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Auto Workers’ 54-Year Safety-Net Pay May Be Scrapped in Talks

Auto Workers’ 54-Year Safety-Net Pay May Be Scrapped in Talks


By Jeff Green and Keith Naughton

Feb. 13 (Bloomberg) — General Motors Corp. and Chrysler LLC, trying to keep $17.4 billion in U.S. aid, are asking the United Auto Workers union to end a 54-year-old benefit that ensures almost full pay during layoffs.

The so-called “supplemental unemployment benefit,” or “SUB” pay, gives laid-off workers most of their take-home wages. Automakers and the UAW are discussing the future of the program, said people familiar with the talks, who asked not to be named because the negotiations are private. The UAW isn’t negotiating cuts in core wages or benefits, the people said.

Lacking the cushion, older union members may retire and make way for new hires who are paid half as much, people familiar with the bargaining strategy said. Members of Congress who opposed an auto bailout criticized the benefits, and the U.S. Treasury loans require the automakers to stop all but “customary severance pay” to laid-off employees.

“This would really be unwinding five decades of gains and that would be very, very tough for the union,” said Harley Shaiken, labor-relations professor at University of California in Berkeley. “It was part of Walter Reuther’s dream to have the person on the line treated the same as the white-collar worker,” he said, referring to the longtime UAW president.

GM and Chrysler are offering buyouts for most of their 91,000 UAW workers. GM spokeswoman Tony Sapienza had no comment on his company’s labor strategy. UAW spokeswoman Christine Moroski declined to comment on the negotiations.

GM and Chrysler must show progress on labor and creditor savings by Feb. 17 as part of the requirements to keep the loans.

Long-Standing Benefits

The two automakers in the last two weeks eliminated the so- called jobs bank, a 25-year-old program that paid UAW employees their full salary to report to work with no duties to perform, which was also criticized by Congressional Republicans last year.

SUB pay gives laid-off workers as much as 95 percent of net pay. For example, a UAW assembly-plant worker takes home about $855 after taxes. If that worker were laid off in Michigan, he would receive about $782, made up of $362 in state unemployment benefits and $420 in company-paid SUB pay, according to union documents and estimates prepared by automakers.

“When workers are on layoff, this is critically important in enabling people to pay their mortgage, put food on the table and pay their heating bills,” said UAW legislative affairs director Alan Reuther, a nephew of Walter Reuther, who won the benefit at the bargaining table in 1955. “It also is an incentive for the companies to better plan their operations.”

Ford Wants Concessions

Ford Motor Co., the only U.S. automaker to forego federal aid, has said it expects to receive whatever concessions the UAW grants GM and Chrysler. Ford negotiators weren’t involved in talks at the union’s Detroit headquarters yesterday, said a source familiar with the situation. Ford spokesman Mark Truby declined to comment.

Cutting SUB pay, changing union work rules, such as the definition of so-called skilled-trades workers, and cutting absenteeism are part of an effort to get compensation competitive with the U.S. factories of Japanese automakers, such as Toyota Motor Corp., another requirement of the federal loans.

Cutting SUB pay may turn out to be a bad strategy, said Dennis Pawley, the head of manufacturing at former Chrysler Corp. from 1991 to 1998.

“SUB pay preserves your workforce,” said Pawley, who was involved in Chrysler’s labor strategy. “Without it you have people marching off looking for another job.”

UAW negotiations are expected to go through the weekend with the goal of getting a preliminary agreement before the Feb. 17 report is due, two people familiar with the discussions said. The union is predicating any give-backs on the automakers extracting concessions from their bondholders.

‘Bondholders Will Be Furious’

Advisers to GM’s debt holders are in discussions to reduce $27.5 billion in unsecured debt to about $9.2 billion by swapping for equity, said two people close to the talks.

“The bondholders will be furious” that the union won’t consider cuts to wages, medical and pension benefits, Sean McAlinden, chief economist with the Center for Automotive Research, said in an e-mail. “But they already know.”

UAW Vice President General Holiefield, in a Jan. 22 letter to UAW local Chrysler presidents said SUB pay might be a target of negotiations. Chrysler President Jim Press said yesterday that the No. 3 U.S. automaker is meeting this week with the UAW and creditors. Chrysler, privately owned by Cerberus Capital Management LP, doesn’t have unsecured debtholders.

Forced Hand

If GM and Chrysler can’t persuade the UAW and bondholders to agree to new terms, the government could force the automakers to return the loans or convert them into funding for a government- backed bankruptcy. GM Chief Executive Officer Rick Wagoner told Congress in November that Chapter 11 would lead to liquidation because shoppers won’t buy from a bankrupt automaker.

GM also said this week it will eliminate 10,000 of its 73,000 salaried workers and cut the pay of many of those who remain.

“At some point the companies are going to pay the price for the experience level of the people walking out the door,” Pawley said. “I worry terribly that the guts have been torn out of these companies.”

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