More than a month ago, General Motors' (NYSE:GM) unionized workforce walked off the job, after their four-year contract expired and United Auto Workers officials found the company's contract offer underwhelming. As a result, production has ground to a halt across North America, leading to lost sales as dealer inventory of certain models has started to run low.
GM and the union finally reached a tentative contract agreement on Wednesday. But while the UAW's local leadership voted to send the contract to members for a ratification vote, GM workers aren't back on the job yet. If all goes well, production could restart in a little more than a week. But there's a meaningful chance that rank-and-file workers will reject the tentative agreement, in which case the strike could drag on well into November.
Plenty of benefits for both sides
The GM-UAW tentative agreement incorporates significant compensation gains for the General's hourly workforce, according to a union summary. Most notably, by September 2023, all permanent employees who are currently with the company would be eligible for the top hourly rate of $32.32. Workers hired in the years ahead would start at a lower wage rate and progress to that level over time. For comparison, some permanent employees earn as little as $17 per hour today. Under the old GM contract, it would have taken eight years for new hires to reach the top of the wage scale.
The tentative agreement also includes 3% wage increases in September of 2020 and 2022. In 2019 and 2021, workers will receive one-time bonuses equal to 4% of their qualified annual earnings, in lieu of raises. The agreement also calls for $1,000 performance bonuses in each year of the labor deal. The current $12,000 per person cap on profit-sharing payments has been removed, too.
In another big win for the union, the agreement preserves the current healthcare plan, under which employees are responsible for about 3% of the total costs. It also creates a clear path for temporary workers to become permanent GM employees. To bolster job security, General Motors has pledged to invest $7.7 billion in its U.S. factories over the next four years, creating or saving at least 9,000 jobs. Finally, permanent employees will receive hefty ratification bonuses of $11,000 each, while active temporary workers who have been working for GM for at least 90 days will get $4,500.
UAW leaders had to make some compromises to get this deal, though. Crucially, the union consented to GM's plans -- announced last fall -- to shutter transmission plants in Maryland and Michigan and an assembly plant in Ohio. This will allow General Motors to improve its factory utilization.
Union negotiators did manage to save a second U.S. assembly plant that GM had hoped to close. The Detroit-Hamtramck factory will be repurposed over the next few years to build an electric pickup truck. GM has also offered a combination of transfers, buyouts, and enhanced retirement packages for employees affected by the plant closures.
Ratification is not guaranteed
Union leaders took the unusual step of continuing the strike until employees ratify a new labor agreement. The union locals will hold informational sessions and ratification votes over the next week, ending on Friday, Oct. 25.
Despite the significant economic gains that union negotiators won at the bargaining table, there's a real risk that the tentative agreement will be rejected. First, a major corruption scandal at the UAW that is still being unraveled has made union members understandably skeptical of whether UAW leaders have their best interests at heart.
Second, many union members are furious about GM's decision to close its Lordstown, Ohio, assembly plant, which previously built the Chevy Cruze. They wanted the union to demand that a new product be allocated to that facility -- perhaps by shifting production out of Mexico. Union negotiators ultimately compromised on that point to achieve their other aims, but as a result, many affected workers have vowed to vote against the tentative agreement.
Rejection of a tentative agreement is rare in the U.S. auto industry, but it wouldn't be unprecedented. Four years ago, Fiat Chrysler workers voted down the first tentative agreement presented to them by a 65%-35% margin.
An end to the strike could be close -- or very far away
If General Motors' rank-and-file employees ratify the tentative agreement announced this week, the company should be able to restart production at its facilities throughout North America by the end of October. After more than a month on the picket lines, many union members are eager to return to work and start getting paid again. There are enough "carrots" in the contract -- including raises, a path to permanent status for temporary workers, and the big ratification bonus -- that they may be willing to tolerate the concessions that the leadership made.
However, if a majority of GM employees vote against the tentative agreement, the strike could drag on for weeks or months. The most contentious issue is the plan to close the Lordstown plant, and General Motors isn't likely to compromise on this point. Keeping the plant open would exacerbate the General's overcapacity, a problem that could become even more acute during the next industry downturn.
Thus, the GM strike could be poised to end very soon -- or not for quite a while. We'll find out what the company's unionized workers have decided in less than a week.