Analysts say GM strike likely short

DETROIT - Unlike the 1970 United Auto Workers' strike against General Motors Corp., which went on for 69 days and helped push the United States into a recession, industry watchers predicted Tuesday that the current strike will be a short one.

Both sides have something the other desires - the workers want job security, GM wants to make retiree health care a union burden - and that's the stuff that agreements are made of.

"The UAW and GM understand that a strike is a lose/lose proposition," Deutsche Bank analyst Rod Lache said Tuesday in a note to investors.

The two sides were back at the bargaining table Tuesday as workers walked the picket lines for a second day. Talks restarted Tuesday morning after bargainers ended a marathon, 36-hour session Monday evening, GM spokesman Dan Flores said. Analysts were encouraged that the talks have continued throughout the strike.

GM's 73,000 UAW-represented employees walked off their jobs Monday after the union said GM failed to make promises for future products and investment in U.S. plants. GM said it was disappointed and would work the UAW to address its competitive challenges.

"I'm hoping we get a fair contract. I understand that General Motors has their back against a wall. But I don't want to give them everything," said autoworker Ernie Bruton, who was picketing Tuesday outside a GM engine plant in the Detroit suburb of Romulus.

Wall Street was taking a wait-and-see approach. GM shares slipped 32 cents, or less than one per cent, to close at $34.42 Tuesday.

In 1970, the UAW's strike against GM rippled through the economy. Production declined, unemployment rose and retail auto sales dried up, according to an analysis by Merrill Lynch. A 54-day strike against two GM plants in 1998 wreaked similar havoc and cost GM $2.2 billion.

This strike already is having an impact. On Tuesday, 5,600 workers were idled at GM's operations in Oshawa, Ont., east of Toronto, as it closed its two sedan-assembly lines.

GM Canada idled the No. 1 car assembly plant at 3 a.m. EDT. The lack of key major components from the United States halted work at the No. 2 line with the end of the day shift at 2:30 p.m.

Auto supplier Delphi Corp., GM's largest supplier, said Tuesday it was temporarily laying off workers. Delphi spokesman Lindsey Williams wouldn't give numbers because the situation was in flux. Delphi has about 25 U.S. plants that supply parts for GM.

Still, industry watchers predict the strike's impact will be minimal. Goldman Sachs auto analyst Robert Barry said if the UAW had planned a long strike, it would have struck one or two key plants instead of about 80 of GM's U.S. facilities. The UAW is paying striking workers $200 a week from its $800 million strike fund.

"In our view, the action is designed to allow UAW leaders to look vigilant in fighting to preserve benefits, members to feel concessions are not being given gratuitously, and GM management to appear to be maximizing shareholder value," Barry said in a note to investors.

GM wants the UAW to establish a trust that would administer its retiree health-care obligations. The trust could save the company an estimated $3 billion per year, Lache said, making it more competitive with Asian automakers who have fewer U.S. retirees and insulating it from health-care inflation. Gettelfinger said Monday the union is considering the trust, called a Voluntary Employees Beneficiary Association, or VEBA.

GM has $51 billion in unfunded retiree health care liabilities. Lache said GM didn't want to put more than 65 per cent of that total into the VEBA but may have agreed to a higher percentage to appease the UAW. If so, the automaker must now hold the line on job security and wages. Lache predicts the UAW will eventually accept a lower number on the VEBA in order to extract other promises from GM.

The union's quest to preserve jobs through guarantees that new cars and trucks will be built at U.S. factories clashes with GM's need to close plants to match demand for its products, said Greg Gardner, an analyst for Harbour Consulting, a Troy company that tracks manufacturing productivity.

Most of the discussion probably centres on plants that build small-and mid-sized cars such as Lordstown, Ohio; Kansas City, Kan.; and Orion Township, Mich., Gardner said.

The profit margins on those vehicles are so slim that it makes more business sense to produce them in places with lower labour costs, like Mexico, said Erich Merkle, vice-president of auto industry forecasting for consulting company IRN Inc. in Grand Rapids.

But Gardner also wonders if GM has too many factories for pickup trucks and large sport utility vehicles.

"I don't know that this is part of the discussion, but it's a legitimate question to raise. Given the trend on full-sized pickups and full-sized SUVs, do they need five assembly plants in the U.S. for those vehicles?" Gardner asked.

GM needs the flexibility to be able to close plants when demand for a certain product drops, he said. Currently the company must pay workers most of their wages when they are laid off.

"They've got to negotiate as much flexibility as they possibly can get," Gardner said. "In some cases it'll mean closing plants and offering some people the option of transferring to another plant."

Merkle said Lordstown is particularly in jeopardy. The plant, near Cleveland, assembles the Chevrolet Cobalt and Pontiac G5 small cars, which are scheduled to go out of production after the 2009 model year. GM has not announced Lordstown's next product.

Merkle said he isn't sure GM can afford to give assurances that products will be built at UAW plants. GM lost $2 billion in 2006 and $10.6 billion the year before, and its U.S. market share has been falling.

But many analysts expect the automaker will have to make concessions in order to get the VEBA.

"It won't be everything GM is looking for. They'll have to agree to building a cost-efficient product in a UAW plant," said James Hendricks, a partner with the labour and employment law firm Ford & Harrison.