A Turning Point for Detroit

ARTICLE SUMMARY

A turning point for Detroit

Sep 27th 2007 | DETROIT AND LONDON

From The Economist print edition

http://www.economist.com/PrinterFriendly.cfm?story_id=9867832

This article contains the conclusions of long-term negotiations between the US car manufacturer General Motors and the UAW United Auto Workers unit, who striked for the first time in GM’s 37 year history.

A new four-year-contract which includes the establishment of a Voluntary Employee Beneficiary Association (VEBA) to pay for prospective retiree health care and modified wage rates is the mutually satisfactory result of the two day strike of 75,000 General Motors workers in Detroit which was initiated by UAW leader Ron Gettelfinger a few weeks ago.

Due to horrendous health expenses it recently became exceedingly difficult for GM to compete against Japanese rivals such as Toyota, whose employees are not unionised and hence cause much lower labour costs. Furthermore the foreign car maker has already conquered more than 50 % of the current American auto market after the takeover by Ford and GM so was desperate to react to catch up again.

Although the UAW made sure to drive a hard bargain, they agreed soon, as, after years of high losses, cost cutting became apparently necessary to prevent GM from going bankrupt and hence keep thousands of people from unemployment.

On the other hand the new wage agreements are a small success for the UAW as wage reductions will mainly have an effect at new employees and many current workers will even get a better salary.

GM will invest the huge amount of $ 51 billion in the VEBA solution. This should help GM to reduce immense long-term health costs and according to this to become competitive again. Nevertheless GM is unfortunately forced to cut 30,000 jobs by the end of 2008.

Next difficult task for the UAW will be negotiations with Ford and Chrysler and a similar conclusion.

On my opinion it was decidedly the best for the UAW to come to a mutual agreement with GM even though the cuts of 30.000 jobs are a great sacrifice. Yet it is much better than twice as many unemployed