GM (GM), Ford (F) And Chrysler: The Price Of Poor Union Management

The Wall Street Journal writes this morning that GM (GM), Ford (F) and Chrysler will seek huge concessions from the UAW this Fall. They claim a disadvantage of about $30 an hour compared to their Asian competitors due to pension, health care, and other labor costs.

The UAW has already sacrificed 70,000 jobs to the car industry’s restructuring and it may be unwilling to go much beyond that. The conventional wisdom is that the union has to give further because if any of the Big Three is forced into Chapter 11, the job loss will be catastrophic.

But, the conventional wisdom is often wrong. Ford recently raised $23 billion. Its market share may be dropping but its balance sheet is in reasonable shape and it is in the process of selling Jaguar and Range Rover. That could add several billions more to its war chest. Chrysler is being sold to hedge fund Cerberus. The financial firm has said it will not seek labor cuts beyond those that Daimler has already scheduled. And, the UAW may look at Cerberus as a financially sound owner, as it should.

GM claims that its restructuring is already on the road to success. It has cut about $9 billion in annual costs and is doing well overseas in countries like China.

The UAW may fairly ask why Detroit has designed cars that the market does not want. Drops in the US share of domestic car companies is not a labor problem, it is a product management problem. But, to some extent, the UAW is being asked to pay a price for that in upcoming negotiations.

If the UAW is smart, the will come to the bargaining table with one message. We did not get you into the mess and we will not suffer to get you out. The Big Three agreed to past labor contracts when they saw restructuring all around them in industries from newspapers to steel. The cost of labor in those segments of the economy dropped over two decades ago. And, the union can point the finger at Detroit management for failing to get the pulse of the market, building SUVs and pick-ups that sold when gas was cheap, but not creating small cars for a market that would be hit by rising oil prices over time.

If the union has to strike the industry to make its point, it may. This is a last stand, and the UAW has some moral and economic ground where it can place its feet.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.