GM’s U.S. Workers Strike After Contract Talks Fail

GM’s U.S. Workers Strike After Contract Talks Fail

By Jeff Green and John Lippert

Sept. 24 (Bloomberg) — General Motors Corp.’s U.S. factory employees staged their first nationwide strike in 37 years after the largest U.S. automaker failed to reach a new labor agreement with the United Auto Workers.

The walkout, at 11 a.m. New York time, came 10 days after the union extended the old contract past its expiration while the two sides negotiated. The latest round of bargaining had run for more than 25 straight hours from yesterday morning until the strike. Talks resumed this afternoon and recessed for the day around 8 p.m., GM spokesman Tom Wickham said.

It was a one-way set of negotiations,'' UAW President Ron Gettelfinger told reporters today in Detroit.It was going to be General Motors’ way at the expense of the workers. The company walked right up the deadline like they really didn’t care, and as a result we called a strike.’’

The walkout reflects a collision between Chief Executive Officer Rick Wagoner’s need to cut labor and health-care costs, after $12.4 billion in losses in 2005 and 2006, and Gettelfinger’s goal of protecting the pay, benefits and jobs of 73,000 members at GM’s U.S. plants. UAW membership has shrunk by two-thirds over the past three decades.

The strike immediately idled more than 80 GM manufacturing and parts operations in the U.S. and threatens to shut down factories in Mexico and Canada. The shutdown will cost GM about 12,200 vehicles in the U.S. each day to start, CSM Worldwide Inc. estimated in a report today. That may spread to more than 18,100 a day counting Canada and Mexico, CSM said.

In addition, the strike may stop work for 100,000 Canadian Auto Workers members at auto-assembly and parts plants in Canada within four days, union President Buzz Hargrove told reporters in Toronto. He said a Windsor, Ontario, transmission plant is shut down and other plants will be shuttered in the next 72 hours.

Shares

GM fell 14 cents to $34.80 at 4:01 p.m. in New York Stock Exchange composite trading. Shares of Detroit-based GM gained 14 percent this year before today, spurred by optimism about a new labor agreement. Credit-default swaps rose, suggesting a decline in investor confidence.

The strike is a positive development,'' Brett Hoselton, an analyst at KeyBanc Capital Markets in Cleveland, wrote in a report today.We believe the work stoppage will be short-lived and is being used by the union’s leadership as an instrument in pre-conditioning the constituency to accept more concessions, not fewer.’’

GM and UAW negotiators will resume talks tomorrow morning, GM’s Wickham said.

`Disappointed’

We are disappointed in the UAW's decision,'' GM spokesman Dan Flores said.The bargaining involves complex, difficult issues that affect the job security of our U.S. workforce and the long-term viability of the company.’’

Gettelfinger in his press conference bolstered his case against deeper givebacks by pointing to concessions the UAW has made in the last two years.

In 2005, the union agreed for the first time to require retirees to pay a portion of their medical premiums and also agreed to a plan that allowed Wagoner to close 12 North American locations by the end of 2008. GM used buyouts and retirement incentives to get 34,400 union workers to leave last year.

Wagoner has said he needs to pare health costs as GM cedes sales and U.S. market share to Toyota Motor Corp. and other foreign competitors. His goal is to cut fixed expenses such as labor to 25 percent of revenue by 2010, from about 30 percent now.

Retiree Health Fund

The focus of the talks had been GM’s request that the union take control of a new retiree health-care fund to pay out future liabilities estimated at $50 billion in exchange for a one-time payment into the fund from the automaker, people familiar with the discussions said last week. The two sides agreed in principle to the fund, known as a Voluntary Employee Beneficiary Association, or VEBA, three days ago, the people said.

The talks had then moved on to issues involving pay, pensions and other non health-care proposals, the people said.

This strike is in no way about VEBA discussions,'' Gettelfinger said. The UAW hadn't called a nationwide strike against GM since 1970, when workers went off the job for 67 days. Since then, the union has opted for strategic plant-by-plant strikes, some of which shut almost all of GM's U.S. factories, the last in 1998.We didn’t want to walk out,’’ said Billy Cummings, a 32- year GM worker at the transmission plant in Warren, Michigan, as motorists honked car horns in support. But you've got to take a stand for what's right.'' As of Sept. 1, GM had enough cars and trucks at dealerships to last 67 days at the current rate of sales, Automotive News reported. The industry average was 57 days. Who Blinks FirstIf this is gamesmanship to get GM to blink, it is a dangerous strategy because both parties have a lot to lose here,’’ said Van Conway, who advises struggling companies as president of Birmingham, Michigan-based Conway, MacKenzie & Dunleavy.

GM will lose output of about 12,200 cars a day, or 760 vehicles an hour, in the U.S. as long as the strike continues, CSM Worldwide estimated in its report. Should the strike last more than 36 hours, another 4,000 vehicles will be lost in Canada because of a shortage of engines and transmissions from the U.S., the Northville, Michigan-based company said.

A strike beyond 72 hours would add 1,900 vehicles a day from Mexico, the forecasting firm estimated — bringing total daily vehicle losses to 18,100 cars and trucks. Work stoppages into the weekend could disrupt production in Venezuela, Thailand, Australia, Korea and Europe, CSM said.

Length of Strike

GM doesn’t expect the strike to last more than a week, CSM Vice President Michael Robinet said. GM could withstand a strike of two or three weeks before dealers face any shortages, he said.

This year’s contract negotiations in Detroit followed combined losses of $15 billion at GM, Ford Motor Co. and Chrysler LLC last year.

The UAW chose GM as the focus of negotiations, naming the company as its strike target'' on Sept. 13. Once an accord at GM is in place, the union will then attempt to extend the basic terms to Ford and Chrysler, where negotiations are on hold pending a resolution at GM. The union had 538,448 members in December, from a peak of 1.5 million in 1979. Possible Repercussions Fitch Ratings today put GM bonds -- rated B, or five steps below investment grade -- onrating watch negative’’ because the strike has the potential for ``far-reaching, crippling repercussions throughout the industry.’’

The automaker’s 8.375 percent bond due July 2033 climbed 1.75 cents to 89 cents on the dollar, the highest since July 19, according to Trace, the bond-price reporting system of the NASD. The yield fell to 9.53 percent.

Credit-default swaps tied to GM’s bonds rose 10 basis points to 560 basis points, according to Credit Suisse Group, signaling deterioration in investor confidence. The price means it costs $560,000 a year for five years to protect $10 million of GM’s bonds.

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net ; John Lippert in Southfield, Michigan jlippert@bloomberg.net
Last Updated: September 24, 2007 20:25 EDT

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