The sight of the United Auto Workers picketing General Motors’ plants evokes an image of two invalids flailing at each other with their crutches. The implication is that neither the US auto industry nor its workers will be able to maintain a fighting stance for long.
Investors certainly took the news pretty calmly, with GM stock down only slightly on Monday. After all, labour talks beget grandstanding and negotiations continue.
The UAW is in an extraordinarily difficult position. It knows that some sort of settlement to restructure the industry’s estimated $114bn of unfunded healthcare and pension liabilities is critical. The industry wants to switch these into a union-managed trust, in return for a one-off upfront payment at a discount. A cash-draining strike would risk undermining the car companies’ ability to offer acceptable terms.
Some 63.5 per cent of UAW workers will be eligible for retirement in the next five years, according to Deutsche Bank. Add in the fact that 44 per cent of the entire existing membership has already retired and the union faces a demographic timebomb that would look strikingly familiar to pension-system planners in Europe. The UAW must balance the demands of its expanding base of retired members while maintaining its relevance for existing and new workers – who, under the current system, help support the retirees.
A brief strike may, therefore, offer a way of selling an eventual deal to union members. Up to a point, GM might be willing to allow inventories to be run down in a sluggish auto market. The strike might also persuade it to pay more cash upfront or, perhaps most importantly, guarantee younger members that gains from a settlement will be reinvested in America rather than overseas. A more protracted dispute risks crippling both sides even further, making all these machinations moot.