Hard bargaining ahead in Detroit
As talks begin over autoworkers' contracts, the industry's generous benefits are under scrutiny.
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Meanwhile, retiree health costs are soaring. American medical costs keep rising, life spans are lengthening, and – for the auto industry – current workers are eligible to retire young. A "30 and out" policy allows retirement for anyone who has served 30 years. Asian rivals – with nationalized healthcare at home and few retirees in America – don't have to assume these costs.Skip to next paragraph
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In this summer's negotiations, the companies and the union are considering a way to lessen this load without abandoning legions of retirees. The idea is for the Big Three to provide a one–time infusion of cash into a trust fund, which thereafter would pay for retiree healthcare. The companies win a cap on these costs, while the union gains assurance that these benefits won't disappear if one of the Big Three goes bankrupt.
"It would be a major accomplishment," says Greg Gardner of Harbour Consulting near Detroit, which tracks auto productivity at auto plants.
Some analysts say such a deal merely patches over the fact that healthcare has become unaffordable for many businesses and individuals alike. UAW president Ron Gettelfinger, for one, has called for the government to become the nation's health insurer.
However the problem is solved, the talks in Detroit amplify one point, Mr. Womack says. "No company can pay what it can't pay," even if it made a promise in years past.
Behind all the focus on healthcare costs is a threat that is only partially veiled. If Detroit's carmakers can't close a labor–cost gap with Asian rivals such as Toyota and Nissan, production will increasingly shift overseas. An hour of union labor costs GM about $73, says Mr. Flores. It will cost Asian competitors about $30 less at their US plants, industry experts say. For the union, and for US workers in general, pay cuts aren't an appealing answer to the threat of job offshoring.
The ideal answer, economists say, is continuous productivity gains that justify the retention of high–wage jobs in the US.
Both sides are focused on this goal as they press for new contracts by Sept. 14. The companies are expected to seek changes to union work rules. The union, for its part, says it has a strong record of boosting productivity. And members knows that their jobs are only as secure as the companies that employ them.
"Members of our union have no interest in entering a competition based on who can work for the lowest possible pay," Mr. Gettelfinger said in a recent statement. "Instead, we intend to pursue a high–road strategy centered on creating high–quality, high–performance workplaces."
The UAW says that all the labor costs together make up only 10 percent of the cost of a new vehicle. So the domestic–based carmakers' competitiveness challenge won't be fixed just by closing the cost gap. Still, workers may have to give up something. Analysts say that in this case, narrowing the gulf of labor costs is vital.
"That's sort of a minimum," says David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "You'll hear a lot of tough talk" by the union, he says, that's really aimed at preparing its own members for a cost–cutting deal.