GM's plan for plants sets stage for union bargaining
General Motors Co.'s staggered idling of four U.S. plants will come at the height of next year's bargaining with the United Auto Workers, setting the stage for a battle to keep the plants open and save union jobs.
The Detroit automaker says it needs to strengthen its core business now while the company and the industry are in a good position, and that includes painful moves that could affect some 14,300 jobs across the company. GM's actions with its plants are also the first public move in the latest renegotiation of the national GM-UAW contract, a complex agreement developed over 81 years.
The contract bars GM from closing or idling union-represented plants except in dire circumstances, and the union is expected to argue that the slowing sales of sedan built at Detroit-Hamtramck and Lordstown, Ohio, is not dire enough. That means, experts say, talks between the automaker and the union this summer — as the plants wind down production — are likely to be dominated by efforts to ensure new products are allocated to some, or all, of the affected plants.
"If anyone was thinking next year’s contract talks were going to be easy, they were fooling themselves," said Kristin Dziczek, vice president of the Ann Arbor-based Center for Automotive Research. "These are still very profitable companies, and workers want to be rewarded. But now there is this existential dread that this is the first shot across the bow. And the conversation shifts to what can be maintained versus what can be gained."
When GM idles five plants in North America next year — a move that could imperil 3,300 union jobs in the U.S. and 2,600 in Canada — it would mark the end of the line for six money-losing sedans. But GM was careful last week in its restructuring announcement when it addressed the affected plants, coining a new term: "unallocated."
The reason: to avoid the words "idle" or "close," which are explicitly addressed in the 2015 agreement between GM and the UAW. The "Plant Closing and Sale Moratorium," outlined on page 356 of the agreement, states that GM will not will not close or idle "in any form, any plant, asset, or business unit of any type" outside of collective bargaining, with a caveat for extreme market conditions or an "act of God."
"GM and the UAW will talk about numerous topics that affect our employees and our business during 2019 negotiations," GM said in a statement emailed to The Detroit News. "As always, our intent is to work with the UAW constructively to address our business challenges in a way that keeps the company competitive in these changing market conditions."
The UAW is challenging GM's decision to leave the four plants "unallocated." The union is accusing the automaker of a long-term plan to move more production to Mexico where labor costs are lower, adding that it's only now using slowing sedan sales as an excuse for their actions.
"This was long planned through intentional strategic investment decisions and product movement over our objections," the UAW said in a statement to The News. "They may have kept the news about it quiet, but this was planned and had to be gradually executed long before sales numbers were known.”
Through a spokesman, the UAW's vice president and director of the GM department, Terry Dittes, said he could not talk publicly about bargaining strategy.
Federal lawmakers — and President Donald Trump — appear to back the union. U.S. Rep. Debbie Dingell, D-Dearborn, a former GM executive, took to CNN earlier this week to call GM "the most thoroughly disliked company in Washington, D.C."
Generally a stalwart supporter of Detroit's automakers on Capitol Hill, Dingell has repeatedly pointed to GM's decision to build the new Chevrolet Blazer in Mexico as a slight against American workers, labeling it a plan to "ship jobs" out of the country. That move was also met with fury from the UAW when it was announced earlier this year.
"I'm aware of the fact that we're dealing with a cyclical industry, and these companies have to prepare for a downturn," Dingell said in an interview. "But I'm not giving my support to a company that keeps sending jobs to Mexico and not here. We have had enough of that."
In an effort to ease tensions with lawmakers, GM CEO Mary Barra is expected to meet with the Michigan delegation in Washington on Thursday, according to two sources familiar with the planning. It would be Barra's second trip to Washington in as many weeks, following a meeting last Monday with Larry Kudlow, the president's assistant for economic policy and director of the National Economic Council.
In addition to cutting 8,000 salaried jobs — including roughly 6,000 layoffs — GM is addressing its under-used capacity among its 12 U.S. assembly plants. The Detroit automaker has more plants than any of its domestic competitors, with six of its 12 plants running under 80-percent capacity, generally considered the measure of profitability.
The widespread excess capacity is a sign that GM simply has too many plants, says Ron Harbour, a vice president for the Oliver Wyman management consulting firm: "The problem that GM has had is an uneven distribution. GM has a bunch of plants running at (capacity) and others running on one or two shifts."
GM's actions with Lordstown, Detroit-Hamtramck and its Canadian plant in Oshawa, Ontario, may only be the beginning. Plants in Lansing, Orion, Bowling Green and Fairfax are also at risk, judging by capacity utilization rates tracked by LMC Automotive, an industry consultancy.
"While these changes will help GM’s overall capacity utilization, risks still remain for further capacity actions," LMC said in a study released Friday. "Certain plants like Lansing Grand River, Orion and Fairfax are well below ideal utilization rates, and could be targets if GM seeks additional cost savings."
GM's excess plant capacity adds a new sense of urgency to the usual product allocation negotiations that occur routinely during national contract talks. The company's moves next year, as announced last week, only partially resolve GM's problem, experts say. They don't fix it.
GM has said publicly it needs to take "proactive steps" to improve overall business performance and strengthen free cash flow to capitalize on electrification, mobility and autonomy ventures. The automaker is planning to launch a driverless taxi service sometime next year, followed by what it says will be a profitable second-generation electric vehicle platform in 2020.
"Usually, these things happen when the company is in bad financial shape, and the union recognizes something has to be done," said Art Schwartz, a former GM labor negotiator and president of Labor and Economics Associates, Ann Arbor-based consulting firm. "It's a difficult situation, and hard to explain to the union why you're closing a plant while you're making lots of money."