Hard bargaining ahead in Detroit
As talks begin over autoworkers' contracts, the industry's generous benefits are under scrutiny.
from the July 23, 2007 edition
Page 2 of 3
This year's talks, the industry's first since 2003, began with handshakes between the union and Chrysler on Friday. Similar launch ceremonies are scheduled for Monday at GM and Ford Motor Co.
The bargaining comes at what some analysts call the most difficult juncture in the industry since the rise of the UAW in the 1930s. And that's without any recession.
Ford is probably in the toughest shape, with sales down 11.5 percent in the year's first half, compared with the first half of 2006. It has borrowed heavily to fund a make–or–break restructuring.
Chrysler will soon have its own shake-up accelerated, as the private buyout firm Cerberus completes its purchase of the company from Germany's DaimlerChrysler.
GM has made headway in its turnaround efforts, but still has plenty of hurdles ahead.
"We're faced with a very difficult reality," says GM spokesman Dan Flores. "For every active employee we have more than three retirees."
In fact, each of the companies has more retirees than workers. The number of workers is shrinking partly because of productivity (factories are doing more with fewer people) and partly because of heightened global competition.
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.
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.
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