The new, post-jobs bank GM: Hot rod or lemon? ( the Michigan View 04.08.11)

Posted by hpayne on April 8, 2011

It took a life-threatening crisis and a bankruptcy, but as General Motors begins hiring in the new labor era, it has put its perverse UAW jobs bank behind it. For now.

“It’s the perfect system,” says Center for Automotive Research (CAR) economist Sean McAlinden of GM’s “2009 modification to the 2007 labor agreement” which re-defined employee layoffs. “The jobs bank is dead, dead, dead.” The post-bankruptcy elimination of GM’s notorious jobs bank was key to helping a new General restructure in the midst of its worst crisis in history — a crisis brought on in part by crippling labor costs. Now, as the repaired giant gains steam and the recession recedes the mirror, its 2,000 laid off employees are returning to a very different GM.

The good news? The General’s labor costs are now in the same zip code as longtime rival Toyota at $58 an hour (versus $56). And jobs bank dead weight is gone.

The bad news? For all its reforms, GM is still not on a level playing field with its scrappy transplant competitors. The UAW is still in the Detroit shop. And its members are getting restless. Again.

GM’s layoff policy alone is evidence of the transformation this company has gone through. Looking back it’s hard to believe Detroit once paid people not to work. At virtually full pay. At virtually full benefits. In perpetuity.

Intended “to never lay people off and never close plants” even as the company hemorrhaged market share, McAlinden says the UAW-designed jobs bank accelerated GM’s fall. It added billions in fixed costs. And it forced GM CEO Rick Wagoner to keep plants churning out unnecessary product for sale to rental fleets — just to avoid the costlier option of closing shifts and throwing workers into jobs banks. This Hobson’s choice, however, only flooded the market with more cars, thus forcing dealers to increase incentives to sell them, thus squeezing profit in a downward price spiral.

Wow. Were we really there just three years ago?

Today, the 2,000 workers coming out of GM layoff had no jobs bank. Instead, workers (depending on seniority) get 75 percent of pay for 40 weeks. After that, 50 percent. After that? Nada. Add federal unemployment, which makes up half layoff pay, and GM’s overhead is much more attractive.

Compare that to non-union Toyota which has a policy of not laying off anyone. Instead, workers are simply reassigned within the company. That may build loyalty —- and keep the unions at bay — but it is costly.

“Toyota’s reassignment policy is a de facto jobs bank,” says McAlinden. “If they fire them, then they fear the UAW could organize them.”

A GM spokesperson says that the company prefers its layoff policy to Toyota’s policy. Well, maybe. McAlinden says that’s politic corporate talk. In truth, GM couldn’t reassign if it wanted to because — 2009 modification agreement or no — UAW work rules still cramp Big Three workplace flexibility. Seniority rights stifle the ability to move workers by need. An electrician can’t be reassigned from one department to another. And so on.

“Its’ a mess,” says McAlinden of work rules. “But it’s a wash,” he concludes of the difference between GM layoff and Toyota reassignment policies.

The real problem isn’t Toyota.

It’s Hyundai and Kia.

The Korean transplants are what the Japanese were 25 years ago: the cost leaders. At $40 an hour, the new kids are trouble for GM, Ford, Chrysler. . . and Toyota. And they are gaining market share fast. Hyundai was the only manufacturer to actually increase sales during the Great Recession as it put out quality, affordable automobiles.

When asked what the company’s layoff policy is, a Hyundai spokesman pauses, then says: “I don’t know. We’ve never had to lay anyone off.”

As GM recovers, it still carries the burden of pressure from the inside as well as the outside. The foreign transplants must fight the competition at its gates. The Big Three also have to fight the UAW threat inside the gates. For example, 40 union officials are employed per Big Three plant just to monitor labor contracts. That’s 40 paychecks the transplants don’t have to pay.

In the global economy of the 21st century, cost competitiveness is key. An early test of the new labor era will be looming contract talks in which the Big Three want to put workers on a “flexible compensation” (not fixed pay) model similar to what Japanese companies employ (McAlinden says 40 percent of pay is bonus in Japan, 12-14 percent in the U.S.).

Meanwhile, the UAW — led by its thumb-in-the-eye leader Bob King —- seems determined to fight yesterday’s battles. “Our people have given enough, have sacrificed enough, and are fed up with it,” reads a bold-faced UAW leaflet distributed at an Ohio engine plant. “We want or COLAs back, our bonuses back, and all out other suspended benefits.”

GM has emerged from bankruptcy a lean, mean fighting machine. Trouble is, the opposition is still the rank and file.

 

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