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Why the UAW Hasn't Given Up Its General Motors Strike

By John Rosevear – Sep 23, 2019 at 4:07PM

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There are some big issues at stake for both sides.

The United Auto Workers' (UAW) nationwide strike against General Motors (GM 2.43%) hit the one-week mark at midnight on Monday, with both sides beginning to dig in for a protracted shutdown.

This is becoming a big deal for GM -- and it could become a big deal for GM investors if it continues. My Foolish colleague Adam Levine-Weinberg estimated that the strike is costing GM about $45 million per workday -- or something on the order of $300 million so far (assuming lower losses on weekends). That would be bad enough, but as the strike goes on, network effects -- suppliers shutting down, for instance -- exacerbate the damage. 

GM's U.S. dealers had good inventories as of a week ago, but every day without vehicle shipments brings their inventory levels closer to the point at which they begin losing sales. Halted shipments of parts might be a bigger worry: Automotive News reported that some GM dealers expect parts shortages to shut down their repair departments before long.

Meanwhile, the UAW's strike fund is paying striking workers $250 per week and picking up the cost of their healthcare for the duration of the walkout. Simply put, the pressure is rising for everyone involved -- but as far as we know as of Monday, the sides are still far apart. 

Here's a rundown of the key issues under dispute between GM and its UAW-represented workers. 

Jones and Barra are shown shaking hands across a conference table.

UAW president Gary Jones and GM CEO Mary Barra were all smiles when contract negotiations began in July -- but those smiles have long since faded. Image source: General Motors.

Temporary workers are a key sore point

For the UAW, this is a big deal. About 7% of GM's U.S. factory jobs are filled by temporary contract workers making lower wages. Those workers work side by side with full-time employees making UAW wages, and despite their "temp" status, some have been working at their jobs for years. The UAW wants GM to reduce the number of temps it hires and to create a clear path for current temp workers to become permanent full-time employees.

GM, on the other hand, would like to use more temp workers, because they lower the company's costs and increase its flexibility when it needs to reduce production -- as it has already begun doing in North America.

A quicker path to full wages for new workers

Under the 2015 contract, new hires get a series of raises that put them at top-scale pay levels after eight years. That was a significant win for the UAW at the time, as it did away with a permanent two-tier wage system that would have prevented new hires from ever getting to full wages. But the UAW argues that eight years is still a long time; it would like to compress the process to get new workers to top scale after four years. 

GM, worried about labor costs, wants to keep the current eight-year system. 

Who will pay for workers' healthcare?

GM's UAW-represented workers currently pay about 4% of their healthcare costs. That's very low: The average U.S. worker contributes about 29% of the premium for family healthcare coverage, according to a study released last year by the Kaiser Family Foundation. 

With GM under heavy pressure to control costs in order to stay competitive, rising employee healthcare costs are a natural target. GM's initial proposal to the UAW increased the percentage of healthcare costs contributed by workers to 15% -- still well below the national average but a big increase. 

GM reportedly backed off that demand shortly before the UAW went on strike. If the final contract holds employee contributions at 4%, that will be a victory for the union -- but a source of concern for Ford Motor Company (F) and Fiat Chrysler Automobiles (FCAU), which have their own concerns about healthcare costs. The UAW will expect Ford and FCA to follow the template of the contract it secures with GM. 

Investments in U.S. factories

Last November, GM announced a significant restructuring of its North American operations. Part of the plan called for five factories -- four in the U.S., one in Canada -- to be "unallocated" after 2019, meaning that those factories would have no new products to build. Put simply, they'd be closed -- and about 6,300 workers would lose their jobs.

Needless to say, the UAW wasn't happy about that plan. A particular sore point: the GM Lordstown Complex, a large factory that manufactured the compact Chevrolet Cruze sedan. It was idled in March -- but a GM factory in Mexico continues to make variants of the Cruze. The UAW wants GM to give Lordstown a new product to build, preferably a high-volume product that will require 2 or 3 shifts of workers. 

The proposal that GM gave to the UAW shortly before it called the strike didn't do that. It did include an offer to make electric-vehicle battery cells at Lordstown or at a new plant that would be situated nearby as part of a broader proposal to invest more than $7 billion in eight U.S. factories. That battery-cell plant would create several hundred new jobs, but it wouldn't come close to employing everyone who worked at Lordstown when the Cruze was selling well -- and those new jobs might have been paid at a lower rate than the current UAW scale. 

A sign outside General Motors' Detroit-Hamtramck Assembly Plant.

The UAW is hoping to keep the Detroit-Hamtramck Assembly Plant open. GM currently plans to idle it in January. Image source: General Motors.

The fate of GM's Detroit-Hamtramck Assembly Plant is another issue in the talks. The factory, one of GM's most flexible and advanced assembly plants, is currently scheduled to shut down in January. GM's proposal reportedly includes a plan to keep the plant open to build new battery-electric pickups in a couple of years. But it's not clear how many workers would be required, and it's not clear what would happen to the factory between now and then.

The upshot: The two sides have significant differences

For GM, there's a larger issue here: It's beginning the process of transitioning away from internal combustion to electric and autonomous vehicles. It wants as much flexibility as possible while it figures out how to best make that transition. 

For the workers, the concern is simple: They want to know that they'll continue to have decent jobs and that their colleagues who are temp workers will have a path to decent jobs as well. 

How long will it take GM and the UAW to get to an agreement they can live with? It's hard to say, because we don't know much about the state of the negotiations. But as of right now, the signs we can see suggest that an agreement doesn't seem likely to happen soon.

John Rosevear owns shares of Ford and General Motors. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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