Auto's New Deal

Linking wages to car prices

The plan unfolded with a precision that is seldom seen on the assembly line. During a meeting in early November, United Auto Workers President Douglas Fraser suggested a bold new proposal to General Motors Chairman Roger Smith: How about linking any reductions in autoworkers' wages or benefits to cuts in the price of GM cars? During the following month, Fraser met secretly with Smith on the 14th floor of GM's headquarters in Detroit. Last week the deal was announced.

The agreement may permanently change the relationship between company and union in the automobile industry. The U.A.W. has agreed to consider cuts in its wage and benefit package, now estimated to average $19.65 an hour (vs. a nationwide average of $8.16 for industrial workers). GM, in turn, will make equal reductions in the compensation of its white-collar workers "all the way up to chairman." The savings from the two proposed moves will be passed along to customers in lower showroom prices. An outside public accounting firm will monitor the books of the company to make certain that all savings reach consumers.

The goal of the agreement is to bring U.S. labor costs more closely into line with those of Japanese automakers. They pay workers about $11 an hour, which helps them sell cars for up to $1,500 less than their U.S. competitors. Said Smith: "This addresses the heart of the problem in our industry today--noncompetitive labor costs and inflated car and truck prices."

The agreement was part of negotiations between GM and the U.A.W. to replace their existing three-year wage contract. The old pact expires in September, but the automakers, enmeshed in their worst sales slump in 20 years, hope to win some immediate concessions from the union.

Early January sales demonstrated just how desperate Detroit's plight has become. The Big Three automakers sold 9% fewers cars than in the same period a year ago. At financially troubled American Motors, Gerald Meyers resigned as chairman and was replaced by President W. Paul Tippett Jr.

The U.A.W. agreement reflected the current less militant mood of labor as a result of the recession. Last week the Teamsters Union reached agreement on a new 39-month contract with the trucking industry that reportedly includes lower wage increases and changes in work rules that trucking companies had demanded.

Last week's accord was only between GM and the union. Ford was caught completely off guard by the deal, and the company temporarily broke off talks with the union in order to reassess its position. Said Chairman Philip Caldwell testily: "I had no foreknowledge of it." Within 72 hours, however, Ford recovered and presented its own plan to the U.A.W. While not as sweeping as the GM arrangement, it offered profit sharing and job protection in exchange for reductions in paid time off and restraints on other labor costs in a new 2 1/2-year contract.

There were several other surprises at Ford last week. Chrysler declared that it had outsold Ford during early 1982, the only time it has done so in a nonstrike year since 1953. The company angrily retorted that Chrysler had distorted the figures by including the sales of 2,768 Japanese vehicles that it imports. Ford shareholders also got a shock when the company announced that it would not pay a dividend for the first three months of this year. This will be the first time Ford has skipped a stock payment since going public in 1956.

Whether the bold move by GM and the U.A.W. will actually help car sales is still uncertain. Fraser said that sticker prices will have to be cut by more than $100 per car to be "significant." But he said he was "disturbed, dismayed and shocked" by GM's initial suggestion to reduce hourly costs by $5 an hour through cuts in cost of living adjustments and reduced medical benefits. The elimination of nine paid personal holidays for U.A.W. workers, though, is likely to be one of the first casualties.

With the price of an average new car now just under $10,000, most industry observers think it will take a price reduction of at least $1,000 to stimulate sales. Notes Ford Chairman Caldwell: "A $100 cut will do practically nothing when there are rebates out there of $500 or even $1,000 per car."

There is no denying the historic significance of last week's agreement. For the first time, the U.A.W. was acknowledging its stake in the health of its industry by agreeing to give up hard-won benefits to help return the automakers to health.

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