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Thursday, 24 October 2019 07:37

GM/UAW Deal Will Work, Unless Energy Policy Shifts Featured

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General Motors can afford the comparatively rich offer it made to settle the month-long United Auto Workers strike in part because it has a revamped line of highly profitable trucks and SUVs ready to hit showrooms in a few weeks.

It also gained some much needed production capacity reductions with the closing of three plants, especially its massive Lordstown Assembly Plant in northeast Ohio that eliminates production of 300,000 units a year.

That flexibility came in exchange for a promise over four years to invest $9 billion in U.S. facilities, give two annual raises of 3% each and two 4% bonuses, uncap profit sharing pay and an $11,000 signing bonus to each UAW member.

It's a good enough deal for the UAW to justify its walkout. Strikers will be made whole by the signing bonus, and the union also won important concessions on temporary workers.

Still, it all teeters on a strategy that requires GM to keep churning out vast quantities of money making and less fuel-efficient SUVs and pickup trucks. General Motors expects to sell a lot of these over the next few years because nearly all of its large vehicle models have been redesigned for 2020.

But the automaker could well find its plans stymied by a shift in energy and emissions policies should a progressive Democrat be elected president next fall. Nearly all of the Democratic contenders have pledged a major crackdown on fossil fuels, with some setting aggressive timelines for moving America to a zero-emissions economy.

Among the frontrunners for the nomination, former Vice President Joe Biden, Massachusetts Sen. Elizabeth Warren and Vermont Sen. Bernie Sanders have all signed on to some version of the Green New Deal, which would basically put the internal combustion engine out of business.

While automakers are slowly moving toward electrification of their fleets, it will be a long time before most SUVs and pickups are fully electric.

Warren presents a particular danger. She says she would "ban fracking everywhere." Fracking is the extraction technology that has allowed the United States to become a major exporter of oil and natural gas, and has kept fuel prices in this country low.

Take away fracking, and the cost of a gallon of gasoline will soar. Detroit has seen before what happens to large vehicle sales when fuel costs rise high enough to change consumer behavior.

The Big Three automakers have virtually eliminated cars and don't have many small vehicle options should extreme fuel prices alter market demand.

If past practice holds, Ford Motor Co. and Fiat Chrysler Automobiles NV will have to match the economic package GM presented under the UAW's long tradition of "pattern bargaining."

Doing so will keep all three automakers from closing the hourly labor cost gap with their foreign competitors who build vehicles in the United States. For GM, that was $13 an hour going into the strike, for Ford it was $11 an hour and for FCA $5. This deal likely will make the gap worse. For context, Toyota is recruiting workers for its Georgetown, Kentucky plant with an offer of $18 an hour. That's a little more than half of what GM will be paying UAW members at its Bowling Green, Kentucky, Corvette facility.

Again, that's not such a big deal, as long as the assembly plants can produce SUVs and pickups around the clock.

But should the direction of federal policy shift suddenly toward much tighter fuel efficiency standards and less energy production, the new contracts will put all three companies in a tough spot.

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