The Realities for General Motors

GM must remain competitive with global competitors who have much lower labor costs (in some instances because wages are lower, such as in Korea, and in some instances because the workforce are younger and retirement/health costs aren’t as high, as in the case of Japanese automakers who have plants in the United States). To cut labor costs, GM has made numerous moves over the past 20+ years:

1. Shifted from a straight automatic wage increase for every new contract to a clause more dependent on profit sharing. This allows the company to pay a bigger profit share during good years, yet protect themselves from high labor costs in bad profit years by giving low or no profit-sharing payout.

2. Introduced technologies that reduced the number of workers needed, both in the assembly line operations and in the skilled trades (e.g., pattern makers work in wood or metal to make models of future cars or future parts of cars-new technologies lead to lower demand for these pattern makers).

3. Introduced a two-tier wage plan in which new hires are paid substantially less than workers hired before the two-tier plan was initiated. In the past years, new workers received about $14/hour while their more senior counterparts- those hired before the plan was implemented—received about $28/ hour in wages for doing essentially the same jobs.

4. Cut benefits costs, largely in the amount of health-care and pension expenses.

The realities for the United Auto Workers

1. Unions preach fairness and equity. Workers are attracted to unions in part because they fight for fairness and equity.

2. Unions have faced catastrophic reductions in their membership. Companies, seeking to survive in a global environment, assert they can’t afford the costs (and reduced freedom in decision making) that accompany unionization. To survive, unions have reluctantly become more accepting of management demands.

3. The auto industry is a strong hold of unionization that unions cannot afford to lose. Further, Michigan is the historic birthplace of auto industry growth and industry unionization. As an ancillary goal, unions would like to preserve the Michigan stronghold.

Given all information, explain why the following components of the current agreement are predictable outcomes.

a. The most recent agreement gives a $5,000 signing bonus to eligible UAW-represented GM employees, which could be worth as much as $242.5 million.

b. Entry-level assembly workers will be paid $2 to $3 more per hour, and more experienced Tier-2 employees (Tier 2 is the name for the tier of workers who were hired after the lower wage level for new hires was implemented) will see wages hiked to between $16 and $19 per hour.

c. The UAW negotiated a new profit-sharing formula based on GM’s North American profits. Formerly profit-sharing checks issued to employees were based on a more global profit measure.

d. GM agreed to rehire laid-off workers, transfer jobs from overseas back to the United States, and give buyout offers to skilled trade workers for whom there are no longer job openings.

e. GM agreed to restart production at an idled plant in Spring Hill, Tennessee, and to start assembly of new products at factories in Michigan.