Big profits, unallocated plants make GM a target for UAW
General Motors Co.'s $27.5 billion in profit over the past four years and plans to cut underutilized U.S. plant capacity make it a prime target for the United Auto Workers, increasing the likelihood of a confrontation later this month.
Analysts say those profits and the idling of four plants in the United States — including two in Michigan — are what led the United Auto Workers to target GM as the first of the Detroit Three to start negotiations for a new four-year contract.
"GM has performed relatively well financially and there is also some considerable discontent with GM for having unallocated production at selected sites," said Marick Masters, business professor and former director of labor studies at Wayne State University.
Relations between the UAW and GM have been strained since last November when CEO Mary Barra announced the company would "unallocate" four U.S. plants, making the already tough negotiations tougher. The UAW wants wage increases and to retain or improve health care and profit sharing; the companies want to lower labor costs to become more competitive with non-union foreign automakers operating in the United States.
All of this is happening amid a widening, years-long federal investigation into alleged corruption at Solidarity House and inside joint training centers funded by the automakers. Nine people have been charged and eight have been convicted. And last week, agents of the FBI, Internal Revenue Service and Department of Labor executed raids in four states that included UAW President Gary Jones and his predecessor, Dennis Williams.
The current UAW contracts with the Detroit Three expire at 11:59 p.m Sept. 14. The UAW thinks the company "is in the strongest position" to accede to the union's wishes, Masters said of the GM selection. "If they feel that a strike is necessary, the membership there is probably more discontented and they probably have a higher level of solidarity."
The automakers have been negotiating with the UAW for a month and a half. The announcement Tuesday that GM will be the "lead company" in bargaining means a contract ratified by GM's 46,000 hourly employees could provide a financial framework for contracts negotiated with FCA and Ford.
"It sounds like a good strategy to tackle one of the very tough negotiations right from the start with a company that probably can afford to make a decent deal and one that could be a pattern," said Art Wheaton, an automotive industry specialist at Cornell University's Industrial and Labor Relations School.
Running below capacity
It could be advantageous for GM to go first in negotiations. Even as the move by the UAW essentially makes GM a strike target, companies prefer to negotiate first, said Kristin Dziczek, vice president of industry, labor and economics at the Ann Arbor-based Center for Automotive Research.
The reason: The first contract in a bargaining cycle historically is more tailored to the lead company than those relegated to negotiating second or third. For now, it's unclear how GM's contract would affect FCA and Ford.
"They are pattern agreements, but they are not cookie-cutter agreements," Dziczek said. "The first one sort of sets the broad economic terms of what the agreement would be."
There are exceptions. GM carries more excess plant capacity in the United States than its Detroit rivals. GM’s U.S. plants were operating at less than three-quarters of their capacity last year — a key reason GM moved to “unallocate” plants in the U.S. and Canada after the Thanksgiving holiday.
The industry uses the term “capacity utilization” to measure how efficiently individual manufacturing plants are running, how efficiently an automaker is utilizing its overall production footprint, and whether the plants are generating enough revenue and profit to justify continuing operations.
Last year, according to LMC Automotive US Inc., GM had multiple plants running below 80% capacity, the break-even point for a manufacturing plant. GM’s used 73% of its overall U.S. capacity last year. In 2019, it would use about 75.7% of its capacity even after idling plants in Warren, Baltimore and Lordstown, Ohio.
In 2020, after the automaker is scheduled to idle its Detroit-Hamtramck Assembly plant, the automaker's capacity usage would improve to 81.8%, according to LMC Automotive data. However, its capacity utilization in North America — which includes plants in the U.S., Mexico and Canada — would be lower in 2020 at roughly 77.5%.
As GM moves to improve capacity utilization by cutting some slow-selling sedans from its lineups, the UAW is expected to push the automaker to fill the voids left by those products at U.S. plants with new, more profitable product.
GM has already come under fire from the UAW and President Donald Trump for building the Chevrolet Blazer, a new product for the 2019 model year, in Mexico. GM has argued that when the automaker was planning production for the SUV, there was not room in its U.S. footprint.
Ready to strike
GM workers and workers at the other Detroit automakers have overwhelmingly approved a strike, if needed. The strike authorization vote is a bargaining season formality. It does not mean there will be a strike, and UAW workers have traditionally voted in favor of a strike in years past.
However, analysts say GM's plans to unallocate plants, announced last November, make GM a strike target.
In May, the automaker announced plans to sell its Lordstown Assembly plant in Ohio to electric-vehicle start-up Workhorse Group Inc. and an affiliated company, Lordstown Motors Corp., The Detroit News reported. The new company was formed in June by former Workhorse CEO Steve Burns.
Tim O'Hara, president of the UAW Local 1112 representing hourly workers at Lordstown Assembly Plant, recalled being told to prepare members for a strike during 2019 negotiations back in 2017 because the automaker likely would seek concessions on health care costs and profit sharing.
Most of the Local 1112 members have been transferred to other plants since the plant stopped production of the Chevrolet Cruze in March. The people left have cut ties with GM or are on disability, O'Hara said. Those affected want to see GM hit with a strike for its decision to move toward closing four U.S. plants.
"They feel that GM did them wrong by closing down Lordstown," O'Hara said. "Just speaking for our membership, they kind of think GM deserved to be the strike target. We are spread out all over the country right now but we are still united as former Local 1112 members. We are going to stand in solidarity no matter where we are at when this contract expires."
The UAW is suing GM for its plans to "unallocate" Lordstown, Warren Transmission and Baltimore Operations before the current contract expired. The Detroit-Hamtramck plant is not included in the lawsuit because its production was extended through January 2020, after the current contract expires. Union leaders, who balked at the announcement by GM and Workhorse, are expected to demand a new vehicle for Lordstown during contract negotiations this fall.
"No one goes into collective bargaining taking a strike lightly. But it is a key tool in the tool belt as our bargaining team sits across from the company," Jones, the UAW president, said in a statement. "Ultimately, the company holds that destiny in their hands as they bargain. Clearly the UAW stood up for them in a very dark time, now that they are profitable it is time for them to stand up for all of us."
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