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Monday, September 11, 2006

The UAW And Car Companies: Let The Games Begin

Stocks: (F)(GM)(DCX)

The UAW announced late last week that it would not agree to health care cuts for its members at Chrysler. The rationale was that DaimlerChrysler does not have severe financial issues and so cuts are not warranted.

On a second front, the UAW also indicated it would strike Delphi, the auto parts company spun out from GM, if a bankruptcy court agrees to void the union’s contracts.

The UAW has agreed to buy-outs at GM and Ford, on the basis of the poor results both companies have posted in North America.

But, will the UAW continue its cooperation with the two wounded companies?

The next round of major negotiations with the UAW comes in 2007. If the union’s attitude toward GM mirrors that with Chrysler, negotiations could be more difficult. While GM could make the claim that it was on the ropes at the end of this year, the partial turnaround of the auto giant has driven its stock price up and it had a profit last quarter. The company has guaranteed $9 billion in annual savings but with a market share that is still falling, the company may need more. GM’s partial success may cause the UAW to take pause..

At the moment, Ford has a much better case to plead with its largest union. The company is taking a huge beating in market share, in the stock market, and on its P&L. The only likely event that could change that is if the company makes an alliance with Renault and Nissan. GM, which has been discussing the same alliance, is likely to turn it down. It does not want the head of the Japanese and French company’s Carlos Ghosn, in the corporate chicken house.

Ford is a more likely candidate for the alliance because it needs the partnership more. With a new CEO from outside the industry, forming a three-way product development and marketing operation may be plausible. And, Nissan and Renault may be willing to make an equity investment with Ford, as they offered to do with GM. If Ford takes the money, and strengthens its balance sheet, the UAW will be skeptical about making wholesale concessions.

When both GM and Ford appeared to be have been trapped by relying on fuel-inefficient SUVs and pick-ups, the UAW looked at them as institutions to be so that some union jobs could be preserved..

The period when that perception was helpful to the car companies in negotiations may have passed.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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