Stellar UAW deals put onus on Detroit 3

Stellar UAW deals put onus on Detroit 3
David Barkholz
Automotive News | October 17, 2011 – 12:01 am EST

DETROIT — Executives at General Motors had a bad habit before the 2009 bankruptcy — whether justified or not — of blaming others for the company’s problems. There were retiree costs, the UAW Jobs Bank, health care costs and the cheap yen.

Those days are over, says CEO Dan Akerson, now that GM’s new contract with the UAW holds hourly labor costs in check for the next four years.

“We don’t have any excuses,” he said in an interview with Automotive News last week.

In other words, GM vehicles must be top-notch. If they’re not, GM’s management is to blame.

The contract at GM and those pending at Ford and Chrysler could scarcely have turned out better for the automakers, says Dave Cole, chairman emeritus of the Center for Automotive Research and decades-long observer of UAW talks.

Each of the Detroit 3 negotiated UAW contracts that raise hourly labor costs, at most, 1 percent over each of the next four years. For GM, whose contract was ratified by its 49,000 UAW-represented employees late last month, the increase means only an extra $20 million in 2012 and again in 2013.

The Ford deal met with worker resistance last week as the early vote was about evenly divided for and against approval. Voting on the Chrysler deal is expected to be completed next week.

Akerson says a huge plus in the GM-UAW contract is that fixed labor costs were held steady. The enhanced profit sharing aligns hourly increases with the financial performance of GM. The Ford and Chrysler agreements are similarly structured.

“It aligns all of our employees, salaried and hourly, to the same metrics,” Akerson said. “If we perform well financially, everybody shares in it.”

Cole says the new UAW contracts put the Detroit 3 in a position to post massive profits if industry sales rise to more normal levels of, say, 14 million or 15 million units. In the past, that would have been viewed as recession-level.

Even at last year’s U.S. industry sales of 11.6 million vehicles, GM reported a net profit of $4.7 billion, and Ford reported a net profit of $6.6 billion.

Cole says profits are vital to the Detroit 3’s ability to continue improving their products.

For example, the hot-selling Chevrolet Cruze compact has more trunk and interior space than was possible with its predecessor, the Chevrolet Cobalt, because of a much more expensive rear suspension.

Cole says the roominess and improved interior in the Cruze are huge selling points for a car that is competing successfully in a small-car segment in which GM traditionally has struggled.

Akerson says productivity gains should more than cover the additional labor expenses in the new UAW contract.

“We did not jeopardize our breakeven point,” Akerson said, a figure GM has told analysts it can achieve with overall U.S. annual sales of 10.5 million vehicles.

Cole says there’s no longer an excuse for “cheapening out” interiors or other technology with the Detroit 3 making money and running their U.S. factories near or above capacity.

“It’s up to management, product development and the people running manufacturing to execute properly,” he said. “If they fail, a pox on them.”

Mike Colias contributed to this report

The contracts negotiated by UAW President Bob King will raise hourly labor costs, at most, by 1 percent in each of the next four years.

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