Automakers' Fate Is on the Table
GM and Its Unions Are Negotiating Pay Cuts to Meet Terms of Federal Loan

By Peter Whoriskey
Washington Post Staff Writer
Thursday, January 15, 2009

On one side of the table, representing General Motors, is Diana Tremblay, 49, the daughter of a GM engineer who grew up in an Ohio company town and then rose through the ranks to the corporate suite.

On the other, representing the United Auto Workers, is Cal Rapson, 63, a union member since 1965 when he joined the local at the Chevrolet engine plant in Flint, Mich. Each of his four grown daughters are members of the auto union. His personal motto is "never give up."

Together, meeting regularly at an office building in Detroit, the duo and their negotiating teams are trying to strike a deal that could determine the fate of the vast U.S. auto industry.

Their work is taking place behind closed doors; they declined to comment for this story. Under restrictions laid out by the Bush administration to receive a federal loan, they must cut worker pay and benefits to levels that are competitive with the plants that Honda, Toyota and Nissan operate in the United States.

By some estimates, that could mean dropping compensation by as much as 20 percent. Such a plunge would surely anger some workers, but if the negotiations fail in the coming months, the financial lifeline the federal government has offered the companies -- $17.4 billion in loans -- could be reeled in, potentially pushing the companies to seek bankruptcy protection.

However, union leaders at GM -- and at Chrysler, where parallel discussions are underway -- might not be in a hurry to reach an agreement. Some are hopeful that the incoming Obama administration will rewrite the controversial loan agreement and rescind the requirement that worker compensation be reduced.

Many union leaders, who supported Obama's candidacy, view Obama's decision on this issue as the first major test of the incoming administration's sympathy with labor groups.

"I'm still reasonably optimistic that the Obama administration will loosen up some of those restrictions," said Ken Lewenza, president of the Canadian Auto Workers union, whose members will be affected by any U.S. agreement, albeit indirectly.

GM officials expressed optimism that the two sides could reach an agreement; for now they are proceeding under the assumption that the terms won't change.

"We have a good relationship and everyone is on the same page," said Gary Cowger, GM vice president of global manufacturing and labor. "We're in continued discussions. And if you look at the track record we've done a lot in the past three years."

In crafting the loans to the auto companies last month, Bush administration officials placed demands on GM and Chrysler intended to make the domestic industry viable, more energy efficient and competitive with foreign automakers.

By Feb. 17, the companies must submit a viability plan, which includes a reduction of debt, as well as an agreement with the union. GM is also pushing to shrink the number of its dealerships and brands.

Under the agreement, the companies must use their best efforts to extract the wage and benefit concessions from the union.

The wage restrictions imposed by the Bush administration mirror the requirements favored by Southern Republican senators led by Bob Corker of Tennessee.

Some Democrats have criticized those restrictions as an attack on unions that essentially allows foreign companies -- the Japanese automakers in the United States -- to set American wages.

Last week, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who called the requirements "an unfair assault on working men and women," proposed a bill that would rescind the wage restriction.

"The negotiators are working with what might be a moving target," said Kris Dziczek of the Center for Automotive Research. "The conditions put in place by the Bush administration may or may not hold. Anything could happen."

Estimates of the differences between domestic and foreign automaker compensation scales vary depending on which company is examined.

According to an accounting that Ford provided to Congress and other sources, the typical union worker for a domestic automaker makes about $55 an hour in wages and benefits, while the typical U.S. worker at the plant of a foreign automaker makes about $46.

The difference in wages alone is smaller. Union workers make about $29 an hour, while employees at foreign-owned plants make about $26 an hour, according to the Ford figures.

Where labor cost differences are much greater is in terms of health-care and pension costs for retirees, Dziczek said. U.S. automakers have four retirees for every active worker.

The industry had been moving to lower overall compensation costs, but at a slower pace than some lawmakers are demanding.

Under a recent agreement, new union workers would make as little as $14 an hour -- about half of what the average worker currently makes. As more and more new workers were added or replaced retiring workers, the companies' wages costs were expected to drop significantly.

The problem for the domestic industry is that the economic downturn means that fewer new workers will be employed, meaning that without another concession the average wages likely will not drop.

"It's a very tense time," said Mike Herron, chairman of the local for a GM plant in Tennessee. "Everyone is holding their breath and praying for the best."

If the 20 percent reduction in compensation happens, he said, "People here wouldn't be jumping for joy. But they're like every other middle-class American out there: They're worried if they're going to have a job tomorrow."

Staff writer Kendra Marr contributed to this report.

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