In today's preprinted Business section story about United Auto Workers contract negotiations, the amount General Motors top managers collected in bonuses last year is incorrect. The correct figure is $169 million. (Published 7/19/87)

DETROIT -- The nation's two biggest car companies are preparing for a labor fight that could alter the future of the American auto industry.

The developing conflict involves the United Auto Workers union, General Motors Corp. and Ford Motor Co. Negotiations for new three-year contracts between the union and the two auto giants begin here the week of July 27. The contracts expire Sept. 14.

Contracts between the UAW and Chrysler Corp. do not expire until next year.

For both the companies and the union, however, the driving force at the bargaining table will be an invisible third party: foreign competition.

The UAW will be fighting to hold onto jobs endangered by overseas auto makers and part suppliers, while the two car companies will be demanding contract provisions to cut production costs and increase quality. The companies will seek to hold onto rights allowing them to buy parts and vehicles from non-UAW sources, both foreign and domestic.

"If there is one overwhelming, compelling dynamic in these talks, it is the internationalization of the U.S. auto industry," said Peter J. Pestillo, Ford's vice president for employe and external affairs.

That development has robbed the UAW of "one of its absolutely most powerful weapons -- the ability to assure U.S. auto makers that no one will pay a different rate for the labor used to produce a part or product" in the American auto market, Pestillo said.

UAW leaders acknowledge that the rise of foreign competition has compromised their bargaining posture. But they say they will insist on limiting "outsourcing" and will argue for provisions to ease the pain of a changing auto industry on their members.

"The union is not trying to stand in the way of change," said UAW spokesman Peter Laarman. "Instead, we are leading the charge for the change that is needed to improve quality and make the industry competitive. But we do not believe that workers should be unnecessarily victimized by change."

Auto industry analysts are predicting a strike. Some suggest that the resurgent Ford, with its soaring profits and relatively small product inventory, will be the target. Others, like William C. Melton, vice president and senior economist with IDS Financial Services Inc. in Minneapolis, believe a UAW walkout at GM is more likely.

GM's top managers collected $169 billion in bonuses last year in a period of declining profits. But the company's 350,000 production workers, about 30,000 of whom are facing job losses because of planned plant closings, received no profit sharing. Union officials say there is much rank-and-file resentment over that perceived disparate treatment.

Also, analysts say, GM is in serious need of doing something about its high parts-production costs. GM, for example, employs 180,000 people in components manufacturing -- more than all of the UAW-covered production people employed at Ford and Chrysler Corp. combined.

GM, as a result, probably will take a hard line on expanding outsourcing opportunities, much to the chagrin of the UAW, some analysts say.

"An auto strike against GM is a very high probability" and "most likely will start in late September and last for most of the fourth quarter," Melton said.

For the moment, however, both the union and the companies are downplaying strike talk.

Both sides agree that how the issues are resolved could help determine whether U.S. car companies become bigger marketers than manufacturers of vehicles in America. Some 454,000 UAW-represented workers are affected by the upcoming talks; but more than their future is at stake.

Each production job at a U.S. auto assembly plant generates two jobs outside of the factory, meaning that 908,000 jobs in addition to those immediately affected also hang in the balance, according to figures provided by the Motor Vehicle Manufacturers Association of the United States Inc.

Inasmuch as agreements at GM and Ford could affect the operation of Chrysler, another 200,000 jobs in and related to the U.S. auto industry could be affected by the outcome of this year's negotiations, analysts say.

There's the rub: Companies do not have to be full-scale manufacturers of parts and products to be full-scale providers of those goods. That truism is becoming an article of faith among domestic auto makers facing tough competition from abroad and from a growing number of foreign manufacturers assembling vehicles on American shores.

In their struggle to cut costs and increase competitiveness, American auto makers are turning more and more toward usually less expensive foreign sources for parts and cars.

GM, for example, last year sold 330,870 cars obtained from its Japanese partners, Isuzu Motors Ltd. and Suzuki Motor Co. Ltd., and produced in America by New United Motor Manufacturing Inc. -- a joint-venture company operated by GM and Toyota Motor Co., Japan's largest auto maker.

The engine and drive train, the most expensive components in the NUMMI car, the Chevrolet Nova, are produced by Toyota. GM also expects to sell about 80,000 cars a year produced by its Korean partner, Daewoo Motor Co.

Ford is following suit, importing Mazda Motor Corp.-designed Mercury Tracer subcompacts from Mexico and bringing in Festiva subcompact cars from its Korean partner, Kia Industrial Co., Ltd.

In the area of components sourcing, Ford is more aggressive than the bigger GM.

For example, according to Ford officials and industry reports, Ford receives as much as 60 percent of its components from non-Ford sources, compared with about 30 percent outside parts used by GM.

GM officials argue that Ford's larger use of outsourcing helped their rival look good in the eyes of Wall Street and in the eyes of its workers last year. The average UAW-represented production worker at Ford received a profit-sharing payment of about $2,100 in 1986.

GM gets "a lot of criticism" for scrapping 1986 profit sharing. But the complainers are unaware that the company could have made similar payments by increasing outsourcing to Ford's levels, said Alfred S. Warren Jr., GM vice president for industrial relations.

In 1982, when domestic auto makers were piling up recession-caused losses, GM had 120,000 workers on layoff, many of those in GM component companies, Warren said. "But we demonstrated an interest in keeping those jobs; we brought all of those jobs back into General Motors," Warren said.

In view of the rapid growth of foreign competition in the U.S. auto market, bringing those jobs back "might've been a mistake," Warren said.

Now, every major Japanese auto maker is building, or is planning to build cars in the United States, and most of those manufacturers are buying parts on the market considerably below GM's costs for producing comparable components in house, Warren said.

John McNeil, auto industry analyst with Data Resources Inc. in Lexington, Mass., agreed. But outsourcing will play second fiddle in the talks to the larger issue of the internationalization of U.S. auto production, McNeil said.

Foreign auto makers will produce 750,000 vehicles in the United States this year, up from 600,000 last year, McNeil said. By 1992, overseas-based companies will be rolling out 1.5 million cars from their U.S. plants, with components from suppliers worldwide, he said.

"International competition puts a huge squeeze on the UAW," especially because the union so far has failed to organize Honda Motor Co. Ltd. and Nissan Motor Co. Ltd. plants in the United States, McNeil said.

"In that light, outsourcing is less of an issue. The real issue is the growing presence of the foreign-owned plants here. The UAW can strike against the domestic companies, but if the foreign-owned plants keep coming" without UAW representation, "who are they going to strike, then?," McNeill asked.

UAW officials and rank-and-file members view their current circumstance with a mixture of militance, hope, and befuddlement. The anger over past and planned plant closings is real, and deep, especially in light of the multibillion dollar sacrifices made by the union to help domestic auto makers through the last recession.

"You and I know where the pain is coming from," UAW President Owen Bieber told the UAW-Ford National Collective Bargaining Council at a strategy meeting last month in Chicago.

"You and I can see how the companies have achieved their recoveries by slashing domestic capacity and by sending our work overseas and to nonunion plants in this country. But the outside world doesn't necessarily see this side of the story," Bieber said.

And the outside world, particularly that part that has awarded foreign auto makers about 30 percent of the U.S. auto market, including foreign-nameplate cars built in America, apparently does not see it the UAW's way either.

Thus, the union's hope for public support in its pursuit of job security, hinges on its ability to demonstrate general economic injury caused by foreign competition. U.S. auto makers have joined the UAW in that quest.

At least 23.6 percent, $16.2 billion, of the nation's $68.7 billion trade deficit is attributable to imports of foreign vehicles and automotive parts. And that deficit spells bad news for everyone involved in the U.S. auto industry, UAW and American auto industry officials say.

Both sides agree that trying to woo the American public with that argument is, at best, a hard sell.