Although labor talks between GM and the UAW have been going on since the union's contract expired last Friday at 11:59 PM EST, we've been following the late-night negotiations from afar, waiting for something that amounted to more than the mainstream media's perpetually boring status updates. That finally came today in an article in the Detroit News, which reports GM may be considering signing bonuses for current works in an effort to win the hearts and minds of the proletariat if the automaker drops billions of dollars in retiree health care costs.
It's estimated that of the 270,000 retired workers and their 70,000 surviving spouses, GM will need to pay over $50 billion in health care costs – but it doesn't have the funds. The move to offer signing bonuses to current workers was devised so that GM could lose the insurmountable health care costs that will likely go up in the coming years, and replace them with lump sums now, when the General can afford it.
The plan is to set up union-controlled trust funds that would receive stocks and cash, and would negate the need for GM to foot the bill. However, negotiations, which have been in constant turmoil, have broken down again, with the two parties conflicted on how much money to throw into the assets and what happens if health care costs exceed the amount of money stored up by the UAW.
Can this be the buy of the century? As the rumors of Chrysler's sale increase analysts are starting to talk about just how much it might cost a prospective bidder to secure the rights from Daimler. The numbers they are throwing around seem amazingly cheap. Some are going so far as to say that DCX might have to pay a potential suitor to take Chrysler off its hands. The huge $16.7 billion health care funding is one of the big reasons for that, but the values the analysts are putting on the various Chrysler holdings might come as a shock to many readers. Adam Jonas of Morgan Stanley Research in London lists the values thusly:
Dodge: $6.6 billion.
Jeep: $5.3 billion.
Chrysler brand: $3.2 billion.
Global operations, such as Chrysler's stake in Magna Steyr: $1.4 billion.
Joint ventures, such as Beijing Jeep: $682 million.
Real estate, including the company headquarters, technical center and proving grounds: $1.4 billion.
Deferred taxes and overfunded pension assets: $7.1 billion.
Not included in those estimates is Chrysler Financial which is said to be worth around $7.6 billion on its own. The weird thing about any sale of Chrysler is that buyers will be wanting to know that things are looking up with the company, but it's hard for employees to focus on the future of the company when they are so uncertain of the very existence of Chrysler. GM is still the biggest name being bandied as a potential buyer after several prominent automakers have said they are not interested.
Chrysler no doubt felt a little burned by the United Auto Workers Union after being told it would receive no concessions for health care like the ones offered to both General Motors and Ford. At the time, the UAW cited the Chrysler Group's better financial health as the reason for the snubbing, but apparently the automaker's $1.5 billion loss last quarter and its expected loss of $1.2 billion for the year is enough to convince UAW president Ron Gettelfinger (shown at right with then Chrysler Group CEO Dieter Zetsche in 2003) that Chrysler's not doing as well as he first thought. Therefore, the UAW is conducting an independent financial study of DaimlerChrysler, just like it did for GM and Ford, to assess the company's actual fiscal standing before a decision to offer concessions is made. Since DCX is an German-American hybrid, however, they're finding it more difficult to gain access to the financial info they need. DCX, however, should be as forthcoming with that data as possible if it hopes to convince the UAW that health concessions would be in both their interests.
In the never-ending saga between the Bush administration and Detroit's automakers, a tentative date has finally been set for a meeting.
During a radio interview, President Bush's political advisor Karl Rove confirmed that a discussion between GM, Ford and DaimlerChrysler would take place in mid-November. A specific date was not mentioned, mainly to allow the White House flexibility in it's scheduling.
A sit-down was originally planned in June of this year, with the conversation to center around health-care costs and alternative fuels. GM's Rick Wagoner and others in the industry have made it clear that a 'bailout' is not in the cards.
The UAW on Wednesday jumped on rumors that it had reopened talks with Chrysler. According to a piece in The Detroit News, UAW spokesman Roger Kerson said there was no meeting over one of the biggest sticking points, health care, as was rumored elsewhere. Although the UAW has reached health care agreements with GM and Ford this year, they broke off talks with Chrysler over this issue in September, likely because Chrysler wasn't in as dire of straights as Ford and GM. Chrysler spokesman Mike Aberlich said they are still communicating with the UAW on this issue but stated "we're not in negotiations."
Just prior to halting talks, Chrysler was set to announce a $600 million third quarter loss. Chrysler has since refigured the loss at $1.5 billion. The automaker has about 50,000 active UAW employees and spends about $2.3 billion on health care for them and another 100,000 hourly retirees. That cost rose about 10% from last year's $2.1 billion. Although Chrysler claims it could save about $340 million a year by renegotiating along the same lines as GM and Ford did, the issue is still officially off the table.
UAW President Ron Gettelfinger, who also sits on DaimlerChrysler's supervisory board, upheld his decision in an interview with The Detroit News this week. "People say, 'Well, Chrysler has projected a loss,' " Gettelfinger said. "But this is one quarter, and we're going to work our way through the situation there no different than we did at Ford and General Motors." Even after 12 straight profitable quarters, DaimlerChrysler CEO Dieter Zetsche has criticized the union for its hard-line stance on this issue. "It's a very strange position that we should lose $10 billion before we can have the same as Ford and GM," he said.
With all the discussion about the domestic automakers' future lately, a few of our readers have left comments requesting some additional background on the situation; primarily, the history of the oft-touted "legacy costs" and how they affect the Big 3's survival.
The legacy costs have their roots in the concept of "cradle-to-grave" care provided to industrial workers by their lifelong employers. Such a system utilized employer-funded pensions to provide retirement income and catastrophic injury coverage for employees, and also ensured workers that they would receive a high level of health care coverage upon retirement. This arrangement minimized the burden on government-funded social security programs and provided significant incentive for loyalty on behalf of the employee, but also depended on steady growth within the manufacturing sector - an assumption that, as we now see all too clearly, turned out to be wrong.
Follow the jump for a breakdown on what automakers could do to address the burden of legacy costs and what they actually are doing.
UAW President Ron Gettelfinger is apparently done being pushed around by the domestic auto industry. Despite having given landmark cost-saving concessions on health care to both General Motors and Ford, Gettelfinger indicated to Reuters the same offer would not be extended to The Chrysler Group. The UAW considers Chrysler to be in a better financial state than GM and Ford, and therefore has disregarded the time honored tradition of pattern bargaining and not accepted Chrysler's latest concession proposal.
While the UAW may see Chrysler standing on a littler firmer ground than GM and Ford, the German-American hybrid automaker doesn't exactly have a rock solid foundation at the moment. The Chrysler Group still has a decent-sized inventory of unsold 2006 models despite the most aggressive incentive campaign of any automaker during the summer. As a matter of fact, Chrysler has already admitted that it will lose money this quarter for the first time in four years. Sorry Chrysler, you'll get no sympathy from the UAW.
The Big 3 have been trying to shave their health care costs by cutting eligibility and the percentage of benefits for both retirees and current employees, but as it turns out, the three companies have found tens of thousands of people still receiving benefits despite their ineligibility. As a result, General Motors, Ford Motor Company and the Chrysler Group are purging their health care rosters and even forcing reimbursement from some of those on the lists.
As a result, the three companies have dropped over 86,000 people from their health care benefits plans, finding millions of dollars they would have otherwise lost.
Harsh? Maybe, but the companies don't want to be perceived as punishing false beneficiaries, but rather protecting the benefits of those who are actually eligible for them. Though the terms were worked out with the UAW, employees are still seething that the automakers have the right to dock their pay, even in cases where they feel that the HR red tape is to blame for the issues.
The political alliances in the Motor City have historically been rather black-and-white, with the UAW lining up alongside Democrats and management favoring the Republicans. Yes, one can find exception to these stereotypes, but the above comes as close as one can to describing 40-some years of voting behavior in one sentence. But the times are changing, and traditional alliances between the political parties and their supporters in the auto industry are increasingly stressed.
Most recently, the heads of the Big Three are said to be getting a bit miffed with the White House after receiving a third postponement of a scheduled meeting with President Bush. Additionally, we've heard recent requests from Ford's Mark Fields for "cooperation" between the automakers and government on health care, which can been seen as a position contrary to that of most conservatives. Bob Lutz has gone so far as to claim that he may vote for Hillary Clinton in 2008 as a means to protest the lack of support from Bush.
Keep in mind that the union isn't exactly getting a lot of support from those who have traditionally been in its corner, either. Dick Gephardt was said to be labor's favorite candidate in 2004, and we all know how far his campaign went.
It would seem as if the auto industry is no longer a priority for most politicians from both parties.
The much ballyhooed meeting between domestic auto industry leaders and U.S. lawmakers came and went today, with the net-net being that the Capitol gang has pledged to work with the manufacturers 'as partners.'
Rick Wagoner (General Motors Chair and CEO), Tom LaSorda (DaimlerChrysler President and CEO) and Bill Ford (Ford Chairman and CEO) met with a pool of congressmen to discuss such issues as expanding ethanol's availability, pension policy restructuring, trade imbalances, and health care costs, but if any specific initiatives or resolutions from Thursday's meetings were reached, none have been made public.
Although labor talks between GM and the UAW have been going on since the union's contract expired last Friday at 11:59 PM EST, we've been following the late-night negotiations from afar, waiting for something that amounted to more than the mainstream media's perpetually boring status updates. That finally came today in an article in the Detroit News, which reports GM may be considering signing bonuses for current works in an effort to win the hearts and minds of the proletariat if the automaker drops billions of dollars in retiree health care costs.
The UAW on Wednesday jumped on rumors that it had reopened talks with Chrysler. According to a piece in The Detroit News, UAW spokesman Roger Kerson said there was no meeting over one of the biggest sticking points, health care, as was rumored elsewhere. Although the UAW has reached health care agreements with GM and Ford this year, they broke off talks with Chrysler over this issue in September, likely because Chrysler wasn't in as dire of straights as Ford and GM. Chrysler spokesman Mike Aberlich said they are still communicating with the UAW on this issue but stated "we're not in negotiations."
With all the discussion about the domestic automakers' future lately, a few of our readers have left comments requesting some additional background on the situation; primarily, the history of the oft-touted "legacy costs" and how they affect the Big 3's survival.
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