GM and the Unions: Some Things Never Change

Remember how much more competitive GM was going to be coming out of bankruptcy. Aside from shedding a lot of its debt and attendant costs, the company was going to emerge with a competitive labor cost structure.

Turns out that it didn’t quite happen that way. From the WSJ:

Three years after General Motors Co. won wage and benefit concessions from its union, the company has yet to realize savings from a key provision that cuts pay by more than half for new U.S. hires.

GM’s deal with the United Auto Workers cuts the combined wage-and-benefit cost for a newly hired factory worker to $25.65 an hour, compared with about $60 an hour for current workers. By comparison, the nonunion workers at Toyota Motor Corp.’s U.S. plants cost the company approximately $48 an hour in wages and benefits, Toyota says.

But GM can’t add new workers at the lower wage yet. It still has 5,000 laid-off workers who, under their contract terms, have first crack at any union jobs that the company adds, and most would return to work at the higher pay level.

Ford Motor Co. and Chrysler Group LLC have similar union contracts allowing them to hire workers at the lower wage, but they also haven’t hired significant numbers of new workers.

“That’s probably one of the reasons the UAW agreed to [the lower wages]. They knew right off the bat there wouldn’t be a lot of leeway for the companies to hire new workers,” said David Whiston, an auto analyst at Morningstar Inc. “There will always be this fundamental difference—that the Detroit companies have union shops” and the U.S. plants of foreign makers don’t.

If you want to find a pony in all of this I guess it would be that the company is managing to make a profit despite getting no relief from its labor costs. Nevertheless, you might want to keep this little bit of information in mind just in case you have an urge to take a plunge on the upcoming IPO.

Before I quit chewing on this bone, though, it’s worth noting how much religion the union got from their near death experience.

Again from the article:

Strong profits even before GM hires new, lower-wage workers could embolden the UAW to push for the restoration of some benefits or make new demands. At an auto-industry conference in Detroit last week, Bob King, a top union official who is in line to become UAW president in June, said workers expect a share of the spoils as the Detroit auto makers’ finances improve.

“Where there’s equality of sacrifice, there needs to be equality of gain,” Mr. King said.

I’m more than willing to let Mr. King bargain with GM for a slice of the pie so long as it’s done after you and I have been paid back. In the meantime, he should probably button it and just be happy that his union mates have jobs.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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