03 April 2009

UAW Chief Has No Good Options

Gettelfinger Faces Making More Concessions or Seeing Chrysler, GM Pushed Into Bankruptcy
As Originally Posted to the Wall Street Journal

United Auto Workers President Ron Gettelfinger has squared off against plenty of auto executives. But now he may be facing an even tougher opponent: the U.S. government.

The Obama administration has made clear it is willing to push General Motors Corp. and Chrysler LLC into bankruptcy if the UAW and bondholders don't agree to cut costs. Bankruptcy would give the companies the ability to tear up their UAW contracts and impose another wave of deep cuts in auto workers' wages and healthcare benefits. At stake are the fortunes of about 141,000 UAW members -- down from 300,000 about five years ago -- and hundreds of thousands of retirees.

Mr. Gettelfinger has said repeatedly that the union has already made substantial concessions compared with other stakeholders and won't make any more until bondholders and other creditors agree to givebacks to reduce GM and Chrysler debt.

But the union chief has no good options. He either agrees to concessions or the car makers end up in bankruptcy, which would mean splitting them into good and bad companies, closing plants and giving up jobs. Pensions and retiree health care would likely be cut as well.

Mr. Gettelfinger has already announced his retirement, so he doesn't have to worry about winning another election. In theory, that makes it easier for him to accept unpopular terms. But he still has to win approval of any agreement from the rank and file, which must ratify any changes.

For Mr. Gettelfinger, it's the biggest challenge he has faced. "If a settlement isn't reached and GM goes into bankruptcy, it could be a black mark against the union for decades," says Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass. "Gettelfinger is good at bargaining, but this isn't bargaining. The union doesn't have the right to strike, and he's already been told what the outcome will be." A UAW spokesman said the union didn't have any comment Tuesday.

The situation is made more difficult because it comes on top of prior concessions, Mr. Chaison says. Negotiations led by Mr. Gettelfinger two years ago resulted in new GM workers being paid lower wages than existing workers and a trust to cover retiree health coverage. At the time, the concessions were touted as a major restructuring of the UAW's historically generous contracts.

The UAW and auto makers face some of the same challenges -- mainly huge legacy costs, overcapacity and foreign competition -- that hobbled the domestic steel industry between 2000 and 2003. In working through those problems, several steelmakers went bankrupt, eventually emerging with new ownership and labor accords that restructured retiree health obligations.

Billionaire investor Wilbur Ross, who runs distressed asset specialist WL Ross & Co., bought out and consolidated bankrupt steelmakers, working with the steelworkers union to create new contracts. One of the biggest challenges facing Mr. Gettelfinger will be balancing the needs of active workers and retirees, Mr. Ross says. "There's obviously much heavier government influence in this situation than there was in steel," he adds, and U.S. car makers could even come out of the restructuring as the lowest cost producer.

The three Detroit auto makers provide health care for more than one million Americans, including union retirees and their dependents. In 2007, the UAW agreed to allow GM, Chrysler and Ford Motor Co. to pay billions of dollars into a trust fund, known as a VEBA, or voluntary employee beneficiary association, that the union would manage and use to cover the cost of retiree health care.

Under the terms of the bailout loans GM and Chrysler have accepted from the federal government, the companies are supposed to renegotiate the VEBA agreements, persuading the UAW to take equity in exchange for half the companies' payments to the VEBA. Labor costs also have to be cut to match those of Japanese auto makers. Some estimates have put the hourly compensation gap between Detroit auto makers and the Japanese at $10 an hour, though UAW officials say that's too high.

One UAW worker, 56-year-old Jeff Hall, a GM maintenance pipe fitter in Pittsburgh now on layoff, says he remains a supporter of Mr. Gettelfinger. But he doesn't like the union leader's options. "It seems like the government and everyone is encouraging bankruptcy. To me that is going to be a disaster."

Accepting more concessions could also hurt the union's ability to grow at healthy companies. The UAW has been unable to organize U.S. workers at plants run by foreign auto makers. Accepting more cuts to GM wages and benefits would make organizing elsewhere even more difficult because the union would have little of value to offer nonunion workers, says John Russo, co-director of the Center for Working-Class Studies at Youngstown State University.

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