Page last updated at 12:28 GMT, Monday, 1 June 2009 13:28 UK

Union reverses role in GM rescue plan

By Steve Schifferes
Economics reporter, BBC News

GM workers protesting plant closures in Wisconsin

With General Motors (GM) facing bankruptcy, the United Auto Workers (UAW), the normally militant union, has played a key role in forging the deal - and in return has gained a large stake in the company.

Just two years ago, the UAW went on strike after GM called for substantial changes to the pensions and health care benefits of retired union members.

Ron Gettelfinge
The proposed viability plan requires painful, unprecedented sacrifices from UAW members
Ron Gettelfinger, President, UAW

The resulting deal shifted responsibility for the health care benefits to the union, which took charge of a new Voluntary Employee Beneficiary Association (VEBA) funded by GM, which was to pay the benefits of 330,000 GM retirees - five times the current workforce.

Now the crisis at GM is dramatically shifting the relationship between union and management.

The UAW is set to gain a seat on the board of the restructured GM and a 20% ownership stake in the new company, as well as a say in future business decisions.

In return, the UAW has had to accept cutbacks in its benefits, including agreeing that a substantial portion of its $35bn (£21.7bn) VEBA benefits plan would be funded by GM stock - which could be worthless if the company does not survive.

Indeed, the UAW reduced its planned stake in the restructured company from 40% in order to get more immediate income from GM to fund the benefit payments.

Nevertheless, the moves tie the fortunes of the UAW much more closely to those of the company, and the changed role could prove difficult for long-term union activists.

But the union leadership say they had no choice if GM was to make it - and indeed many observers believe their support is crucial if a quick bankruptcy is to succeed.

In a letter to all UAW members at GM, Ron Gettelfinger, the union's president, said that "we realise that the proposed viability plan requires painful, unprecedented sacrifices from UAW members" but "faced with the dire situation and realising that a failure to meet the government 's requirement would surely mean the end of General Motors," the union had no choice but to agree a new deal.

Among the concessions agree by union negotiators are:

  • cuts to overtime pay
  • cuts to vacation pay
  • no strike clause until 2015
  • elimination of dental coverage
  • fewer dependents covered by health care plan

Cutting costs

The aim is to reduce GM's labour costs by an additional $1.5bn. In addition, the union has agreed that all 60,000 production workers can be offered a chance of a buy-out if they choose to leave the company. GM is seeking to close 16 US plants as demand for its cars has collapsed.

Having such a deal agreed in advance of a bankruptcy is extremely rare, and makes it more likely that GM will get the quick resolution in the courts it is hoping for.

In previous US corporate bankruptcies, such as at Delta and United Airlines and Bethlehem Steel, workers lost most of their pensions and benefits and were required to take bigger wage cuts.

But it places the union, and Ron Gettelfinger, its down-to-earth president, in a difficult position.

Flint workers strike parade
The union fought bitter battles for recognition in the 1930s

The UAW was forged in opposition to GM management, and was created as a result of a sit-down strike in Flint in the l930s.

The union had long sought a role in running the company which had been firmly rejected when it was profitable.

Reversing a century of hostility with a more co-operative arrangement will not come easily to its members.

There is also a looming conflict between saving money and saving jobs.

Saving jobs

A key objective of the UAW has been to keep car production jobs in the US - as opposed to GM's desire to shift as much production as possible to lower-cost plants in Mexico and China.

In a sign of the newly-won union power, in the new deal GM agreed to "invest in a compact and small car assembly site in the US" in one of the plants it was planning to close, subject to "innovative labor agreements" to make such production profitable.

China car market
China is now exporting cars to the US

The union has also insisted that GM seek approval for any future investment in Mexico, regularly review its outsourcing policies and take back control of six component plants that had been spun off as part of its former Delphi subsidiary.

The UAW told members "we were able to divert thousands of vehicles scheduled to be imported from low-wage countries including China to be assembled in an idled US GM facility".

But this whole area could be a key area of conflict with the new GM that emerges from bankruptcy, or with the US Treasury, its other major shareholder.

To become viable, GM will have to shed thousands more jobs in the US.

And unlike Chrysler, GM has a strong business in China and Korea which it wants to expand.

The UAW, however, whose membership has declined precipitously in the last few decades, desperately needs every GM worker it can hold onto if it is to remain viable.

So the union may ultimately have to chose between saving the company and saving itself.

But for now, "its just about survivability," said Thomas Summers, one of local union leaders, representing the UAW's Detroit Local 22, who will have to implement the new agreement.

UAW membership

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