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U.S. Automakers Say Labor Costs Must Shrink to Compete

June 20, 2007
Related Topics: Benefit Design and Communication, Labor Relations, Latest News
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Detroit automakers are vowing to fight for significant labor savings in master contract negotiations with the UAW.

At a series of background sessions this month, executives from the three major U.S. car companies said they need to close a labor cost gap of $20 to $30 per hour with their Japanese counterparts in North America.

The UAW is accustomed to wages and benefits gradually growing, not shrinking. But these negotiations, which run until the September 14 expiration of the current contract, must bring change, says Dave Cole, director of the Center for Automotive Research, a think tank in Ann Arbor, Michigan.

“I think you could see a lockout,” Cole says. “The car companies won’t settle for anything short of transformational change in their labor agreements.”

UAW president Ron Gettelfinger has said the union already gave General Motors and Ford Motor Co. substantial relief on health care costs over the past few years. He has said the UAW is not interested in giving up more in the current negotiations.

Ford has a goal to cut its labor costs by 30 percent, The Detroit News reported last week. Ford declined to confirm the report.

But in the face of massive financial losses, the Detroit automakers must bring labor costs that are now about $72 per hour ($28 an hour in wages plus benefits and pension costs), closer to the $45 to $50 per hour of the Japanese car companies operating in North America, Cole says.

Among the ideas being floated by the Detroit automakers is a new structure to pay for retiree health care. Under various scenarios, the car companies would pay the UAW 60 cents to 70 cents on the dollar to assume a combined liability of $93 billion for the Detroit companies.

The union would then control the money and the risk of meeting the obligations through a trust known as a Voluntary Employee Benefits Association.

The union isn’t interested in that plan—at least not now, Cole says. But it is listening to the idea as a hedge against possibly losing all those benefits should any of the companies falter into bankruptcy, he says.

The UAW declined to comment last week.

Filed by David Barkholz of Automotive News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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