With the current labor contract set to expire in just a few weeks, talks between the Detroit automakers and the United Auto Workers are picking up speed. The Detroit Free Press reported on Monday that the union's talks with General Motors (NYSE: GM) in particular have intensified, and an agreement may be in place before the old contract expires.
Past talks have often carried on days or even weeks past the old contract's expiration, sometimes leading to disruptive strikes, but United Auto Workers President Bob King has told his lieutenants that he wants talks with all three Detroit automakers wrapped up before the existing contracts expire on Sept. 14.
For GM and Ford (NYSE: F) shareholders who have been cheered by the automakers' newfound cost discipline, these talks deserve close attention. Nothing less than the continued recovery of Detroit is at stake.
Success is the only option. But what is success?
Even though its power has diminished, the UAW still has the capability to make big trouble for the automakers. The union gave up its power to strike against GM and Chrysler as part of the bankruptcy restructurings, but it can still strike Ford -- and it can walk away from negotiations and demand arbitration for disputes against the others.
But even as UAW President Bob King provoked media attention on Monday by saying that a short strike against Ford probably wouldn't be all that harmful in the long run, it's clear that he -- and his leaders, and executives at all three automakers -- will do all they can to avoid a strike or arbitration proceedings.
Why so conciliatory? Simple: These negotiations have to be successful. The momentum of the Detroit automakers depends on it -- as does, quite possibly, the future of the UAW itself.
But what does "successful" mean in this context? GM CEO Dan Akerson has been pretty clear about his definition of success: Rather than giving written-in-stone annual raises, which will undercut the company's focus on keeping fixed costs as low as possible, Akerson is pushing for a bonus or profit-sharing program that is tied to metrics like quality and profitability.
That would mean that workers get more in good times and less in bad -- a challenging level of unpredictability from some workers' perspective, perhaps, but a situation that avoids the need to be giving workers raises when the company is perhaps cutting headcount and programs elsewhere. More to the point, from Akerson's perspective, such a program would align everyone's interests -- workers, like executives, will benefit most when the company is doing well.
One company, one direction
Those interests should be aligned, but often haven't been in the past. Akerson, like counterpart Alan Mulally at Ford a few years ago, has put tremendous thought and effort into the problem of getting all the scattered parts of a massive, sprawling, fief-ridden trainwreck of a company marching in the same direction. As part of this, he has done an impressive job of reaching out to the UAW's leadership and spoken often of regarding the union members as GM's employees, not as a rival.
Perhaps conscious of the difficult PR position the union finds itself in following its special treatment during the bailouts, King has so far responded with mostly conciliatory talk. Despite his remark about striking Ford, when speaking on Monday in Detroit King was at pains to downplay the possibility of a strike or other action, saying that his goal in talks was to keep the Detroit 3 competitive (so as to keep jobs in the U.S.) while allowing workers to share in the companies' current prosperity.
But the union wants a raise, and that could be trouble
But that doesn't mean there aren't differences. King's membership would clearly like a raise -- they haven't had a real raise since 2003, and the annual cost-of-living-adjustments they used to get were phased out in 2009. The union is also concerned with the two-tier pay system created by the last contract, in which new hires get half the salary and benefits of longer-tenured members.
When it was created, that two-tiered system was seen as the future -- a way for the automakers to gradually ratchet down what they paid their workforces to keep U.S. manufacturing globally competitive over time. But King now says that finding more money for those workers is "our highest priority," even as he signals openness to profit-sharing arrangements for those in the higher-paid tier.
My sense is that King gets it -- he understands what the automakers really need, and he's not interested in killing the goose just as the golden eggs have started to return. At the same time, though, he's being pushed by a membership that is frustrated with stagnant wages at a time when GM and Ford are reporting big profits.
King has sought to redirect that ire a bit by making efforts to organize non-union U.S. factories owned by automakers like Toyota (NYSE: TM), Honda (NYSE: HMC), and Nissan (OTC: NSANY). Those efforts continue. But they won't be enough to placate his workers in the absence of a raise -- of some kind.
That's the multi-billion-dollar question: Will the rank and file be satisfied with a contract that plays to the automakers' goals? We'll find out.
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