GM and the UAW

From Joseph White and Jeffrey McCracken at the WSJ:

A discussion of the problems of a labor market cartel which faces increasing competition from within and especially, from without. With decreasing transaction costs (the cost of making a trade happen) and thus, increased globalization and competition, auto manufacturers are unable to continue paying the artificially high compensation desired by the cartel.

The deal struck...between General Motors Corp. and the United Auto Workers union marks the dawn of an uncertain new era for the American auto industry and its unionized work force.

For much of the past half century, Detroit's Big Three auto makers had collaborated with the UAW to create an industrial aristocracy of blue-collar workers whose pay and benefits set the standard for the American middle class. If the proposed contract announced yesterday is ratified by union members -- and is subsequently replicated at Ford Motor Co. and Chrysler LLC -- that era in American industrial history may be over.

The contract, which covers about 74,000 U.S. auto workers, restructures GM's obligations to cover health care for UAW retirees.

It also sets up a mechanism for the auto maker to buy out thousands of workers, whose wages and benefits total about $70 an hour, and to replace many of them, particularly those in nonproduction jobs, with new employees earning far less. In return, GM has agreed to invest in UAW-represented factories and to make certain improvements to retirement benefits.

...Over time, the new contract could allow GM to significantly narrow the cost gap between its unionized U.S. operations and nonunion U.S. plants run by Toyota and other Asian and European auto makers -- a gap now pegged at $25 to $30 an hour. Auto research firm CSM Worldwide Inc. estimates that the new pact may allow GM to reduce that differential by 40% to 50%.

UAW President Ron Gettelfinger still has to sell the deal to his rank and file. But his decision to agree to its terms suggests that the union leader thinks Detroit's problems stem from a permanent realignment of the auto industry in the face of globalization.

...Today, GM's demographic problem is stark. It has 74,000 active UAW hourly workers, down from 246,000 in 1994. It provides health benefits to about 340,000 UAW retirees and surviving spouses. By comparison, Toyota provides retiree health care to about 250 people, according to GM's internal estimates.