gcarter
07-16-2007, 05:36 AM
Detroit Three, UAW gear up for grim talks
GREG KEENAN
From Monday's Globe and Mail
July 15, 2007 at 9:26 PM EDT
Chrysler Group, Ford Motor Co. and General Motors Corp. have lost tens of billions of dollars, slashed tens of thousands of jobs and watched their market share plunge to a record low perilously close to 50 per cent.
That's the state of affairs in Detroit as the three companies and the United Auto Workers begin contract talks; the auto makers that once commanded the industry in North America are in such difficult shape that it's no longer correct to call them the Big Three.
At least one of the companies has declared privately that if the companies are unable to reduce the $25-(U.S.)-an-hour labour cost disadvantage they face against their Asian-based rivals in North America, new investment will flood even more quickly to low-cost regions of the world.
“If a deal isn't done right, we could see massive offshoring by the Big Three,” says Sean McAlinden, chief economist and vice-president of research for the Center for Automotive Research, an industry think-tank in Ann Arbor, Mich.
The UAW is already dealing with plant closings by the three companies and the former parts making subsidiaries of Ford and GM, plus other parts companies. The shutdowns have ravaged cities and towns in the U.S. Midwest and elsewhere, and spilled over the border to Windsor, Ont., and other communities in Ontario and Quebec.
Those cuts are the reaction to a tectonic shift in the market that has dramatically cut the Detroit Three's share of the market.
The shift results from tough competition from Asia and Europe.
Even as the Detroit Three deal with the structural crisis, they face a looming cyclical downturn. The U.S. housing slump has slashed sales of profitable pickups, and high gasoline prices are sending sales of sport utility vehicles skidding.
In a note to clients last week, Deutsche Bank auto analyst Rod Lache said the trends indicate structural cost changes are needed. He calculates the Detroit Three suffer a labour cost gap of between $1,080 and $1,335 a vehicle compared with Japanese companies assembling in North America.
He and other analysts believe that the Chrysler, Ford and GM job cuts and plant closings and the wrenching Chapter 11 bankruptcy filings by some of the largest auto parts makers have put the UAW in such difficulty that workers will be ready to agree to major changes in pension arrangements and the way health care benefits are financed, and perhaps even to cuts in wages.
Union officials harbour no illusions.
“This is probably the toughest one I can remember,” said Chris Sherwood, president of UAW local 652. this is notesIn the mid-1980s, his local represented 14,000 workers in Lansing, Mich. Now, the local has just 3,000 active members, but 7,800 retirees.
Health care for those retirees and the more than one million other Americans who depend on GM, Ford and Chrysler to pay for them will be one key focus of the negotiations, which begin Friday.
One idea that may serve as a template for health care is already set to be put in place at tire maker Goodyear Tire & Rubber Co. of Akron, Ohio, and is part of an agreement the union has reached with Toledo, Ohio-based parts maker Dana Corp., one of the big parts makers still operating under Chapter 11 bankruptcy protection.
That arrangement effectively transfers control of health care financing to the unions.
Mr. Lache estimates GM carries a $46-billion health care obligation to UAW members on its books, while Ford's is about $23-billion.
If the two companies can get the UAW to agree to take the health care funds over for a contribution of about 70 cents on the dollar, GM would pay out about $32-billion and Ford about $16-billion.
Those seem like astronomical numbers to companies that lost more than $20-billion combined in 2005 and 2006. Mr. Lache figures, however, that assets sales such as GM's selloff of its Allison Transmission unit, which will generate $4-billion, will help contribute to what it needs to do such a deal. Ford's Jaguar, Land Rover and Volvo cars divisions could generate up to $11-billion in cash, he said.
GREG KEENAN
From Monday's Globe and Mail
July 15, 2007 at 9:26 PM EDT
Chrysler Group, Ford Motor Co. and General Motors Corp. have lost tens of billions of dollars, slashed tens of thousands of jobs and watched their market share plunge to a record low perilously close to 50 per cent.
That's the state of affairs in Detroit as the three companies and the United Auto Workers begin contract talks; the auto makers that once commanded the industry in North America are in such difficult shape that it's no longer correct to call them the Big Three.
At least one of the companies has declared privately that if the companies are unable to reduce the $25-(U.S.)-an-hour labour cost disadvantage they face against their Asian-based rivals in North America, new investment will flood even more quickly to low-cost regions of the world.
“If a deal isn't done right, we could see massive offshoring by the Big Three,” says Sean McAlinden, chief economist and vice-president of research for the Center for Automotive Research, an industry think-tank in Ann Arbor, Mich.
The UAW is already dealing with plant closings by the three companies and the former parts making subsidiaries of Ford and GM, plus other parts companies. The shutdowns have ravaged cities and towns in the U.S. Midwest and elsewhere, and spilled over the border to Windsor, Ont., and other communities in Ontario and Quebec.
Those cuts are the reaction to a tectonic shift in the market that has dramatically cut the Detroit Three's share of the market.
The shift results from tough competition from Asia and Europe.
Even as the Detroit Three deal with the structural crisis, they face a looming cyclical downturn. The U.S. housing slump has slashed sales of profitable pickups, and high gasoline prices are sending sales of sport utility vehicles skidding.
In a note to clients last week, Deutsche Bank auto analyst Rod Lache said the trends indicate structural cost changes are needed. He calculates the Detroit Three suffer a labour cost gap of between $1,080 and $1,335 a vehicle compared with Japanese companies assembling in North America.
He and other analysts believe that the Chrysler, Ford and GM job cuts and plant closings and the wrenching Chapter 11 bankruptcy filings by some of the largest auto parts makers have put the UAW in such difficulty that workers will be ready to agree to major changes in pension arrangements and the way health care benefits are financed, and perhaps even to cuts in wages.
Union officials harbour no illusions.
“This is probably the toughest one I can remember,” said Chris Sherwood, president of UAW local 652. this is notesIn the mid-1980s, his local represented 14,000 workers in Lansing, Mich. Now, the local has just 3,000 active members, but 7,800 retirees.
Health care for those retirees and the more than one million other Americans who depend on GM, Ford and Chrysler to pay for them will be one key focus of the negotiations, which begin Friday.
One idea that may serve as a template for health care is already set to be put in place at tire maker Goodyear Tire & Rubber Co. of Akron, Ohio, and is part of an agreement the union has reached with Toledo, Ohio-based parts maker Dana Corp., one of the big parts makers still operating under Chapter 11 bankruptcy protection.
That arrangement effectively transfers control of health care financing to the unions.
Mr. Lache estimates GM carries a $46-billion health care obligation to UAW members on its books, while Ford's is about $23-billion.
If the two companies can get the UAW to agree to take the health care funds over for a contribution of about 70 cents on the dollar, GM would pay out about $32-billion and Ford about $16-billion.
Those seem like astronomical numbers to companies that lost more than $20-billion combined in 2005 and 2006. Mr. Lache figures, however, that assets sales such as GM's selloff of its Allison Transmission unit, which will generate $4-billion, will help contribute to what it needs to do such a deal. Ford's Jaguar, Land Rover and Volvo cars divisions could generate up to $11-billion in cash, he said.