The Downside Of The GM Labor Settlement
Michael Marks, 10.09.07
Forbes
The following story was posted online at www.leasetrader.com.
By now, the proposed agreement between General Motors and the United Auto Workers union has been thoroughly aired with the business press generally considering it a very good deal.
I'm not convinced.
General Motors gets two very important wins in its quest to get back to world-class competitiveness. First, with great fanfare, GM is taking a major step toward removing extraordinary health care costs from their operating expenses. This is critical. The news was received optimistically in the business community, and GM's stock went up. Second, GM won the right to move to a two-tier labor agreement, where new hires can be brought in at a lower per hour cost than the existing UAW wage rates. Another very important win.
But, of course, the union has to get something as well. That's only fair. And what it got was a commitment from GM to provide work to the existing UAW factories in the U.S. To keep this in perspective, when UAW workers went out on their brief strike, they shut down 90 factories. Keep that number in mind.
Both sides should be congratulated for what they achieved. Given the starting point, I think this is a very good outcome.
But this is a column about global trends in manufacturing, the value of free trade and the impact of global supply chains. From that perspective, this agreement will obstruct GM's ability to regain its previous stature as a world-class car company.
Why? Because the corollary to a commitment to reinvest in U.S. factories is a commitment to not invest wherever the best supply chain resides. Obviously, some of the best component supply in the auto industry resides in the U.S., and that will likely be the case for a considerable time to come. Competition from around the world will keep many of these suppliers competitive. And many of the GM factories, even with high-cost labor, will be highly productive and competitive with the best available labor and processes in China, India, Korea, Mexico and other locations.
But 90 factories? Is that going to turn out to be the right number? What keeps these factories innovating, if they are guaranteed work? That is not how world-class companies develop. Do we expect Chery (China), Hyundai (South Korea), Toyota (Japan), Tata (India), or even Porsche and BMW (Germany) to restrict their supply chains to primarily local initiatives? I think not.
Great companies are created due to many things, including strong managements, great product designs, good labor relations and world-class global supply chains. GM, in order to return to greatness, needs to work on each of these things, which they have shown an ability to do.
GM CEO Rick Wagoner knows the score, and he and his team continue to make progress, including with the latest agreement.
Let's hope the next step is to convince the UAW that competing on an open basis with the best in the world is in everyone's long term best interest. It works for Hewlett Packard, Cisco, Apple and others; it can work for the U.S. auto industry.
One last thing: In lieu of compensation for writing this column, I would ask that those of you who appreciate any insights I might provide consider making a contribution to the V Foundation, a charity which endeavors to fill a funding gap in cancer research, by supporting young researchers who would otherwise have difficulty pursuing a wide range of promising technologies. The charity is named for Jimmy Valvano, the legendary basketball coach. You can learn more at www.jimmyv.org.
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Print | posted on Tuesday, October 09, 2007 1:33 PM