Showdown at GM

TOM FENNELL October 14 1996

Showdown at GM

TOM FENNELL October 14 1996

Showdown at GM


General Motors and Linda Landry go back a long way. In 1949, her father, Maurice, landed a job with the world’s largest automaker as a laborer in GM’s sprawling Oshawa, Ont., assembly plant. Linda, who vividly recalls her father walking a picket line during a strike in 1955, followed Maurice into the factory 12 years ago. The $20 an hour she earns on the line has allowed her to purchase a modest home and a fleet of GM products: a 1984 Corvette, a pickup and a shiny new Pontiac Grand Am. Last week, however, Landry joined 12,300 other members of the Canadian Auto Workers union who walked off the job in Oshawa and SteThérèse, Que., in an escalating battle over GM’s plans to shift more of its parts production to outside contractors.

With the CAW standing firm in its opposition to “outsourcing,” the strike threatened to smother a fragile economic recovery that is finally taking shape across the country. By last Saturday, the protest had triggered widespread layoffs at companies that supply auto components to GM. ‘We just don’t want to lose what we have,” Landry said as she huddled near a bonfire outside the main gates of GM’s Oshawa complex. “I want to know that I’ll still be working here in 20 years.”

The strike could not have come at a worse time for the economy.

According to Statistics Canada, the nation’s gross domestic product surged by 0.5 per cent in July, its biggest one-month gain since December, 1995. At that rate, says economist Sherry Cooper of Nesbitt Burns Inc. in Toronto, the economy is on track to achieve 3.1-per-cent growth by the end of the year. The long-awaited rally is broadly based, with 18 out of 21 major industries expanding—creating 82,000 new jobs in August alone.

A labor dispute affecting a single company would normally have little impact on the national economy. But GM is Canada’s largest private-sector employer, with almost 34,000 workers and a weekly payroll exceeding $35 million. A complete shutdown of GM’s Ontario and Quebec operations would mean $150 million a day in lost production at GM and about 1,000 Canadian firms that supply it with parts and equipment. More difficult to quantify is the spillover damage in the communities where GM operates, affecting everything

from housing prices to supermarket sales. If the strike lasts a month, Cooper says, it will shave a full percentage point off the nation’s GDP this year. “One in five jobs in Ontario depends on the automotive industry,” added Jason Myers, chief economist for the Alliance for Manufacturers and Exporters of Canada. “It’s going to affect everything, because people are not going to be spending money right across the economy.”

The strike hit just when consumers were beginning to show renewed confidence. Cooper said that shoppers’ spirits perked up over the summer in response to falling interest rates. Last week, the Bank of Canada dropped its key lending rate another quarter of a point to four per cent—the lowest level in 35 years. Although retail sales rose by a meagre .04 per cent in July, analysts took it as a positive sign because it was the fourth month in a row that the sector had expanded. ‘The massive decline in interest rates

is spurring a rebound in the domestic economy,” Cooper said. “We’re finally going to see consumers participate in this party.” The GM strike could throw cold water on that party as layoffs spread rapidly through the auto industry. In addition to the 12,300 CAW members in Oshawa and Ste-Thérèse, there are 9,600 workers at other GM plants in Ontario, in London, Windsor, Woodstock and St. Catharines. Barring a sudden settlement, they were expected to go on strike by the end of this week. A full strike would cost GM Canada $480 million in vehicle production each week, with the damage spreading as well to assembly plants in the United States, which depend on parts manufactured by the company in Canada. A further complication is that the shutdown happened just as GM was beginning to ship its 1997 models. “You can afford to have some of your other car plants affected by the strike,” said Wes Brown, an auto analyst with the economic research firm CMS Forecasting in Detroit. “But when you are trying to launch brand new vehicles, you don’t want that to happen.”

The Canadian firms that sell parts and services to GM employ a combined 90,000 people. Pete Mateja, president of the Canadian Automotive Parts Manufacturers Association, noted that layoffs would spread quickly through those firms because parts producers can no longer afford to stock large inventories.

Instead, under a system known as just-in-time delivery, components are manufactured and shipped to the big automakers only as needed. “Inventory is a bad word these days,” said Mateja.

Less than 48 hours after the strike hit, the impact was beginning to reverberate through the parts sector. Lear Seating Canada, which supplies seats to GM, laid off 1,000 workers at a factory only a few kilometres from the Oshawa plants. On the same day, Dennis Verspeeten sent home 350 of 400 employees at his Oshawa trucking firm, which hauls parts for GM. The remaining 50, he said, will likely be laid off if the strike spreads to the United States. In Quebec, Woodbridge Bertrand Faure Technologies Inc., which produces seats for Chevrolet Cámaros and Pontiac Firebirds, laid off 50 people. “A complete closure of GM and its effect on suppliers would be severe,” said Myers. “Steel, aluminum, leather, plastics and machinery all go into the auto industry. When you add that together, the strike could cost the economy $150 million a day.”

A long, painful strike is a distinct possibility. GM executives have been saying for months that they are determined to bring the company’s production costs into line with Chrysler and Ford, both of which contract out a higher percentage of their manufacturing than does GM. In a rare move, GM Canada president Maureen Kempston Darkes sent a letter to all of the firm’s unionized employees last week pleading for co-operation as the company tries to strengthen its competitive position. She acknowledged that workers had helped turn GM around from a loss of more than $10 billion in 1991, the largest in its history, to a healthy profit last year of $12.4 billion, including a record $1.4 billion on its Canadian operations. Still, GM’s share of the North American vehicle market has slipped to 33 per cent in 1995 from almost 45 per cent a decade ago. Without taking steps to improve efficiency,

I'mata loss to explain how we got here~

Kempston Darkes said, the firm’s profitability will inevitably slip. “The Japanese manufacturers continue to threaten us by reducing their costs,” she wrote. “Both Ford and Chrysler have historically had significantly lower levels of in-house parts manufacturing and have significantly improved their productivity.”

Despite that, there had been signs earlier in the week that GM Canada was inching towards a settlement. During the talks, the company had proposed to protect most of the 500 jobs it planned to cut through outsourcing. The next morning, however, that offer was withdrawn. Most analysts believe GM officials in Detroit are taking a hard line on the Canadian talks for fear of setting a precedent on

outsourcing in Canada while its U.S. operation is in the middle of contract negotiations with the Detroitbased United Auto Workers. After saying on Tuesday that he saw a “glimmer of light” for a settlement, CAW president Buzz Hargrove sounded despondent on Wednesday when he announced that negotiations had broken down. “I’m frustrated, I’m angry,” he said. “I’m at a loss quite frankly to explain how we got here tonight.”

The strike is the first major test for the CAW since it broke away from the UAW in 1986. In early September, the Canadian union won a major victory when Chrysler Canada Corp. agreed to the union’s demand for “work ownership”— meaning, in effect, that Chrysler will not close any plants over the three-year life of the deal and will replace any union jobs lost through outsourcing. Hargrove has vowed that the strike will continue until GM matches those terms. “Before we leave the bargaining table and end the strike, every word in the outsourcing work ownership job-security program will be in our collective agreement.”

GM, however, is determined to push ahead with plans to sell a trim plant in Windsor and a fabrication plant in Oshawa, which together employ 5,000 people. The company’s lead negotiator, Dean Munger, said the firm is willing to take “creative” steps to protect some of those jobs, but insisted that GM must take steps to downsize if it is to remain profitable. Without such flexibility, Munger said, GM’s efficiency would suffer—and the company is not prepared to see “costs passed on to the consumer.”

Some analysts believe that GM is so determined to increase the amount of work it contracts out that it will leave its Canadian

workers out on strike until it settles with its U.S. unions. GM and the UAW are currently negotiating, but they have yet to deal with the contentious issue of outsourcing. “The tail doesn’t wag the dog here,” said Dennis DesRosiers, a Torontobased auto analyst. “The [Canadian union] will have to find some way to take GM’s concerns into play.”

But workers on the picket line were in no mood to back down. ‘We have families like everyone else,” said Kaz Szmyr, a maintenance 3 worker at the Oshawa plant, “but 8 the company wants to pay someone I $10 an hour to do our jobs.” As uni fair as that may seem, both sides 1 are probably going to have to give “ ground before the strike is settled.



The GM shutdown came just as analysts 10% were hailing an apparent rebound in economic activity and job creation. 8 One measure of the economy’s strength is the recent turnaround 6 in manufacturing—a recovery that will be short-lived if 4 the strike drags on. 2 0 Year-over-year change in -2 manufacturing output