10/14/2019 The GM Strike: What Are the Mounting Costs?
MANAGEMENT
The GM Strike: What Are the Mounting
Costs?
Sep 19, 2019 China, Latin America, North America Business Radio, Podcasts
As the strike at General Motors continues, the costs mount — and not just for the company and
its striking workers: There is also the threat of a wider impact across the U.S. economy. Some
46,000 full-time workers walked out September 15 at 30 factories across 10 states, a day after
the previous four-year agreement with the United Auto Workers expired. The GM strike is the
rst in the auto industry since September 2007, when GM workers went on a two-day strike.
The overriding issue between the two sides is to rebuild trust, because that will be needed over
the longer term as the company adjusts itself to demand cycles, newer technology, and the
economies of closing unpro table plants and making new investments, including at overseas
locations. Experts at Wharton and elsewhere discussed the GM strike and the nuances of the
events that led up to it on the Knowledge@Wharton radio show on SiriusXM. (Listen to the
podcast at the top of this page.)
https://knowledge.wharton.upenn.edu/article/impacts-of-the-gm-strike/ 1/8
10/14/2019 The GM Strike: What Are the Mounting Costs?
Estimates of the hit to GM’s operating income range between $50 million and $100 million a
day. The company has stopped health care coverage for the striking workers, although they
would continue to have some union-paid bene ts. It is only a matter of time before the strike
threatens the jobs at GM’s roughly 10,000 suppliers, and it could trigger a recession in the
Midwest, where most of those suppliers are based, a CNN report said.
Growing Resentment
A con uence of factors have contributed to the tensions at GM, said John Paul McDu e,
Wharton management professor and director of the Program on Vehicle and Mobility
Innovation at Wharton’s Mack Institute for Innovation Management. First, the UAW wants GM
to pay back a good deed from workers during the 2008 nancial crisis, when the union “made a
lot of concessions,” he said. “[When] they renewed the contract in 2014, they did not go on
strike and they didn’t press for very many changes. So, the [union] members feel that some
changes are long overdue.”
The UAW helped GM negotiate its 2008 bailout with the government by agreeing to accept
delayed contributions to a health trust fund for retirees and reduced payments for laid-o
workers as part of a broader corporate restructuring e ort, according to a report in The Balance.
GM last November embarked on a reorganization plan to close four of its U.S. plants, and one in
Canada, by January 2020, lay o 14,000 workers and retire six of its 15 car models; it had hoped
to save $6 billion by 2020. The four U.S. plants are in Lordstown, Ohio; Warren and Detroit-
Hamtramck in Michigan; and Baltimore. GM said it has re-absorbed most of the 3,300 people
laid o thus far at its other plants, according a Wall Street Journal report. In fact, the company
said that the reorganization would hurt only 500 jobs if those eligible to retire do so, according
to a plant-by-plant count it provided for a Reuters report in March.
GM felt compelled to restructure its manufacturing operations with the growing trend of
internal combustion engines being replaced by electric and hybrid cars. “GM is like all the
incumbent automakers, having to maintain a balance by keeping the legacy business going
while investing massively in these new technologies, which are going to be so important in the
next stage of our mobility,” said MacDu e. “Whether it’s electric or autonomous vehicles, or
connected vehicles, [investments in them are] massively expensive.” At the same time, the
record-high sales of conventional vehicles in last few years are starting to decline, both in the
U.S. and globally.
https://knowledge.wharton.upenn.edu/article/impacts-of-the-gm-strike/ 2/8
10/14/2019 The GM Strike: What Are the Mounting Costs?
“The industry enters its predictable cyclical downturn right at the time of this strike as well,”
MacDu e continued. “So, it’s not so surprising that the two sides are pretty far apart at the
moment and that the strike has resulted.”
The GM strike also happens to be a wedge for the UAW to broaden its push in the industry.
“Picking one company rst is common and then you hope the pattern holds with the others,
and GM has been the most pro table [of the major auto companies],” said MacDu e.
Workers Want Payback Now
“General Motors is here today in large part because of UAW workers and the union when it slid
into bankruptcy in 2009,” said Harley Shaiken, professor of education at the University of
California at Berkeley and a labor economist. “The workers made very large concessions at a
moment of real crisis, and it was very painful to get it through. GM has viewed those
concessions as a normal way of doing business.”
“General Motors is here today in large part
because of UAW workers and the union when it
slid into bankruptcy in 2009.” –Harley Shaiken
Shaiken pointed out that about 30% of GM’s workforce, who make up about 46,000 workers, “is
earning signi cantly less than senior workers earn,” and that another 7% to 10% are temporary
workers, earning $15 an hour. “The union and the workers are aware of all the crisis that’s
taking place in the industry and the challenges for GM,” he said. “But they’re also aware of
GM’s record pro tability of $35 billion dollars over the last three years. If they can’t get some of
this return now, [then] when?”
In fact, back in 2010 after GM had its $20-billion initial public o ering, MacDu e predicted
that the union could come back to claim what it might see as its rightful share. “The big
question on everybody’s mind is, if GM returns and is highly pro table, will the union want to
revisit some of the concessions that they’ve made, and what will the company’s stance be to
that?” he had said in a 2010 interview with Knowledge@Wharton.
Smaller Is Bountiful?
https://knowledge.wharton.upenn.edu/article/impacts-of-the-gm-strike/ 3/8
10/14/2019 The GM Strike: What Are the Mounting Costs?
GM for its part would point out that each union member has received about $11,000 a year under
a pro t-sharing feature in the previous agreement, said MacDu e. He noted that “Wall Street
has been happiest with GM’s strategic moves over this period of time.” Investors are pleased
that GM has “a leading electric vehicle” in its Chevrolet Bolt, its 2016 acquisition of San
Francisco-based self-driving vehicle startup Cruise, and its OnStar subsidiary that o ers a
range of in-vehicle services such as communications, security and navigation tools.
Investors also liked it when GM shrank operations around the world to improve pro tability.
“When GM got out of Europe and some other markets, the stock market applauded because
that’s been a source of pro ts,” said MacDu e. “The days when growth in scale was viewed as
a sign of success have at least partially changed.”
The UAW, of course, didn’t relish all those developments. “They’re seeing product move to
Mexico. They’re seeing GM downsizing. They’re seeing big executive bonuses,” said MacDu e.
“And, they said, ‘You have to invest in the future, but you’ve got to invest in us too, if you want
to have good quality products and keep loyal customers.’”
Hopes of a Settlement
Even as both sides are “in a di cult position” an agreement is achievable, said Marick Masters,
director of Labor@Wayne at Wayne State University, where he is a professor of management
and adjunct professor of political science. “It’s just a matter of the parties trying to work
through them. Both parties, although they seemed far apart a couple of days ago, may be
making some progress toward narrowing their di erences.”
Talks between GM and the UAW on a fresh four-year agreement that began in July had stalled,
but resumed this week. The UAW demands cover “fair wages,” job security, health care
bene ts, pro t sharing and “a de ned path to permanent seniority for temps,” according to a
news release. Earlier that day, GM had outlined its o er of “improved wages and health care
bene ts, over $7 billion in U.S. investments and 5,400 jobs,” including “solutions” for two
plants in Michigan and Ohio whose closure the UAW had opposed.
“Negotiations have resumed. Our goal remains to reach an agreement that builds a stronger
future for our employees and our business,” GM said on its website on Monday. GM has o ered
a 2% wage increase for the rst and third year of the four-year contract and 2% lump sum
payments the second and fourth years, but the union nds that unacceptable, according to a
report citing unnamed sources in the Detroit Free Press.
https://knowledge.wharton.upenn.edu/article/impacts-of-the-gm-strike/ 4/8
10/14/2019 The GM Strike: What Are the Mounting Costs?
“Fair or not, Ford and Chrysler look a little better
from the UAW point of view. It is easier to cast
GM as the villain in this particular plotline.”
–John Paul MacDuf e
The White House has tried to play a role in mediating between GM and the union, but with little
e ect. President Trump met GM CEO Mary Barra last month as fears of a strike loomed. In one
of his dozen-odd tweets on GM, he expressed his displeasure with the company moving
operations to China, and said his apparent attempt to mediate in the negotiations was not well
received. GM has 27 plants in China to serve that domestic market, and did not “move” any
plants to that country, according to a CNN report.
The Top Issues
Two issues are particularly important in the current negotiations — protecting health care
bene ts and ensuring fairness of wages for temporary workers, MacDu e told
Knowledge@Wharton in a separate interview. Workers are worried amid rumors that GM may
require them to pay up to 15% of their health care costs, he said. Already, they were feeling
restive with the broader debate in the U.S. in recent years of employers responding to rising
health care costs by cutting back on plans that are more generous, he added. “With projections
of health care costs going up 6% a year, holding the line on health care packages is almost
equivalent to a large pay increase,” he said.
The issue of both fair wages and a path to permanent employment for temporary workers is
especially sensitive, said MacDu e. While it is not uncommon for wage agreements to have
di erential wages between di erent classes of workers, they usually have provisions for
temporary workers to be made permanent after a certain number of years of service, and for
their wages “to creep up higher and closer to the normal, so the gap closes,” he added. But in
GM’s case, the agreement struck in the bailout after the nancial crisis did not provide for that
parity over time, he noted.
The UAW feels that as GM’s nancial condition has improved since the Great Recession, it ought
to pay temporary workers the same wage as permanent workers doing comparable work,
MacDu e continued. “We know this from behavioral theory that when two people doing the
same work are paid something di erent, particularly when they work in proximity and know
about that di erence, it can be quite demotivating and it can lead to various kinds of tension.”
As the negotiations continue, “the temp issue may be the trickiest one to resolve,” he added.
https://knowledge.wharton.upenn.edu/article/impacts-of-the-gm-strike/ 5/8
10/14/2019 The GM Strike: What Are the Mounting Costs?
Purging Unhappiness and Distrust
Shaiken agreed that GM has made “impressive” gains in electric vehicles and autonomous
technology in responding to the challenges the auto industry faces. “But the key to the industry
— and this is easy to forget — is a highly motivated, highly skilled workforce,” he said. “GM
has that, but there are costs to maintaining that. That’s something that Wall Street is often tone
deaf to, being focused more narrowly on the bottom line, but losing that motivation, having an
angry workforce has a cost, too.”
Masters pointed out that “it is important that [both] parties rebuild trust.” He added that GM
made “a tactical error” in how it handled past layo s and plant closures. “It left a bitter taste in
not only the blue-collar workforce, but also the white-collar workforce.”
MacDu e, too, felt that GM misplayed its hand with the plant closings. He noted that GM knew
full well before union negotiations began that it was losing money on some of its plants with
declining demand for the vehicles that were being built there. The company had committed in
an earlier letter to the union that it would not close any plants, unless “drastic changes in
business conditions” warranted those closures, he recalled.
However, when GM decided to close four U.S. plants, the UAW rightly demanded to know why
GM did not move some of its higher-priced and faster-selling cars to those locations, he said.
GM’s latest o er to allocate new vehicles and battery production to two of those plants has
therefore been viewed with skepticism, MacDu e pointed out. “It almost looks like they were
positioning themselves to have a negotiating chip, when something as dramatic as plant
closings and a lot of layo s are not exactly going to win the hearts and minds of the workforce.”
Shadow of a Scandal
One distraction in the negotiations is a corruption scandal involving UAW o cials that has been
unfolding over the past two years. “That’s what everybody’s attention has been focused on, on
what impact this scandal might have on the union,” said Masters.
Earlier this month, Michael Grimes, a retired o cial who was assigned to the UAW’s General
Motors division, pleaded guilty to conspiracy charges, as part of a federal investigation into
corruption within UAW leadership ranks that recently expanded to the union’s president and
his predecessor, The Wall Street Journal reported. Grimes is the rst senior o cial from the
UAW’s GM department to be charged in the continuing criminal probe, which rst became
public in 2017 and has largely focused on nancial misconduct involving executives at Fiat
Chrysler Automobiles NV and their union counterparts, the report added.
https://knowledge.wharton.upenn.edu/article/impacts-of-the-gm-strike/ 6/8
10/14/2019 The GM Strike: What Are the Mounting Costs?
“GM is not guaranteed a future to be here
forever. I would not want to bet anything on who
would be the major auto players 15 to 20 years
from now.” –Marick Masters
Thus far, 10 people have been charged and nine have pleaded guilty in cases that have
implicated senior UAW leaders and executives at Fiat Chrysler and General Motors, according to
a Detroit Free Press report on Monday.
Broader Ground Realities
The loss GM incurs every day the strike continues must be viewed against other realities of the
auto industry, Masters said. Even as auto companies are making money, “it’s still not a very
sexy industry to be in,” he added. “Pro t margins are relatively low. Capital investment
requirements are huge. Their debt-to-equity ratio is pretty high.”
Against that backdrop, “GM is not guaranteed a future to be here forever,” Masters said. “The
industry is in for some rapid disruptive changes. I would not want to bet anything on who would
be the major auto players 15 to 20 years from now.”
Shaiken pointed out that although GM has made $35 billion in pro ts over the last three years,
it has spent $25 billion over the last four years in stock buybacks and in paying dividends to its
shareholders. “To do that then and to say now, ‘We really need to hammer down on labor costs’
doesn’t sit well with workers,” he said. GM may have been able to save the Lordstown plant by
recon guring production plans, but it instead chose to invest in Mexico, Shaiken added. “The
net result is GM last year manufactured 800,000 vehicles in Mexico, two-thirds or more of
which were sold in the U.S. at the same time they’ve closed plants like Lordstown and possibly
Hamtramck because of capacity utilization issues.”
Another sticking point has been that GM’s plan to invest in Mexico contrasts with Ford’s
decision to grow in Detroit, said MacDu e. He noted that outsourcing manufacturing to lower-
cost locations is a global trend, “but in this current political climate, there’s a contrast e ect
that GM is su ering.” He pointed out that Ford backed away from a plan to move some
manufacturing to Mexico, and said it would expand in the U.S. instead. Fiat Chrysler also plans
to invest in a new plant in Detroit — an emotionally-charged location since it has seen
substantial disinvestment over the years.
https://knowledge.wharton.upenn.edu/article/impacts-of-the-gm-strike/ 7/8
10/14/2019 The GM Strike: What Are the Mounting Costs?
“So, fair or not, Ford and Chrysler look a little better from the UAW point of view,” said
MacDu e. “And, it is easier to cast GM as the villain in this particular plotline.”
Recession Fears
The strike could trigger “a single-state recession” in Michigan, “but that would only occur if
the strike continued for a prolonged period,” said Masters. For every hourly GM worker, the
company’s suppliers have three or four workers, the CNN report added, citing estimates by the
Center for Automotive Research, a think tank in Michigan. If one includes the impact on
restaurants and other local businesses, every GM worker on strike threatens seven other jobs,
Shaiken told USA Today.
Shaiken pointed to the wider implications of companies moving their operations to lower-cost
locations. “The ip side of laying o Lordstown workers at $30 an hour is you lose $30 an hour
in purchasing power,” he said. “That’s what fuels the economy. That’s what built a middle class
in the U.S. in the post-World War II era. When it’s outsourced not simply to low-wage areas, but
to areas where wages are suppressed because workers do not have the right to form
independent unions, then you are not simply undermining autoworker wages. You’re
undermining the middle class. You’re undermining the purchasing power that is fueled
economic growth in this country historically.”
All materials copyright of the Wharton School (http://www.wharton.upenn.edu/) of the University of
Pennsylvania (http://www.upenn.edu/).
Report accessibility issues and get help (https://accessibility.web-resources.upenn.edu/get-help)
https://knowledge.wharton.upenn.edu/article/impacts-of-the-gm-strike/ 8/8
