Chrysler Strike Deadline 11:00 AM Today

Collective bargaining between the UAW and Chrysler, LLC., is expected to continue right until the deadline for strike, 11:00 AM today. What's going to happen then is anybody's guess. Unlike the GM-UAW contract, there have not been leaks suggesting the parties are very close to a deal.

Chrysler dealers are awash in inventory for everything except the 2008 minivans. Chrysler has already scheduled temporary shutdowns for six plants. Just yesterday, Chrysler announced layoffs of thousands of white collar workers and contractors.

There is a very real possibility of a worst-case scenario for the UAW here. The UAW strikes. Cerebus then uses costs of a strike as a justification for shutting the company down and selling it off piecemeal, a strategy that many people have said has always been Cerebus's plan for the company. The retirees get whatever has been set aside already, nothing more. It seems to me that it would be better to just continue working under the current contract until the company threatened a lock-outm then negotiate on give-backs. What do I know, I'm just a lawyer.

Chrysler in the Crosshairs
UAW says contract or Strike by Wednesday

An interesting battle is shaping up between the UAW and Chrysler, LLC. The UAW set a deadline of Wednesday to either come up with a tentative contract or strike Chrysler. This will be the first contract under Cerberus management. Even though General Motors was fiscally overdrawn at the time of its contractual negotiations, GM could look forward to a fairly broad lineup of competitive new products in the pipeline. Chrysler is somewhat more solvent in today's dollars, but it's future product pipeline is really an empty cupboard. The prospect of a strike probably doesn't scare Cerberus too much. Even though we are only a month into the new model year, six plants are temporarily idled for lack of business. With Cerberus, the UAW will be dealing with private management who are very capable of, and possibly predisposed to, breaking up the company.

What can we expect from the new Chryslerberus contract? Expect lots of pressure on healthcare benefits for both active and retired workers. If there is a VEBA, you can expect that it will not be funded at the same level as the GM plan.

Restrictions on Medical and Dental Care in
GM/UAW Agreement

Even though the Union hosted 30 minute presentations and published a 22 page summary of its new tentative agreement with General Motors, apparently there wasn't sufficient time/space to fess up to significant (but not earthshaking) reductions in health and dental coverage. According to the Detroit Free Press at freep.com, PPO and HMO plans will be sharply limited. Under the new default plan, union members and their family will now have a $25.00 co-pay per doctor appointment, with five appointments per year per family. The article mensions that dental HMOs will be eliminated, but it does not state that dental coverage in general is eliminated.

September Sales Grades:

Honda: A
GM: B-
Chrysler: C-
Ford: DDD

Auto sales in September were a mixed bag, but Honda scored its best month ever, with sales up 13.8% from last year. That's what a new Accord and blow-out deals on 07s will do for you. General Motors eked out a respectable 3.7% increase without undue incentive spending. Chrysler sales were down 1.5%, not too bad considering the new minivans hadn't hit the showrooms yet. Some troubling signs for the Chryslerberus folks, sophomore year sales of the Dodge Caliber and Jeep Compass were both down over 20%. Chrysler has scheduled two-weeks downtime for the Illinois plant that makes the Compass and Caliber.

The biggest loser was Ford with sales down 21%, a DOUBLE DIGIT DECLINE - DDD. Keep in mind, this is a decrease from 2006, a year when Ford lost over $12 billion. Ford would like to attribute the decrease in sales to a reduction in planned fleet sales. (The car division was down 45%.) Still, retail car sales were down more than 15%. The brand new Taurus (unlike the old Taurus which was selling briskly to fleets last year) seems to be glued to the dealer lots. Ford just upped the incentive from $500 to $1000 because sales are below the Five Hundred's anemic levels.

The bottom line is that Ford is just now starting to feel the full effects of years on skimping on new product design. With almost all cars on the market being at least "good", Ford loses out whenever a competitor introduces "better". Ford is at least a year away from the introduction of its new F150 pickup line. The only thing new between now and then is the new Focus, a car that has been criticized for being a mere facelift of the old one. As will be discussed in an upcoming post, Ford is the next company up for UAW contract talks. It's going to be a rough year for the blue oval.

Sources

http://www.nytimes.com/2007/10/03/business/03auto.html

http://www.autoblog.com/2007/10/02/by-the-numbers-september-2007/

http://www.detnews.com/apps/pbcs.dll/article?AID=/20071003/AUTO01/710030372/1148

GM-UAW CONTRACT UPDATE
LEGAL SERVICES BENEFIT RETAINED

According to a newsletter sent to UAW members and reprinted at freep.com (the website of the Detroit Free Press), the legal services benefit for UAW members will remain unchanged. The parties will work to improve representation relating to application for social security disability benefits.

The contract may have some impact in who is eligible for services. Benefits coverage for college-age children is limited to full-time students. Also, coverage for wards is limited to relatives of the UAW member.

Steve's Not Here, Man

I picked the wrong time to go to a 2-day CLE. I was away from the computer all day today, and will not be in touch tomorrow. I know what everyone is anxious to hear is whether GM kept the legal services benefit in the tentative UAW contract. I don't think that question will be answered before Monday.

Merry Christmas - Strike is Over
Veba Veba - Andele Andele

GM and the UAW announced that they have come to a tentative agreement on a contract. The contract will be voted on by the UAW members this weekend.

The biggest feature of the contract is a VEBA trust fund for retiree medical care. Approximately $50 billion in benefits will be funded at the 70% level, or $37.5 billion. According to Bloomberg.com, GM has $18.5 billion set aside for retiree healthcare. Where the rest of the money will come from has not been announced. Ron Getelfinger states that the VEBA will be financially sound for at least 80 years.

GM will get the two-tier labor rates that they sought. Current hands will continue at their current pay rate. New hires will be paid approximately half as much, or $14.00 per hour. More than 4,000 "temporary" workers will become full-time UAW workers.

There is actually another tier for employees who are not actively engaged in the assembly of vehicles. No details were released about the wage rates for these workers.

"Uncle" Ron Getelfinger announced that he was happy with the job security provisions in the contract; however the specifics weren't released. Apparently there is a modified version of the infamous "jobs bank".

There is no news about whether legal services coverage was kept or dropped. Reading between the lines, it looks like its probable that the legal insurance was kept in the new deal. The theme of the contract is now COLA payraise for current workers in exchange for no increase in medical copayments, lower wages for new hires to help competitiveness, and a VEBA for balance sheet relief for GM and long-term security for the retirees.

Fret not for the workers who are not getting a pay raise. The contract includes a $4,000 signing bonus, and annual bonuses of either 3% or 4% for the other years of the contract.

It appears this contract has gone a long way towards closing the wage gap with the captive imports. There's some indication though that weakness at the Detroit 3 may result in a "race to the bottom" regarding wages. Honda just announced its wage scale at its new plant in Greensburg, Indiana. Workers there will start at $14.84 and go up to $18.55 within a two-year period. At the starting wage, a worker would make about $30,000 per year with a 40 hour week. Nissan and Toyota's current US plant pay base wages close to or even higher than the UAW base wage, but the fringe benefits are less. Hyundai's wage rates are apparently similar to what Honda is offering.

Sources:

Bloomberg
Detroit Free Press
Detroit News

Obama Supports the UAW

You would generally expect a presidential candidate to be wishy washy in commenting on something as controversial as the GM strike. To his credit: Senator Obama has taken a stand, and he's come out firmly in favor of the UAW. Here's what he had to say (as published in the Detroit Free Press.)

I stand with the 73,000 United Automobile Workers who are striking. ... The
demands the union is fighting for -- job security, the health benefits they were
promised -- are things that all workers should expect and that UAW members
deserve. General Motors owes it to the UAW to come back to the bargaining table
so that union members can go back to work.

-Senator Barack Obama

How Long can the Strike Last?

I've had several people email me and ask me how long the UAW-GM strike will last. I'm guessing it'll last a week. Here's what the Detroit Free Press says about how long it could last.

Analysts and labor experts said the automaker and the UAW could manage a short
labor stoppage without much trouble. GM has enough cash and inventory to manage
a strike of a few weeks to a couple of months. The UAW had more than $800
million in its strike fund as of November -- enough, in theory, to strike GM for
a year.

Here's what the same article has to say about the costs of a longer term strike:

Although both parties said they desire a prompt resolution of the issues,
analysts said they have a little time before the matter becomes truly
detrimental.
GM has 111 days of inventory to sustain dealers, according to
estimates by Lehman Brothers analyst Brian Johnson.
A short strike might cost
GM less than $1 billion, but a two-month strike easily could cost $15 billion,
he said.
"GM was facing the need, we believe, to cut production by about 15
days of production closure -- making a two-week strike actually, ironically, a
lower-cost way to adjust inventory," he said.

The union members will receive $200 per week in strike pay after 8 days. I haven't heard anything about whether there as even been any discussion on whether to continue legal services coverage in the new contract. It would be ironic if they had a long strike, ended up with lower pay and no UAW-LSP coverage to fight bill collectors for them and file their bankruptcies.

STRIKE!

By 11:27 AM today, the news had broken that GM plants were going on strike across the country. Surprisingly, shortly thereafter, word came to me from two un-named sources that there was a tentative deal, and that there will be an announcement within an hour. That's not a strike, that's a long lunch. Minutes later, word came down that there will be a 12:15 news conference going over the REASONS for the strike and not to announce the strike's settlement.