GM Strike: Not To Worry

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Fifty years ago, a union strike against General Motors would have been a national crisis. Thirty years ago, it would have been troublesome. Even 15 years ago, there were a quarter-million hourly workers at GM. Today the company employs less than a third that number. Monday’s strike by the United Auto Workers is not the end of the world. GM stock closed off only 20 cents on the news Monday.

Times have changed. In fact, General Motors could use a two-week strike to reduce its vehicle inventories. The GM stockpile was 952,000 cars and trucks on Sept. 1, against 963,000 vehicles a year before, as reported by Automotive News.

This year, however, sales at GM are running 7% below last year (they are off 9% in cars and 6% in light trucks). So losing a couple of weeks production, say 160,000 vehicles, would be a plus, not a minus. Even better, GM will not have to pay its workers any of the “supplemental unemployment benefits” it would be required to shell out if it had temporarily laid off the workers to reduce inventories.

Yes, this is the beginning of the 2008 model year. In the old days, a strike at this time on the auto calendar could have crippled a company. Nowadays the industry introduces new models throughout the year. While GM is in the midst of two important car launches—the Chevrolet Malibu and the Cadillac CTS—it has already built enough to give every dealer a car or two. In short, there is little reason to panic.

So why would the UAW want to strike now when the union actually might be doing GM a favor?

One possibility is that the union leaders think a strike will pressure GM to ease its demands for concessions. Union leadership may also want to show their members that they are tough and will not give back benefits without a fight.

I suspect that the union is following tradition—no contract, no work—more than anything else. Yes, I can recall some notable exceptions, as during the economic downturn in the spring of 1958, when Walter Reuther, the great UAW leader, refused to lead his members out on strike. “We’re going to rock and roll all summer,” he said, meaning they would work without a contract until a better day.

Today’s union leaders are doing their best in difficult times, but none of them is Walter Reuther. At least for a couple of weeks, many GM workers may be happy to be off the job—even without pay. They have been working all year, they have chores to do around the house and maybe hunting season is approaching. A few weeks off is OK, until their spouses get sick of having them around the house.

What if the strike continues?

A one-month strike is unpleasant for all concerned. A three-month strike would wreck GM in the U.S. It would also wreck the union.

The key issue in the negotiations, health care, seems to be in hand. The strike is not about health care, the union president told a press conference Monday. That, as you may know, seems to involve the establishment of a company-funded trust fund, somewhere between $35 billion and $50 billion, to enable the union to take responsibility for heath care of its GM members and retirees. They call this a VEBA, for volunteer employee benefit association.

VEBA is a terrible idea, bad for GM, bad for the UAW and bad for the workers, but I explained this in another column so I will not go over it again. (See: “Quackery”)

The present fight involves other concessions GM wants from its workers. The company has plenty of costs it wants to cut, such as profit-sharing costs and wages of non-production workers such as janitors. The list could be endless. Ford Motor and Chrysler have been losing billions of dollars, so they need similar relief, too.

GM deserves criticism for failing to make its case to its workers as to why the company needs concessions now. How can it expect the workers to accept reductions in benefits if the company does not make them fully aware what is at stake?

My guess is that the strike will continue a bit, say two to 10 days, and then GM and the union will settle. The company will establish a VEBA, but will not get many of the other concessions that Wall Street would like to see. Even so, investors will cheer because GM will stop paying medical care costs for its union workers and retirees.

It is not 1950 or 1970. Worry more about the price of oil, the falling dollar, the budget and trade deficits, and the war in Iraq. GM and the union will work out an agreement that provides some benefits to both sides, but we can only hope that it also helps to restore GM to its former greatness.