and profits are now coming from abroad.

It is selling more vehicles built in Canada, Mexico, and Europe, the source of new models for its Saturn division. And it is rapidly expanding production overseas, especially in China, which is fast becoming one of the world’s major car markets.

The company’s problems at home, which resulted in losses of more than $12 billion in the last two years, have forced it to close all or parts of a dozen factories, cut tens of thousands of jobs and offer deals to workers to quit or retire. A smaller G.M. means there are far fewer workers involved in this strike, so a halt in production inflicts less pain on the company.

The U.A.W. membership at G.M. has shrunk by more than 80 percent since the 1970 strike, when 400,000 workers were off the job for 67 days.

So, GM falls flat on its face financially, which ends up benefitting its bargaining ability and the bouyancy of its bottom line.* When you view this in the light of GM’s major goal in this negotiation, the VEBA it hopes will rescue it from the pensions** of the UAW workers, a cycle emerges that is worth some discussion. Since we make it a point not to take sides, the rest of this topic belongs to you – in the comments.

Talks Continue in G.M. Strike
*Intentional alliteration

One last thing – This VEBA has not gotten much attention (alas, ERISA issues never do), so we’re promising you a whole post on G.M.’s VEBA proposal and its potential effect on the situation in Detroit…once we track down our Benefits guy. They’re so antisocial in the ERISA department…

**UPDATE: Did we say “pensions”? We meant “health and welfare benefits”. Thanks to the tipsters for pointing out our mistake – and we reserve the analysis of the value of our education for another discussion.

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