John Casesa, Mangaing Partner, Casesa Shapiro Group On Automotive Industry Contract Negotiations
Friday, September 14, 2007SUZANNE PRATT: At midnight tonight, the contract between General Motors and the United Auto Workers union is set to expire. Joining me now to talk about contract negotiations and the outlook for U.S. auto makers is John Casesa. He is managing partner at the Casesa Shapiro group, an advisory firm here in New York City. John, welcome back to NIGHTLY BUSINESS REPORT.
JOHN CASESA, MANAGING PARTNER, CASESA SHAPIRO GROUP: Thank you.
PRATT: So do you think there's a good chance of a strike against GM?
CASESA: No, I think there's a very small chance of a strike against GM or any of the auto makers. The strike vote which the union took is standard operating procedure as we get to a deadline. It happens in every negotiation. And although I think this is a watershed year and the negotiations may be contentious, strikes in a contract year are very, very rare.
PRATT: What would a strike do to GM financially, though, if there was one, even for a short period of time?
CASESA: Well it could be very painful. I mean, it would cost the company billions of dollars a month and unlike even four years ago when the last contract was up, this company's financial resources are depleted. It has a lot of cash, but it's got an awful lot of debt. So it would be very painful and I think it would be damaging for union because once the strike is over the company would have less to invest in jobs and products.
PRATT: So let me get back to what you said just a minute ago. Why is this a watershed year for U.S. auto makers?
CASESA: Well, because the U.S. auto makers' financial condition has deteriorated steadily for the last 20 years and it's gotten to the point now where after selling off assets and borrowing heavily, these companies don't have many more financial options and their market share is still falling. As a result, they are under immense pressure to get -- to change the labor agreement, which is extremely generous. And this year, the focus is on retiree health care costs. GM has four retirees for every active employee. The company and the union knows that this is an unsustainable burden and so the discussions are around radically changing the wage and benefit package to reduce that burden on the auto makers.
PRATT: But do you think that they ultimately will reach some type of agreement regarding that health care trust?
CASESA: I think it's probable. The general idea is that this liability, which is gigantic -- $50 billion on GM's books -- is unfunded. So it's a promise, but it's not funded. GM, I think, will suggest to the union that they take it off GM's books, put it in independent trust at some discount to the current value, but that GM will promise to fund it. So I think they're saying to the union, why take a chance that we won't be able to do this and instead take something of a discount and we'll fund it now. And that's the kind of bargain these two sides are trying to strike.
PRATT: So if they do strike a deal on this health care trust though, is this going to sort of cure all the problems in the U.S. auto industry right now?
CASESA: Well, certainly not. This would be an extremely constructive development, would greatly relieve GM of an enormous liability and cost. But there's a great deal to do. These companies not only have a cost problem -- health care, pension, things like that - but a revenue problem. Their market share is falling and their cars are getting much better, but they need time and that takes money -- they need time to convince consumers to come back and try these cars. So while they're dealing with a cost problem at the bargaining table, they have a major revenue problem. That is going to take a long time to fix.
PRATT: But if they do reach an agreement on this health care issue, the health care trust, that certainly would be good news for investors, correct?
CASESA: Well, absolutely. I think investors should be very pleased because while this is necessary and not sufficient to fix these companies, it is a necessary enabler. They can make progress here. That will buy them the time to do some of the other things they need to continue to fix the business.
PRATT: OK. Thank you for joining us this evening.
CASESA: Thank you.
PRATT: My guest, John Casesa of the Casesa Shapiro Group.
