An auto maker with memories of bankruptcy, a union facing scandal
By Mike Colias and Nora Naughton
For months, leaders of both the United Auto Workers and General Motors Co. were desperate for a win.
The UAW, weakened by decades of dwindling membership, was fighting a federal corruption investigation into its leadership, with agents executing search warrants. Members grumbled they weren't getting a share of company profits and wanted union leaders to prove their worth.
GM executives were wary of a market downturn and wanted to spend billions on new technologies. They determined they needed to come up with $6 billion in cuts -- in six weeks.
From these embattled corners negotiations began in Detroit this summer, and broke down on Sunday, when the UAW called its first nationwide strike at GM in more than a decade. The action sent tens of thousands of factory workers to the picket lines and halted production at more than 30 U.S. plants.
The work stoppage is among America's largest private-sector walkouts in years. Analysts estimate it is costing GM $50 million to $100 million a day in lost profits. GM's competitors -- Ford Motor Co. and Fiat Chrysler Automobiles NV -- have much riding on the outcome of this stalemate. The UAW will use the contract agreed to at GM as a template for talks with the other two U.S. car makers.
It's a confrontation that has been building for years, with the two big institutions, both under acute pressures, driven by diverging goals. Negotiations continue this week. Even after a contract is eventually reached, the relationship may have permanently shifted.
On one side is GM's Chief Executive Mary Barra, who is trying to shed the auto maker's long-held reputation for ignoring problems. She is aiming to show Wall Street that today's GM is leaner and more assertive than the one that collapsed into bankruptcy a decade ago.
On the other side is the UAW, an organization that once ruled the auto industry but is now confronting declines and dissent from within -- fueled in part by the popularity of President Trump among its members.
As U.S. auto industry sales slow, following a historic run, both sides are trying to lock in a new labor agreement that will protect their respective livelihoods in the years ahead.
UAW leaders say they called the strike after bargaining for a new four-year labor agreement hit a standstill, with the two sides far apart on issues ranging from wages and health care to the use of temporary workers.
The tone had been set months before contract talks officially started. UAW leaders met at an Atlantic City casino in May to discuss tactics, and an air of anger permeated the meeting, say people who attended.
Two months earlier, GM had shuttered a major assembly plant in Lordstown, Ohio, letting hundreds of people go, and the nation's largest auto maker by sales was planning to close three more U.S. factories.
Gary Jones, the UAW's president, told the Atlantic City gathering that GM's decision had fundamentally changed the union's relationship with the company and would cast a shadow over negotiations.
"They were saying there was a different feeling -- a shift from upper GM management," said Dennis Earl, a union leader from Toledo, Ohio, who attended the meeting. "There was arrogance."
GM executives have defended the plant closures as the type of bold move that the old GM would have shied from. The two largest of the factories set to close -- the one in Lordstown and another in Detroit -- were sputtering along at less than half their capacity, building cars that a dwindling number of people want to buy.
Wall Street analysts applauded the decision, saying GM was taking steps to guard against a downturn.
Many workers say they feel betrayed, having sacrificed pay and benefits as the company slid into its 2009 bankruptcy, only to be pummeled by closures a decade later, when the company is posting some of its strongest profits in history.
President Trump has inflamed tensions by publicly castigating GM for the closures and assailing car makers, both foreign and domestic, for not building more vehicles in the U.S.
Ms. Barra, a onetime plant manager, worked well with the UAW for much of her career. Following a crippling 54-day strike in 1998 at GM's assembly plant in Flint, Mich., she was assigned to an internal-communications post to mend relations between UAW members and the company.
During her CEO tenure, though, relations between GM and the UAW have frayed.
In the last round of collective bargaining, in 2015, GM executives were upset over getting stuck with a contract that was costlier than they originally forecast, people familiar with the matter said.
Union officials and GM negotiators had worked together for months in relative harmony, and GM executives believed UAW leaders would pick GM as the lead company in negotiations. The union instead chose Fiat-Chrysler, which agreed to a more expensive deal that GM then had to follow, the people said.
That same year, GM confirmed it would import a small Buick crossover called the Envision from China to the U.S. Union leaders took to calling the model "the Invasion."
For much of her nearly six-year tenure, Ms. Barra has worked to fix GM's overseas business, including selling the company's European operations, which lost money for two decades.
In recent years GM's profitability has soared as U.S. auto industry sales remained strong and customers shifted to buying pricier trucks and SUVs -- long the company's sweet spot. GM posted a record operating profit of $12.8 billion in 2016 and again in 2017, before slipping to $11.8 billion last year.
"You guys are kicking butt," Morgan Stanley analyst Adam Jonas told Ms. Barra at an investor conference in January. "Private investors come up to me all the time lately saying 'Where does this come from? What GM is this?' "
Still, Ms. Barra has had to fend off two separate activist investors and contend with a stalled stock price.
Last year, GM further incensed UAW workers by revealing it would build a new Chevy Blazer, long a recognizable American nameplate, in Mexico -- news that landed on the same day the company laid off a shift of factory workers at the Lordstown plant.
Last October, Ms. Barra convened her top leadership team in a conference room at GM's headquarters and said the company needed to better prepare for the eventual downturn in U.S. auto sales, according to a person at the meeting. She gave her team six weeks to find $6 billion in annual cash savings, according to the person.
Newly appointed Chief Financial Officer Dhivya Suryadevara was sharpening GM's focus on cash flow, believing it needed to improve to better court investors, according to other people familiar with her role. With Ms. Barra's leadership team, she sought to tackle a problem that had long dragged on GM's finances: too many North American factories operating on barely one shift.
The week after Thanksgiving, GM sought to roll out a restructuring plan: Four U.S. plants and one in Canada were set to be "unallocated," meaning no vehicles would be built there in the near future. The move put more than 6,000 factory workers at risk of losing their jobs.
On a conference call with Wall Street analysts just after Thanksgiving, Ms. Barra and Ms. Suryadevara explained that the cuts would boost annual cash flow by $6 billion by 2020, helping GM to fund technology for electric and self-driving vehicles, and to protect its bottom line in a downturn.
On the 22-minute call, the executives mentioned cash flow or cash savings more than a dozen times. They didn't discuss how many jobs would be affected or the impact on employees.
President Trump blasted Ms. Barra for the decision. "They better damn well open a new plant there very quickly," he said in an interview with The Wall Street Journal that Monday.
That morning, in Lordstown, GM delivered the news that the 53-year-old plant would soon be idled -- leaving many employees in tears as they worked their eight-hour shift.
In Detroit, where GM was to close a second factory, many workers returned to work after the holiday weekend dismayed to hear the news -- some only learning of it on social media or through press reports.
The UAW's leadership was stunned to have been informed about GM's plans at the last minute. UAW Vice President Terry Dittes, the union's top bargainer with GM, called the move an affront to workers who he says stuck by the company during its darkest days.
The UAW's membership, which last peaked at 1.5 million in the late 1970s, tumbled to roughly 400,000 last year, the result of years of corporate downsizing and layoffs by the Detroit car companies and more work being sent to Mexico, where labor is less expensive.
The union has tried to build clout by trying to represent workers at the foreign-owned car plants in the U.S. South, but organizing drives at Nissan Motor Co., Toyota Motor Corp. and others have failed. This summer, workers at Volkswagen AG's assembly factory in Tennessee voted to reject the union -- the UAW second defeat there in five years.
Rank-and-file members are getting impatient, seeing the profits GM is posting and pressing for more in pay and benefits. More workers are placing their faith in President Trump, whose views on trade, tariffs and reviving U.S. manufacturing have resonated. About one-third of UAW members voted for Mr. Trump in the last election.
In June of last year, the UAW elected as its president Mr. Jones, the union's former chief accountant and a top official in its Missouri-based Region 5 office, which covers 17 states. Unlike many past UAW presidents, Mr. Jones was inexperienced in auto-industry bargaining and had yet to negotiate a national contract with one of the car manufacturers.
(MORE TO FOLLOW) Dow Jones Newswires