Detroit Takes a New Road

By John S. DeMott

The labor contracts will lower wage hikes and change old industry ways

Spring, with its annual promise of rebirth and renewal, touched all parts of America last week except Detroit. The United Auto Workers were pressed into accepting contract concessions at General Motors, just as they had been earlier at Ford. Meanwhile, the Big Three carmakers watched as new car sales continued to lose a battle against recession, high prices, prohibitive interest rates and an invasion of imports. Automobile sales figures for the second ten-day selling period in March were grim: off 43.5% from the year-earlier pace.

That was the 18th consecutive ten-day reporting period in which sales were less than those of a year earlier. The drop came despite heavily advertised rebates of $350 to $2,000 a car. Overall sales slumped to an estimated 182,539 units, vs. 323,353 for the same period last year. That put the industry's annual sales pace for 1982 so far at 5.9 million units, 3 1/2 million fewer than four years ago. Not since 1961 had business been so bad.

The sales breakdown by name plates showed an even grimmer picture. The Chevrolet division of General Motors, for example, sold a mere 38,104 vehicles. The March figure was 61.1% below the same period a year earlier and could be a harbinger of Chevy's worst year since 1958. The division is now selling about 1.3 milion cars annually; its best year ever was in 1965, when it sold 2.4 million.

One of the most serious problems facng the auto industry has been labor costs. Carmakers say that the high price of production has helped drive up the cost of U.S. cars and pushed consumers into buying cheaper imports. Those staggering ticker prices, plus generally flat economic growth since 1979, has pummeled Detroit mercilessly.

With 23% of its members unemployed, the U.A.W. seemed to have little choice in contract talks this year but to give up some of the benefits it had won earlier from the carmakers. Such "givebacks" have characterized auto union contract talks as well as union negotiations in many other industries that have also been in the economic doldrums.

In February, the Ford Motor Co. and the U.A.W. reached agreement on a 31-month contract that cut some worker benefits in return for a measure of job security, profit sharing and a "guaranteed income stream" for senior workers. Last week the U.A.W. and GM struck a similar, though not identical, bargain. This week and next, the contract is going through the ratification process by 470,000 GM workers. Approval seems certain.

The union made some important concessions in the negotiations. During the next 29 months, the union will give up its 3% annual pay hike, defer payment of three quarterly cost of living increases, accept fewer paid personal holidays and allow GM to hire new workers at a lower wage rate than existing employees receive. While they are losing some days off, workers will not be taking wage cuts. Cost of living payments, though temporarily deferred, will eventually ensure that union members keep up with inflation.

Finally, the union agreed to cooperate with the company in clamping down on absenteeism, which had been running at an 11.3% rate in 1981, according to GM s calculations. Rampant absences helped fuel such lore as the undesirability of buying a car built on a Monday or a Friday because of poor workmanship. Now workers who are absent 25% of their scheduled work time will have vacation benefits, paid absence allowances and jury duty pay reduced by 25% for the following six months. Says U.A.W. Vice President Owen Bieber: "They will have to pay the piper." The total package of labor concessions, say some auto-industry analysts, could save GM between $2 billion and $3 billion during the life of the contract.

General Motors, though, also had to make some compromises in the negotiations. The main point won by the workers was the establishment of a profit-sharing plan. When GM's earnings exceed 10% of net worth and 5% of other assets, workers will get 10% of those profits. If the plan had been in effect from 1976 to 1979, the last good years for the industry, each worker would have received $2,274. The company also agreed to run a pilot program at four plants that will be like the Japanese system of lifetime employment.

Both sides were satisfied with the deal. Said U.A.W. President Douglas Fraser: "We came to these negotiations to seek a greater measure of job security for our members, and I think that we succeeded." GM Chief Negotiator Alfred S. Warren Jr. said the deal benefits "our employees, our stockholders and our customers."

Some industry observers, though, wondered whether the labor agreements at Ford and GM went far enough to make the American auto industry truly competitive with Japan's. Said David Lewis, a professor of business at the University of Michigan: "It's almost too much to expect these people to make radical changes. There is still a great disparity in wage rates." David Eisenberg, an auto-industry analyst with Sanford C. Bernstein in New York City, calculates the Japanese advantage at $1,500 a car. Some $900 of that is the result of the difference in the cost of labor.

Nonetheless, the agreements reached with Ford and GM are going to have a profound impact on the way business is conducted in the auto industry. Management will have somewhat less of a free hand in running auto companies, and workers will be more closely tied to their firms through the profit-sharing plans. The GM contract specifically stated that both sides would now have to show "greater understanding of subjects previously thought to be either union responsibilities or management responsibilities, but not heretofore considered to be mutual responsibilities." Says Donald DeScenza, an auto-industry analyst with Wall Street's Donaldson, Lufkin and Jenrette: "I hope that labor relations in the auto industry will now move in the direction this contract represents, one in which both sides recognize their common interest."

This will involve some major changes, especially for GM, which has been one of the most closed corporations in the U.S. Said Negotiator Warren, after the terms of the agreement were announced: "We are going to have to learn to manage more effectively, more openly." Talks between GM and the workers had been hampered for months by the strong suspicions and distrust of company workers about management's intentions.

The new contracts, for example, will allow a review of local work rules and set up joint councils that can make some decisions on plant operations and corporate operations. That is perhaps the most revolutionary part of the agreements. Says Wayne Horvitz, national director of the Federal Mediation and Conciliation Service under President Jimmy Carter: "The contracts demonstrate that it seems possible now to sit down across the table and try to work out more fundamental problems of business survival."

The auto companies and their workers have been very imaginative in dealing with the economic predicament that they face. They have taken some vital first steps toward changing the outmoded wage scales and work rules that helped put the industry in its present dire condition.

Automakers, of course, still have many other problems to solve in their drive to win back consumers. Management continues to have trouble producing the reasonably priced, high-quality cars that Americans are demanding. Many inefficient industry-wide policies, like the control of inventories, need modernization. The Ford and GM settlements, though, are an important start down a new road.

--By John S. DeMott. Reported by Gisela Bolte/Washington and Paul A. Witteman/ Detroit

With reporting by Gisela Bolte, Paul A. Witteman

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