Big Three on track to give profit checks

July 27, 2010 http://detnews.com/article/20100727/OPINION03/7270360

Big Three on track to give profit checks

Payouts for hourly workers would boost morale, state’s economy

DANIEL HOWES

It’s too soon to know for sure, but Detroit’s automakers, led by Ford Motor Co., are on track to deliver a welcome jolt to the beleaguered Michigan economy: annual profit-sharing checks for their hourly workers.

Through the first six months of the year, Ford’s North American pre-tax operating profit totaled $3.1 billion. Chrysler Group LLC’s CEO Sergio Marchionne is predicting another positive quarter. And General Motors Co., desperate to make its case to would-be investors as it hurtles toward an initial public offering, is expected to book a respectable profit when it reports earnings next month.

The net effect would be that Michigan’s economy, in recession or nearly so since 2001, could get a badly needed boost early next year, when the automakers dole out bonus checks to salaried employees and profit-sharing payouts to hourly employees, despite historically low sales volumes and slow economic growth.

Sure, the second half of the year could bring profit-killing speed bumps — plunging consumer confidence, gyrating stock markets or some kind of international incident that throws a tepid global recovery into reverse. Absent those shocks, Detroit’s automakers appear poised to start spreading the wealth around, again.

"It’s running the ghastly movie in reverse that we’ve been watching," said Dana Johnson, chief economist at Dallas-based Comerica Inc. "It’s going to spill over in a positive way. Anyone who sells anything to autoworkers and executives will be happier. It’s definitely going to help."

Perhaps more important than their impact on employee morale, the local and state economy, tax collections, per-capita income and the fortunes of the next governor is the broader sweep of what the payouts themselves would signify. Namely, that the past two years of wrenching change are beginning to deliver the kind of results typically minted by healthy companies with defensible business models and competitive cost structures in their home market.

That matters for a whole lot of reasons: First, that the death of Detroit appears to have been greatly exaggerated. Second, that improving business prospects, particularly in the United States, improve the likelihood that once-bankrupt GM and Chrysler can successfully sell shares to investors through initial public offerings.

And, third, that successful IPOs would speed the process of extricating two of Detroit’s automakers from federal ownership. One result would be repaying American taxpayers whose bailouts, engineered by the Obama administration, also bailed out the UAW and its legacy obligations to active members and retirees.

Eyeing an opportunity

Yet any profit-sharing checks from GM and Chrysler, however small, are likely to be targeted by critics in Congress and across the country who opposed the bailouts from the get-go. Same for any executive bonuses pegged to results, likely to be especially handsome at an independent Ford led by CEO Alan Mulally.

On the surface, this could be a recipe for confrontation and complaint, from congressional nags and right-wing scolds to UAW members and their leaders. But the probable return of bonuses and profit-sharing checks — likely to be cut about four months before the start of national contract talks with the UAW — also could be an opportunity.

Here’s how:

Detroit’s automakers are able (in Ford’s case) or nearly able (in the case of the other two) to renew payouts because the crucible of recession and crisis reduced fixed costs by cutting capacity, reducing complexity, eliminating employees and restructuring labor contracts.

That means the prospect of profit at much lower sales volumes. At Ford, for example, merit increases and salaried bonuses have been reinstituted, and profit-sharing for hourly employees — pegged to the automaker’s U.S. automotive return on sales — is paid from a central profit pool.

A win-win possibility

This is where the direction of next year’s bargaining comes in. Because all three companies now enjoy lower fixed costs, lower break-even points and higher earnings potential, people familiar with the situation say a crucial aspect of next year’s talks likely will be broadening the metrics of hourly profit-sharing beyond pure profits.

Such a move, a longtime goal of Ford’s Mulally, would more closely align the financial interests of hourly employees with their salaried counterparts, keep fixed costs in check and give union members the potential to earn considerably more in profitable years.

"It’s an area that has a win-win opportunity," one industry executive familiar with the issues, said Monday. "But it has a history. Our focus is we have to be competitive."

So does the UAW if it hopes to avoid another cataclysm like the one it just survived. In just four years at Ford, for example, UAW membership slumped to 43,000 members last year from 83,000 in 2005, gutting its dues stream and undercutting its political heft.

King knows the game

Few understand the stakes and would-be opportunities better than Bob King, the union’s new president and former head of its Ford and supplier departments.

He witnessed the recent carnage firsthand and, just as importantly, negotiated many contracts with auto suppliers that broadened profit-sharing plans to include everything from scrappage and customer return rates to quality scores and parts defects.

Whether King’s past is a template for the UAW’s profit-focused future remains to be seen. But the return of profit-sharing checks would be good news for an industry — and its home state — that has been down long enough, thank you.

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