US: GM buyout could weaken union
For a US motor industry already undergoing a sea change, General Motors' offer to buy out more than 100,000 workers will only bring more upheaval that could result in weaker unions, thousands of jobless Baby Boomers and higher sticker prices on vehicles, eventually, according to The Associated Press (AP).
"We're going to see major, major changes in the way vehicles are manufactured and who's going to be doing the manufacturing," James McTevia, a Detroit-area restructuring consultant, told the news agency. "We haven't seen the last of it yet."
AP noted that GM's plan - one of the largest corporate buyouts in history - offers between US$35,000 and $140,000 to 113,000 US hourly workers as part of its goal of cutting 30,000 jobs by 2008. GM also will bankroll early-retirement buyouts at Delphi, its former parts division and major supplier. Up to 17,000 hourly workers at Delphi could be eligible for a $35,000 payment to retire.
The Associated Press added that GM and Delphi haven't said how many workers are expected to take the deal, but JPMorgan auto analyst Himanshu Patel predicts as many as 39,000 GM workers could leave the company. McTevia reportedly said that will mean many autoworkers in their late 40s and early 50s will be retiring even though they have many productive years left.
While those workers will get pensions and health care benefits from GM, their benefits may not be as rich as they once were, AP said - GM is currently seeking federal court approval for a plan to make retirees pay more for their health care, and could continue to whittle away at those benefits in the future.
"What are these people going to do in an economy that's changing when their experience is automotive-driven?" McTevia said, according to the report. "How are they going to fit into our society?"
AP said the number of automotive retirees likely will grow. Many analysts predict similar buyouts at Ford and at suppliers who are struggling with the same high costs, fierce competition and overcapacity that plagues GM. GM lost $10.6 billion in 2005. Ford earned $2 billion, but lost $1.6 billion in its North American operations, it noted.
"I think it's a matter of time before Ford says, `Me too,'" Erich Merkle, director of automotive forecasting for the consulting firm IRN, told AP.
The report said that Ford has already this year offered buyouts to some 15,400 workers, including 11,900 who work at former Visteon plants now under the control of Automotive Components Holdings LLC, a Ford-managed company. At a plant Ford is closing in Edison, New Jersey, 33% of the 200 workers offered buyouts this year have taken them, Ford spokeswoman Marcey Evans told the news agency.
The report said that exodus weakens the United Auto Workers, which has been watching a steady erosion of its membership for the last few decades. There were 622,000 UAW members in 2004, down from 1.6m active members at the UAW's peak in 1970.
"They are going to have fewer people to represent in their collective bargaining, and that's going to have some effect on their negotiating ability," McTevia told The Associated Press.
Most analysts were quick to tell AP that GM's buyouts will be good for the overall industry, however. The giant car maker has far too much plant capacity for its shrinking market share, which has dropped from 44% of the U.S. market in 1980 to 26% last year. Its North American plants were running at 87% of their total capacity last year, according to Harbour Consulting. By comparison, Toyota's plants were running at full capacity, The Associated Press said.
McAlinden reportedly said every active worker costs GM around $130,000 a year, compared to just $15,000 a year for retired workers, so the buyouts make a lot of financial sense. If GM lowers its capacity, he added, it will no longer have a glut of cars that need big discounts to sell. That will allow GM to charge slightly higher prices and lessen the pressure on other automakers to offer costly incentives, he added. Right now, incentives per vehicle can approach $4,000 or more, AP noted.
According to the report, Merkle added that GM had to take aggressive action because it can't sustain the kind of losses it saw last year, and that action will benefit the entire industry.
"It's a matter of time before GM files for bankruptcy if these issues aren't addressed," Merkle told The Associated Press.