Later this week, the United Auto Workers is expected to wrap up ratification of a new labor contract that will ease thousands of union members into retirement and clear the way for more restructuring.
The contracts, however, were only getting a passing grade from analysts on Wall Street who follow the industry's fortunes.
Free to downsize
The new contracts clear the five companies involved in the negotiations - Ford Motor Co., General Motors, DaimlerChrysler, Visteon and Delphi - to eliminate up to 50,000 jobs over the next four years and close as many as 10 plants in the next four years, analysts said. The new contracts also offer the automakers a leverage to limit any increase in salaried compensation over the next four years.
But analyst said the wage freeze and plant closings won't be enough to help the domestic industry hold off overseas competition, which now hold a record 40 percent of the U.S. market even though the Big Three have been offering huge rebates.
"Unless the Big Three break their pattern of deflation and market share losses, it is likely that each of them will experience reductions in profitability despite their restructuring efforts," Deutsche Bank analyst Rod Lache said in a recent research report.
Analyst also weren't particularly impressed by the new spirit of cooperation between the companies and the union that prevailed during the negotiations.
"The Big Three gained some ability to close plants. However, the amount and timing appear to be somewhat disappointing," noted Steve Girsky, an analyst with Morgan Stanley noted in a report.
Goldman Sachs analyst Gary Lapidus said job cuts expected over the next four years could raise the productivity at Ford, Chrysler and particularly GM to "world-class standards."
But the increasing productivity will be offset by the rising costs for health-care, bonuses and pay increases in the last two years of the four-year contract, he said.
Workers at DaimlerChrysler ratified the new contracts last week and workers at Ford Motor Co. and Visteon, and General Motors and Delphi, are expected to finish voting on the contract in the next few days.
"The new contract was reached after many months of collective bargaining and truly balances the needs of our employees and our company," noted Dieter Zetsche, Chrysler Group chief executive after the UAW announced workers had ratified the new contract.
"We believe the agreement is not only fair and balanced, but also provides a framework to improve our competitiveness going forward. It's a positive step toward building a solid future for our company, our employees and their families," Zetsche said.
UAW President Ron Gettelfinger said the new contracts met the needs of both active and retired members. "We're proud that these agreements maintain full employer-paid health care for autoworkers, with no cost-shifting on health insurance premiums," Gettelfinger said.
Union officials also noted the new contracts delivered substantial economic gains for UAW DaimlerChrysler workers. Hourly workers will receive a $3,000 up-front signing bonus; a performance bonus in the second year of the contract; a 2-percent raise in the third year of the contract; and a 3-percent raise in the fourth year.
DC cutbacks in play
From DaimlerChrysler's perspective, the new contract cleared the way for the company to sell or close five different operations and eliminate roughly 5,000 jobs. The company also will be allowed to eliminate another 400 jobs at Chrysler Technical Center and Jeep Technical Center in Detroit because of changing technology and because changes in strategy will require the company to design fewer parts in the future.
Meanwhile McGraw Glass plant in Detroit and the Indianapolis Foundry will be closed by DaimlerChrysler during the term of the agreement, probably by the end of the year.
UAW officials, however, noted workers at both will have full job and income security protections, including the right to transfer to other UAW-represented DaimlerChrysler facilities.
In addition, the DaimlerChrysler electronics plant in Huntsville, Ala., plant will be sold to Siemens, and the New Castle, Ind., Machine and Forge plant will be sold to Metaldyne. New Process Gear, in Syracuse, N.Y., will become a Magna-Steyr joint venture.
Of nine facilities identified by DaimlerChrysler as uncompetitive during the contract talks, four will continue to be covered by the provisions of the UAW-DaimlerChrysler national agreement, with a commitment to initiate joint efforts to improve quality and productivity.
The plants on the uncompetitive list include the Detroit Axle, Mt. Elliott Tool and Die and DaimlerChrysler Transportation in Detroit, and Toledo Machining in Ohio, which could be sold if productivity doesn't improve.