Once the symbol of American industrial prowess, General Motors this week won a big concession from union leaders that signals the old ways of doing business are over and it may be ready to compete on quality and innovation in a global economy.
The United Auto Workers, too, by reopening its contract and tentatively agreeing to billions in healthcare cuts for GM retirees, finally recognized the end of an era in which it could continually squeeze the Big Three automakers. Together, the world's largest automaker and the UAW leadership saw the cliff ahead for the American auto industry and decided to change direction.
Last week's filing for bankruptcy of the country's largest auto parts supplier, Delphi Corp., probably helped to focus the minds of UAW negotiators and seal the deal. Delphi, GM's former parts unit, is asking the union to reduce wages and benefits from $65 an hour to nearly $25 an hour - a clear recognition of a need to compete with the low-wage manufacturers in other countries.
Lower wages and benefits, of course, aren't the panacea for GM nor Ford, just as the recent temporary price discounts haven't been. Toyota and GM's other foreign rivals that have opened up manufacturing plants in the US are winning market share on the factory floor with better efficiency and engineering, and a corporate culture that innovates bolt by bolt, cubicle by cubicle.
They aren't burdened with the "legacy" costs, or unaffordable promises, of lucrative union deals from the 1960s and '70s that US automakers are taking too long to shed. GM has fewer than 200,000 workers whose output must pay for more than one million retirees and their dependents, and this week's tentative agreement that will reduce GM costs by about $15 billion goes a long way to solve that problem. (Traditional airlines, too, have only recently tried to trim their old union deals, using bankruptcy court to do it.)
GM did promise to ease the financial hit on its retirees and their families by helping them save money for rapidly rising healthcare premiums. But GM also needs to show that the company has truly turned a corner and can design cars with prices and longevity that will eventually make it profitable. The fact that its share prices rose right after the announcement indicates some analysts have confidence that GM might finally be moving quickly toward other big reforms.
Is American industry simply in a race to the bottom, slashing wages to Chinese levels? Not entirely. A retraining of workers and cutting-edge research can keep US industry competitive. GM is years behind that transformation curve, and this week's pact should be welcomed as as a first good step. It may yet need a massive layoff of workers, but the real test of a turnaround will be in cars that more people want to buy, and at lower prices, higher quality, and better fuel efficiency.
The UAW, too, in its coming talks with Ford and Chrysler (now a division of DaimlerChrysler) should be ready to offer similar concessions on healthcare costs.
The marketplace has finally spoken to both the union and GM. As difficult as the transition may be, the changes are necessary and, if done well, all to the better.