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Auto Bailout: Time For Big 3 And UAW To Deal

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CNBC.com

Have you been listening to political leaders talk about what it will take for the Detroit 3 and the UAW to get Washington to sign off on a bailout for the industry? If so, you've heard several key words and phrases used to describe what the auto makers need to do.

They include, business plan, road to profitability, flying commercial, and sacrifice. That last one is the word current and retired members of the UAW will likely be focusing on over the next two weeks.

At last weeks hearings, UAW President Ron Gettlefinger got off relatively unscathed. He also didn't give the kind of answers that left law makers shaking their heads. Next time around, I suspect he will face more targeted questions. The biggest: Why the UAW shouldn't crack open its contracts and come up with ways to save the Big 3 big bucks?

When I and others have asked Gettlefinger if the union would be ready to make new concessions, he has said his auto workers have already made numerous concessions in the current contract. Those include agreeing to a two tier wage level (some new hires coming in at $14 and hour instead of $28), dramatically changing the healthcare benefits, and scaling back the "jobs bank", which pays laid off UAW members up to 95% of their salary. Still, Congress is likely to want more from the UAW.

With the Big 3 a short walk from bankruptcies that could cripple the entire industry, there is mounting pressure on Gettlefinger and his top advisors to deal. Publicly, they may say that it's not realistic to make concessions. Privately, I've been told there are a number of options for the union and auto makers.

So what do I expect?

When the Big 3 send their plans to Congress December 2nd, don't be surprised if the union agrees to end the jobs bank. In reality, there are far fewer laid off workers in the program than 5 or 10 years ago. Still, law makers will wonder why they should lend billions to Detroit if the auto makers are paying laid off workers a salary despite not doing any work.

We could also see the union agree to temporary wage cut (10-15%) as a way to show the Big 3, and Congress, the union is willing to help the companies conserve cash. The union could structure the agreement so current members get their "lost wages" back through one time payments when the auto makers return to profitability.

Finally, the UAW could defer the billions of dollars the Big 3 owe them to set up the healthcare (VEBA) fund. That would only be a short term help. Eventually, if Detroit is going to get rid of the burden of soaring healthcare bills.

None of these, or other moves to cut costs, will sit well with the UAW current or retired members, but Ron Gettlefinger has few good options right now. He's a pragmatic man who realises that there is no benefit to digging in his heels and telling Congress, "we've done enough already." It's time for the Big 3 and the union to deal.

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