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GM finds peace isn't cheap
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July 29, 1998: 7:58 p.m. ET
After billions of dollars in losses, GM settles for minor gains from UAW
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NEW YORK (CNNfn) - Invective flew, managers seethed and assembly lines ground to a halt. Yet when all was said and done, General Motors Corp., one of the richest companies in the world, found it was easier to buy labor peace than to fight it out at the bargaining table.
Investors had hoped GM would deliver a knockout blow to the UAW and reach an agreement that would allow the world's largest automaker to make the kind of deep cuts in its payroll that would allow GM to catch up to rivals Ford Motor Co. and Chrysler Corp.
However, after 54 days of posturing and nearly $3 billion in losses, industry analysts say GM came away with much less than it hoped.
"There is really not enough information yet to perform a cost-benefit analysis,'' said Lehman Brothers analyst Joseph Phillippi, "but it is tough to envision how GM will recoup the costs of these strikes from the savings generated by this agreement.''
Indeed, the pact ratified by the UAW Wednesday addresses a relatively narrow range of local issues involving investment at the Flint metal-stamping plant and work rules.
But it failed to embrace any of the broader national issues -- such as GM's right to outsource work or open new factories abroad -- which the automaker had previously insisted were integral to any lasting resolution.
This hardly comes as a shock to Harley Shaiken, a labor-relations professor at the University of California-Berkeley. From the beginning of the strike, Shaiken said, there had been a "major disjunction" between GM's lofty hopes for an all-embracing settlement and the reality of what the company could actually negotiate on the local level of the two striking parts plants.
"I suspect they felt that taking a very hard line would send a message to the union," Shaiken said. "Instead the message that they sent was to dig in your heels."
Shaiken said the gains at the bargaining table -- including a UAW promise to boost productivity by 15 percent on a cradle-engine line at the Flint metal-stamping plant -- were overshadowed by the permanent losses.
These include losses of customers who now may buy their cars from Toyota or Honda; possibly irreparable damage to the launch of the new GMT800 truck set for the fall; and, perhaps most significantly, a newly rancorous relationship with the union members upon whom GM depends to help ensure future growth.
To be fair, the strike settlement is not entirely devoid of limited guarantees of labor peace: In return for GM's agreement to complete its $300 million investment, the UAW agreed not to call a strike at the Flint East plant or two key brake plants in Dayton, Ohio.
But the UAW did not give up the right to call strikes at other GM plants, including the Corvette assembly plant in Kentucky and the vaunted Saturn factory in Spring Hill, Tenn.
News of the settlement failed to impress investors Wednesday with GM (GM) shares falling 1/8 to 74-1/8. Earlier, the shares had fallen as low as 71-13/16.
David Littman, chief economist for Comerica Bank in Detroit, called the agreement a blow for GM and the union because the money GM lost as a result of the strike will not be available to make GM's factories more competitive, which in turn will likely force GM to close more factories in the future.
"I'd say shareholders go backward. Management goes backward. Labor goes backward. What a settlement!" Littman said in an interview on CNN's "Moneyline News Hour with Lou Dobbs" Wednesday.
He said the 54-day walkout drains GM's cash reserves at a time when the company should be spending to upgrade equipment and improve its manufacturing ability. Moreover, he said the agreement to invest in the plants in Flint, Mich. would be better spent elsewhere where GM's return would be much higher. (156K WAV or 156K AIFF).
Industry experts say GM needs to cut as many as 50,000 jobs from its payroll just to pull even with Ford and Chrysler in the productivity race. But with labor relations strained by the 54-day strike, it may be hard for GM to implement the cuts without angering the UAW.
"The big thing GM has been trying to do for the last five or six years is improve productivity in North America," Michael Ward, an auto analyst at PaineWebber, told CNNfn. "In one respect, the contract doesn't disallow that. But in many respects it won't be as rapid as GM might hope it would be." 
-- from staff and wire reports
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