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As day 40 of the United Auto Workers strike against General Motors rolls past, the UAW continues to threaten further strikes, while GM has filed suit in federal court. Phil Ponce reports.
PHIL PONCE: It is now day 40 in the United Auto Workers strike against General Motors. On June 5th, 3400 UAW members walked off the job at GM's metal stamping plant in Flint, Michigan. A week later they were joined by another 5800 union workers at another parts plant in Flint. The union says the issue is job security. The company says it's productivity and competitiveness. The company wants to change what it calls inefficient work rules. GM, the nation's largest auto maker, has the highest production costs of any US auto company. The union has a contract with GM, but it's worried about the future.The UAW says that GM broke a promise to upgrade the parts plants. And the union's concerned that the company will cut union jobs by farming out more of its parts manufacturing. The strike has caused a severe parts shortage. That, in turn, has produced a ripple effect, idling 26 out of GM's 29 North American assembly plants and more than 100 parts plants. The company has temporarily laid off 175,000 workers since the strike began. Up to 3,000 employees were called back to GM's brake plant in Dayton early yesterday morning.
WORKER: I'm going back. That's it.
SPOKESMAN: Are you feeling real good about it?
WORKER: Oh, yes.
PHIL PONCE: But the UAW has threatened to strike that plant too. High level negotiations to settle the strike began in the first week but have broken down several times, most recently over the weekend.
SPOKESMAN: How's everything going?
WORKER: Oh, real slow.
RON FIZELL, GM Worker: I think it could get very ugly yet. I think we could be out here for a long time now.
PHIL PONCE: Dealers are reporting a shortage of cars and trucks. One Chevrolet dealer decided to poke fun at the shortage by adding watermelons to his inventory.
JONNY VICK, Chevrolet Salesman, Knoxville, TN: Yes. We believe, you know, that Chevrolet and the union workers are going to settle things out. Chevrolet is going to-we've got some great new '99 product coming in, so we made light-hearted of the situation and we're going to sell cars, and we ain't worried about it. We think everything is going to go smoothly.
PHIL PONCE: But GM's losses total more than $1 billion so far and, according to some estimates, are now $75 million a day. The company's second quarter earnings, released today, showed how deeply GM has been hurt by the strike. Profits tumbled 81 percent. In Detroit this morning attorneys for the company filed suit against the UAW in federal court. They said the strike violates the company's national contract with the union.
PHIL PONCE: For more we're joined by Don Gonyea in Detroit. He covers the auto industry for NPR, National Public Radio. And Diane Swonk, who watches the auto industry is deputy chief economist at First Chicago Bank and for the record, she's been following the industry for quite a while. Her father's an executive with GM but is not involved in the current negotiations. Welcome both. Diane Swonk, this 81 percent drop in earnings that was announced today, is that pretty much attributable directly to the strike?
DIANE SWONK: Absolutely. And, in fact, for Wall Street the more interesting information from today's information on GM was not the profit/loss. GM had been very forthcoming with the profit/loss, saying they were going to lose about $1.2 billion. The larger issue is when will the strike be over.
And I think the arbitration issue that General Motors brought up, trying to bring in binding arbitration between the UAW and GM, was somewhat welcome news on Wall Street. Also, news over the weekend that the settlement negotiations had actually made some significant progress was welcome news on Wall Street today and hopes that perhaps we can get this strike behind us quicker than later.
PHIL PONCE: Ms. Swonk, staying with the earnings issue a little bit longer, explain how a company can still be selling product, presumably not paying wages, and still lose this much money?
DIANE SWONK: The fixed cost amount caries quickly once you shut down these plants. They still have to pay for all the costs of operating the plants. They're just sitting there, doing nothing. And when they're doing nothing, they're not adding anything to the bottom line, but they are costing the company an enormous amount of money. And that's essentially what's going on today.
PHIL PONCE: Don Gonyea, tell us what the significance is of this lawsuit that GM filed today.
DON GONYEA: Well, it's another example of the really aggressive and hard line the company is taking with the union in these negotiations. These talks have been very difficult right from the beginning. About three weeks ago the company announced that it did, indeed, feel that these strikes were illegal, the kind of strikes that are not allowed under the existing UAW/General Motors national agreement.
They filed a grievance with the union, and then that issue kind of quieted down for a little while. But when talks broke down over the weekend, at least the high level talks broke down over the weekend-they're still talking at the local plant level-when those high level talks broke down over the weekend, we all expected some move from the company, and this appears to be it, that they are going to aggressively try to end these strikes not at the bargaining table but through the courts and ultimately they hope through arbitration.
PHIL PONCE: Don Gonyea, what are your sources telling you as far as-what are the experts saying as far as the likelihood of GM meeting with success in the courts?
DON GONYEA: Well, you know, this is really unprecedented in the auto business. You don't see mediators and arbitrators settling strikes in the car business. You know, we've seen it in some other industries and in some other strikes. But in the car business they settle things on their own at the bargaining table. So it is a really unusual step. We don't really have any history here to look back on to see how this one might play out. You know, the company is going to argue that the union did not strike over strikeable issues, health and safety issues, or what they call production standards, which deals with, you know, how equipment is operated, the speed at which equipment can run, the speed of the assembly line.
They say that the union strike over the more vague kind of job security things, investment in the plant, all of which are things that under the national contract should be-you know-handled by an arbitrator. And for that reason they say the strike is illegal. Now the union is going to say that they've got this long list of health and safety issues and production standards that they did, indeed, go out over, some of those then lead to their other concerns about job security and the like. But that will be the argument that the two sides are going to make tomorrow when they wind up in court.
PHIL PONCE: Don Gonyea, back at the bargaining table, what's happening?
DON GONYEA: They're talking, but there's no progress. You know, we went into the weekend with at least a good deal of optimism on the part of the company that they had a long way to go but that they thought they could get it done by Sunday. And that again all fell apart on Sunday.
Now again talks are proceeding just between the local committees and the local plant managers, but no word of any real significant progress. And we're told that the big sticking point is at that metal fabricating plant, that stamping plant, where the first strike started 40 days ago today. And they're arguing over work rule changes and what kind of investment is going to be brought into that plant.
PHIL PONCE: Diane Swonk, getting to back to the business of the auto industry, what is the status of inventories right now?
DIANE SWONK: Well, many dealers are down about 50 percent from what their normal levels are. And the key is not only being down to half their normal inventories. Much of what they're carrying on their lot today is just not what consumers are buying. Many of the high, most profitable vehicles and most popular vehicles that GM has out there have already been sold, were sold aggressively in June, with heavy incentives. These are the sport utility vehicles, the Blazers, the Chevy Suburbans, the leather seats, the CD players, all of the perks in these vehicles. These are the ones that have sold. What we have left on the lots today are very few selection. I mean, some dealers are complaining that all of their sport utility vehicles are gone now. Some still have some sport utility vehicles.
But, for the most part, they're smaller vehicles, vehicles that just aren't as popular right now. So even though dealers still have some inventories out there, they don't have the selection they once did. And what's frustrating to customers walking in to order a GM vehicle today is they really have no idea when that order can be filled, given GM is still on strike. If at least the plants were up and operating, the dealers could give them some kind of ballpark figure on when those vehicles will come in to promote customer loyalty. But without any agreement sort of at least on the horizon here, it really starts to test customer loyalty pretty dramatically.
PHIL PONCE: So Diane Swonk, what would this-what could this ultimately do to market share?
DIANE SWONK: Well, GM has its own estimates. Their market share popped up above 31 percent in the month of June. They've been an aggressive one on market share by their own estimates, with nothing in the pipeline going out to dealer lots knowing that it wouldn't be there certainly during the first two weeks of July because of the planned plant closures. They expect to see less than 25 percent market share in the month of July. That's a pretty dramatic drop, over 6 percentage in market share just in the month of July alone. If this strike persists through the end of July, they could easily dip down into the 20 percent range in August, if not lower. Again, the losses here for GM accumulate very rapidly now.
There is sort of a window of opportunity that they could actually recoup many of these losses and promote some customer loyalty out there. If the strike were settled say by the end of the week, there is still that window of opportunity out there. We saw them do something similar to this in 1996, when their losses in production were about the magnitude we're seeing today. But if we do not get GM up and operating by the end of this week, that window does begin to close very rapidly. And essentially they'll be giving market share to Ford, Chrysler, and anyone else willing to grab it from General Motors Corporation.
PHIL PONCE: Don Gonyea, how about the window of opportunity? How much longer can the union sustain this strike?
DON GONYEA: Well, they-basically they will last one day longer than the company. I mean, that's rhetoric, but they do have a strike fund that's between 800 million and 1 billion dollars, so they can carry on for some time. The workers on the picket lines, you know, they seem to still have plenty of experience and, you know, they've been out now 40 days, some of them, and they're at a point where they want to make sure they get something good for having invested all this time and given up all of this-all of this money to be out on strike.
So they're not prepared to settle for just anything. One thing that could happen in the days ahead is General Motors could announce that as a cost saving measure is going to cut off health care benefits for all of those US workers who are not on strike but who are laid off at plants around the country, the assembly plants and the parts plants you mentioned earlier. That would save the company, you know, millions of dollars every week, and it would mean the union would have to pick up the cost of health care. So that would cut into that strike fund pretty quickly. But that hasn't happened yet, and right now the union says they're hanging in there, and they are waiting for the first really serious offer-settlement offer from the company.
PHIL PONCE: Don Gonyea, when you talk about the size of the union strike fund being close to $1 billion, how much is the strike costing them say every day or every week?
DON GONYEA: You know something. I actually haven't done the math on that, but each worker who was on strike is getting their health care paid for and they're getting a relatively small amount-about $150 a week in strike pay. So it does-it does dwindle down.
But right now because those who are laid off around the country are getting unemployment benefits and they still have their health care coverage, in effect, you know, a national work stoppage in some ways is being subsidized by these other funding sources-of course, the UAW maintains that this is not a national strike, this is just the strike at these two local plants.
PHIL PONCE: Diane Swonk, from the company's perspective, how much longer does it make sense for them to continue?
DIANE SWONK: Well, that's really a debatable issue. I mean, from the company's perspective, if they really could gain some real progress in terms of cutting cost out of this situation, then frankly it's worth it even to give up a little market share in the near term to do it, endure the costs of this strike, and then try to do the best you can to recoup it later on. That would be lasting out into July or even into August. But that is-you know, it's a close call. The other issue is how long will Wall Street support General Motors in its efforts to really ratchet down cost?
This is something that Wall Street has pushed General Motors very hard about. remember, General Motors back in 1992, Robert Stemple, at the helm of General Motors, was essentially fired for his inability to reduce costs and for the fact that he signed what was then considered a very bad UAW contract. So it's very real to senior management if they lose their jobs, if they do not get cost reductions out of the UAW and some more progress towards competitiveness against not just the Japanese or the Koreans-we're talking about being competitive against Chrysler and Ford, who seem to be able to do it in Michigan. Why can't GM?
PHIL PONCE: Diane Swonk, Don Gonyea, thank you both very much.
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