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A job for life in Detroit?
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September 9, 1999: 2:43 p.m. ET
With strong car sales, Big 3 and UAW consider new job guarantees
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - By next week, tens of thousands of General Motors workers -- weary veterans of labor wars that have seen them on strike or out of work repeatedly in recent years -- could be mulling over the contract of a lifetime. Literally.
The world's largest automaker has reportedly offered hourly employees with at least 10 years seniority a lifetime employment guarentee as part of its initial contract proposal to the United Auto Workers Union. A similar offer was apparently made by DaimlerChrysler AG in its talks with the UAW.
Industry experts say the proposals would actually give little additional job security to hourly workers because the current contract already promises workers supplemental income protection in case of layoffs. In fact, the proposed language could actually give the automakers greater flexibility to cut the size of their work forces through retirement and attrition.
But such language, coupled with expectations of a lucrative wage and benefit package at a time of strong car sales and record profits, could nevertheless set an important precedent across the U.S. economy.
"Whatever the final language, it will be the benchmark of how other negotiations are judged," said Harley Shaiken, a University of California at Berkeley professor who specializes in labor. "Since the auto workers won pensions in '48, a lot of things Detroit has done, for good or for bad, has set a pattern. This will be the case, even if the rhetoric of lifetime jobs guarantees outstrip the language."
Contract expires on Sept. 14
The current contract expires at midnight Sept. 14. The union has yet to identify which company it will seek to reach an agreement with first, suggesting it could try simultaneous deals with GM and DaimlerChrysler. The only thing certain is that Ford, beneficiary of being the lead in the last two contracts, won't be first this time.
The Canadian Auto Workers Union, which is separate from the UAW in Detroit, announced plans Wednesday to negotiate with Ford first. The CAW and UAW rarely target the same automaker. The CAW's pact expires Sept. 21.
Another win for big Labor?
While analysts who follow the automakers believe the enhanced job guarantees could help, rather than hurt, the companies' bottom lines, some worry another high profile union "win" would spark concern that we are entering into a period of strong leverage for labor, prompting additional interest rate hikes to control inflation.
"There's two concerns," said David Bradley, analyst with J.P. Morgan Securities. "One is for auto stocks themselves, for people who don't understand dynamics. The other is (that) there could be some broader repercussions on the macro-economic level."
But the need for labor peace at the car makers in this prosperous time is so great that executives are willing to make attractive offers. GM's initial proposal reportedly included a 2 percent raise and $500 signing bonus the first year, a 3 percent raise the second year, and a $1,500 lump-sum payment in the third year. Industry experts believe that the automakers can afford -- and may end up paying -- even more, especially if they gain greater ability to reduce staffing levels through retirement.
"I think the companies are indicating a willingness to give strong wage increases," said Bradley. "If they can cut five percent of the work force through attrition, they can give 4 percent wage gains annually and come out ahead."
Retirements are likely to pick up steam in the coming years -- and given greater flexibility on staffing levels, they could give the companies an extra boost in productivity.
A paradox for the UAW
GM's average blue-collar worker is 48 years old and has 23 years of service with the company. The average retirement age at the company for hourly workers is 57. There are 28,800 out of about 150,000 U.S. hourly workers who already have 30 years of service and could retire any time. GM had an attrition rate of 6.8 percent in 1998, and only hired 500 hourly employees to replace them.
"You could have the paradox of lifetime job guarantees and far fewer workers," said Shaiken.
The best of times
The comments on the two sides are unusually positive a week before the expiration of a contract. At the union's Labor Day parade in Detroit, UAW President Stephen Yokich did not try hide his pleasure with the offers from reporters.
"I've been here a long time. It's the best first offers we've ever gotten from Chrysler and GM," he said.
On the other side of the world, Jack Smith, the GM chairman and chief executive, told reporters in Australia Wednesday that the outlook for profits and productivity were unprecedented for the U.S. industry.
"The U.S. market is hotter than it's ever been," he said.
The strikes that effectively shut down GM twice in the last two years were a wake-up call for both the union and the company for the need for better relations, said David Cole, director of office for study of automotive transportation at the University of Michigan.
"Since the GM strike last summer, there's been a full-court press on both sides to improve relations," said Cole. "They're not holding hands, but they're getting close."
Relations have also been good between the union and DaimlerChrysler since the purchase by the German automaker. The UAW continues to negotiate with many of the former Chrysler executives it dealt with in the past, and it's possible that it may have an unprecedented dual lead in these talks by reaching contracts with both at the same time.
Even if the union picks one as the lead later this week, the other contract is likely to follow close behind.
The biggest surprise may be the deterioration of relations between UAW and Ford Motor Co., which has enjoyed the best labor relations of virtually any major industrial power for the last two decades. Ford was the lead company in the last two round of talks, and most of Ford's 102,000 auto workers have never been on strike, unlike their strike-weary brethren at GM.
But Ford's relationship with the UAW is far from perfect.
A rumored move to spin-off Ford's Visteon Automotive Systems supply unit, similar to the recent spin-off of Delphi Automotive Systems by GM, is the main source of contention for the union. Almost a quarter of UAW members at Ford work for Visteon, and both union and Wall Street analysts believe a spin-off would eventually lead to a lower wage and benefit scale, more in line with the supplier industry.
While that pay scale won't be an issue in these talks, concerns about Visteon's future make the first negotiations for Jac Nasser, Ford's new chief executive, a tough one.
"The question is not whether there will be a strike at Ford, because I don't think there will be, but rather how disruptive Visteon is to the Ford-UAW relations," said Shaiken. "It has damaged them, but how severely or how long lasting, that depends on what happens next."
Click on the graph to view a financial profile for Detroit's Big Three
While Wall Street would cheer a Visteon spin-off, analysts express concern about the change in labor relations at Ford.
"I think it (a Visteon spin-off) is an excellent idea, but the union hates it," said Bradley. "The only thing that worries me is the stress that is cropping up between Ford and the union." 
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