The strike on General Motors was a long time coming. GM lost more than $12 billion over the previous two years. Its once-gold-standard debt rating had been downgraded to junk-bond status. And its total stockholders’ equity at the end of 2006 was a negative $5.4 billion. No surprise, then, that the United Auto Workers‘ targeted GM. Hit the ailing automaker while it’s down.
The UAW targeted GM because the union believed, rightly, that GM was the strongest of Detroit’s Big Three. The union hoped to extract the best possible terms from GM, setting the pattern for Chrysler and Ford. In fact, all three automakers are in dire financial straits. The UAW’s decision Monday to strike GM indicated that the nation’s third-largest corporation has finally drawn a line in the sand, which its short- and long-term financial viability precludes it from crossing.
In directing the 73,000 UAW workers at GM to man the picket line, UAW President Ron Gettelfinger declared, “This strike is not about the VEBA in any way, shape or form.” He was referring to the Voluntary Employees’ Beneficiary Association, a once-unthinkable health-care trust fund that would be established to provide benefits to UAW retirees and their families. The VEBA was GM’s principal demand in the negotiations. Burdened by more than $50 billion in unfunded retiree health benefits, GM desperately sought to remove this liability from its balance sheet by making a huge, but discounted, payment to the VEBA, which the UAW would then administer. The fact that the union would even seriously consider such a deal was a huge concession on its part. But the UAW reasonably feared that GM would unilaterally reduce retiree health benefits when the current funding arrangement expires in 2011. Moreover, given GM’s negative net worth, the real prospect of bankruptcy hangs in the air.
Even with a substantial VEBA discount of 25 percent, GM reckons that the prevailing $25-$30 hourly wage-and-benefit differential between its union workers and non-union employees at Asian-owned auto plants in the United States would be sliced by only $12 to $14 an hour.
In exchange for the concession on retiree health benefits, the UAW has demanded job-security guarantees. But more than 100 percent of GM’s $12.4 billion in 2005-06 worldwide losses occurred in North America, especially (obviously) in the United States. GM simply is in no position to be able to guarantee American jobs as its U.S. market share, which exceeded 50 percent during the 1960s, has plunged below 25 percent today.
In 1970, the last time the UAW called a national strike against GM, the union won the right of its members to retire after 30 years on the job. Ironically, the soaring retiree health costs associated with the early retirement of relatively young workers set the stage for the potential bankruptcy of the Big Three and the strike against GM that began on Monday.
The UAW’s chief problem is that it has yet to accept the fact that The Big Three cannot afford the perks that unions are demanding — not in this global economy.