Why Are Ford and Chrysler Letting GM Lead Negotiations With the UAW?

Includes: F, GM
by: Jerry Marks

The barrier to change is not too little caring; it is too much complexity.

To turn caring into action, we need to see a problem, see a solution, and see the impact. But complexity blocks all three steps.

Source: Bill Gates, Harvard commencement ceremony June 7, 2007

GM leads labor negotiation. If Ford and Chrysler management were serious about change, why are they letting GM set the pattern?

The UAW labor contracts were supposed to end at midnight tonight. Reports coming out of the Associated Press [AP] say General Motor's has been selected as the lead in the negotiations.

Now most of you on this list have been through these negotiations many times before (some have even been involved in them).

But for the money managers. I just wanted to explain that the union picks one automaker (usually the one they think they can get the best deal from) to bargain with first. Once agreed upon, it sets a "pattern" contract for the rest of the negotiations. Wikipedia indicates this approach began in the 1960s and helped the UAW get new benefits like fully paid hospitalization and sick leave benefits.

GM (NYSE:GM) is in the best operating and financial position (well if I ignore Cerberus seemingly unending deep pockets). So it makes natural sense the UAW would try to set the pattern with GM.

But I am a little disappointed in the management teams of Ford and Chrysler.

Because the Ford and Chrysler contracts have been extended indefinitely. Although the AP report says that the extensions can be cancelled by either side with 3 days notice. Meaning once the UAW is done with GM, they will choose either Ford (NYSE:F) or Chrysler as the next company to negotiate with. My guess is they will leave Chrysler for last.

Why are Ford and Chrysler letting the UAW set the pace? Protocol (etiquette?)

Isn't this what got the automakers into the situation they are in?

Not wanting to "rock the boat." Or always "playing it safe."

You have heard me say there is just as much risk to not changing as there is to change.

I know it is a lot easier for me (the armchair quarterback) to sit here and say Chrysler and Ford should try to negotiate at the same time (or threaten to let the contracts lapse) breaking a 40 - 50 year practice of pattern bargaining.

And I understand a strike is not easy. When the UAW went on strike from General Motors for 40 days in 1998 they lost more than $2 billion (according to CNN). That works out to $55 million a day. More than the revenues most GM dealers will generate in a year.

But Bill Gates made an interesting observation back in June when he addressed the graduating class of Harvard, his alma mater (Latin for" nourishing mother," but for our purposes where he went to school). As today's opening quote from that speech says: "The barrier to change is not too little caring; it is too much complexity."

Sure Gates was talking about world inequities (like disease and hunger). But I think he is right. It is not that people do not want to make the world a better place. It is that complexity enters the picture.

So let me simplify things a bit.

The current business models at Ford and Chrysler do not work. They would not have brought outsiders (like Mulally at Ford or Nardelli at Chrysler) in if they did.

And I think everyone will agree with me that going about business the same old way will not work. No we don't want to see change for the sake of change. But especially when it comes to things like labor relations, clearly change is needed.

I also think most people will agree with me that Ford and Chrysler are in a tougher spot than GM and therefore need greater concessions.

As outsiders (stakeholders, dealers, pundits, whatever), what we should want to see therefore is something new. Specifically, a new approach to bargaining.

So here is the question I want to leave you with over the weekend: If change is needed. And trying to bargain from a GM pattern is bad for Ford and Chrysler. Why are Ford and Chrysler management going about the labor negotiation process the same way they have for the last 40 - 50 years (allowing the pattern approach)?