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Lower Costs in UAW Contract Seen as Key for GM


It's hard to compete in a tough market when your costs are much bigger than the other guys. That's a problem General Motors has faced for years. This week's tentative contract with the United Auto Workers will rid GM of some of its biggest costs. The new deal won't level the playing field with foreign competitors, but observers say it gives the company a fighting chance.

NPR's Frank Langfitt reports from Detroit.


FRANK LANGFITT: When contract negotiations began in July, GM was looking for a new kind of relationship with its union. Yesterday, it went a long way towards getting one. David Cole heads the Center for the Automotive Research, an industry think tank in Ann Arbor. He says what makes this contract different from the past is this: It isn't driven by the demands of workers, but by the demands of the market.

Mr. DAVID COLE (Center for Automotive Research): It really does represent a fundamental new business model of labor management relations, and I think it recognizes perhaps the most important element of job security is a profitable company over the long term.

LANGFITT: The biggest change in the contract is the shift in responsibility for retiree health care costs. The company owes more than $50 billion to its retirees. Under the contract, GM will pay 70 percent of that into a trust fund; then the union will take control and the company will be able to write those huge obligations off its books. But Cole says that for GM, health care isn't just a crippling cost.

Mr. COLE: It's really more than that. It locks up investment in new products. And to put some scale on that, if General Motors, for example, had Toyota's wage structure or benefit structure or health care cost, that is roughly equal to five new products a year every year.

LANGFITT: GM wants to take advantage of that savings. Art Schwartz is the company's general director of labor relations.


Mr. ART SCHWARTZ (General Motors): We're going to have more cash available that we can invest in the business, bringing out new models, new technologies - what you have to do to succeed in a very, very highly competitive automotive industry - and that's going to give us even, even better products.

LANGFITT: David Cole says GM has already made progress in that area. The car of the year at this year's North American International Auto Show was the Saturn Aura. If the prospects for GM look brighter today, the other Detroit companies face a tougher road, even if they get a similar deal from the union, as expected. Chrysler, for instance, is no longer part of the multinational Daimler-Benz. It's just a North American company.

Mr. COLE: I think Chrysler is probably too small in the kind of an integrated global environment that we have today.

LANGFITT: Cole says one option for the company is to find a big partner.

Mr. COLE: Of course another option ultimately for the owners of Chrysler is to break it up into pieces. It maybe worth more in its parts than - when they're all collected together.

LANGFITT: That's the kind of uncertainty that Detroit companies face today. It's also an uneasy time for workers. But one thing the new GM contract provides is some job security. In exchange for the union taking over retiree health care, the company promises to maintain the current level of union employment - 73,000. Many workers are wary of the new contract, which is up for ratification beginning this weekend, but others recognize the market has changed.

Mike Bell works at GM's Cadillac plant in Detroit.

Mr. MIKE BELL (GM Employee): Everybody understands that GM needs to make more money, be more profitable, be competitive, and it's, you know, it's a free market and free trade now, so I mean it's stiff competition out there and there's so many different vehicles. You didn't have that in the '70s and '80s. There's, you know, millions of different models to pick from, sizes, you know, engines, different colors, different looks, different styles, so you know, that's just the way it is now, you know. Everybody out there are trying to make a buck, you know?

LANGFITT: If anything, the U.S. auto market may only become more competitive. But with this new contract, GM stands a better chance than it did before.

Frank Langfitt, NPR News, Detroit. Transcript provided by NPR, Copyright NPR.