Buffalo News, May 1, 2005, Sunday

Copyright 2005 Knight Ridder/Tribune Business News
Copyright 2005 Buffalo News
Buffalo News

May 1, 2005, Sunday

HEADLINE: As Detroit gets squeezed, Buffalo area will feel the pinch

BYLINE: By Fred O. Williams

BODY:

James Virag heads off to the General Motors plant at 10:30 p.m. and works through the night, running safety checks on equipment. Despite the graveyard shift, he sees his job as one of the Cadillacs of Buffalo's economy.
"I'm blessed. I know people would give their right arm for my job," the 32-year-old said. As an electrician he earns close to $ 30 an hour at the Tonawanda engine plant, plus health and pension benefits.
Now the automaker's financial crunch -- GM lost $ 1.1 billion in the first three months of the year -- puts a shadow over his career, the mainstay of his family of four and their home in Lancaster.
"I've got seven years in, I've got 23 to go before I retire," Virag said. "For me it's pretty scary."
Julie Virag agreed, saying she's glad her husband has his electrician's certificate to fall back on.
Multiply the Virag household by 10,000 to get an idea of the cumulative worry facing the Buffalo Niagara region. GM and major supplier Delphi Corp. are in a profound slump, while competitor Ford Motor Co. shares some of the same industry problems. Ford spinoff Visteon Corp. reported a first-quarter loss last week, and American Axle & Manufacturing reported a drop in profits. All these companies have plants in the area.
Some analysts have suggested that bankruptcy isn't out of the question for GM and Delphi, who face escalating costs for pensions and health care even while GM's market share shrinks. Company officials dismiss that idea. But however they do it, Detroit automakers must cut costs to remain viable, analysts say, and that probably means a bumpier ride for Western New York's economy.
"I think there's going to be radical changes in pensions and health care," said Arthur Wheaton, an instructor at Cornell's School of Industrial and Labor Relations in Buffalo. "They may trade off closing plants for changes in benefits."
Analysts say today's crunch compares to the industry's woes in the early 1980s, when Chrysler nearly went bankrupt. GM chief Rick Wagoner is pushing Washington to help with health care policy while vowing to win back market share from Toyota Motor and Honda -- which are largely responsible for slicing GM's share of the market to about 25 percent, from its goal of 30 percent.
It would also help if gas prices came down and buyers flocked to GM's redesigned trucks and SUVs that start to debut for model year 2006. But the surest way automakers can blot up the red ink is to roll back benefits for workers and retirees.
"The next round of negotiations is going to be incredibly difficult," said Kevin Donovan, Buffalo region director of the United Auto Workers.
The UAW contract expires in 2007, but it won't take that long for the crunch to hit home. On Monday GM Powertrain will lay off 100 workers for two weeks because of lower-than-expected orders for the plant's 3.9-liter engine, spokeswoman Mary Ann Brown said. They join 117 workers on a voluntary "reverse seniority" layoff, a prelude to retirement that pays workers nearly what they earn on the job. The layoffs could deepen this summer if another Tonawanda product, its 3.4-liter engine, is retired.
In Lockport, Delphi's Safety & Interior plant has 58 on voluntary layoff and another 131 scheduled for what was expected to be a short-lived layoff last week, a union official said.
"We're still attached at the hip to GM," said Paul Siejak, president of Unit 1, UAW Local 686 in Lockport.
The layoffs show that when Detroit is squeezed, Buffalo feels the pinch. U.S. automakers plus supplier Delphi employ about 10,000 people in the region. Several thousands more retirees from auto plants receive robust pension checks, making the industry a pillar of the local economy. A retiree leaving GM now after 30 years of work receives about $ 3,000 a month.
GM singled out health costs in announcing its first-quarter loss. The automaker spent $ 5.2 billion on health care last year for 1.1 million U.S. employees, retirees and dependents, with the bill expected to rise to $ 6 billion this year.
That's only the beginning. The costs of an aging work force will continue to rise.
Over the next 10 years, GM faces costs of $ 68 billion for pensions and nearly $ 50 billion for retiree health care costs, according to its annual report to the Securities and Exchange Commission. Health care alone adds $ 1,200 to the cost of a GM car, the company has said; competitors with new plants and younger workers in the U.S. face much lower obligations.
"I think it's a very dicey time for GM, Delphi and Ford," Donovan said. He calls the lack of national health care in the United States -- almost alone among industrialized countries -- a major drawback for the automaker. In Canada, for example, health costs are $ 800 per worker, versus several thousand in the U.S.
Even so, he said, "I don't think (solving) health care is going to solve all of GM's problems," he said.
A big question will be how much workers are willing to give up in order to safeguard their jobs. Analysts point to GM's labor costs, but workers feel they're being made to pay for management's mistakes -- such as the agreement in February to pay Italy's Fiat a break-up fee of $ 2 billion to cancel a joint venture.
"Nobody got fired, there were no repercussions," said Virag. "Then all of a sudden GM says 'We're having a hard time with legacy issues, we have to talk to the UAW about it.'-- "
What is more, health coverage isn't the gold-plated plan many people think, he said. Workers at Tonawanda face the possible expiration of their HMO option this year, leaving them with major medical coverage and the out-of-pocket costs that entails.
The UAW rejected GM's call to reopen its contract at a meeting with the automaker in March. That appears to heighten the stakes for the next contract in 2007.
Delphi executives will have their own meeting with the UAW leadership sometime this month, spokeswoman Luce Rubio said. The annual event could include discussion of health care issues, but she said she was unaware whether Delphi will seek to modify its labor contract, which like GM's expires in 2007.
Siejak said he's not sure how the idea of concessions would go over with the 3,200 union workers at the Lockport plant. The union is already waiving contractual job targets and has reluctantly agreed to a reduced pay scale for new hires.
"If our international union felt it was necessary to make some concessions, I trust my international leadership," he said.
The auto industry's cyclic nature gives some workers a jaded view of the current downswing.
"I work with guys who've got 30 or 40 years in who say: 'I've seen this before; the market goes up, the market goes down,' " Virag said.
Still, the long-term health of the industry is a concern for him, which he sees leading to a reduced compensation package eventually. He expects that during the remaining 23 years of his career the Tonawanda engine plant will have to grapple with the rise of the fuel cell to replace the gasoline-burning engine, along with the automaker's financial challenges.
An area native, Virag considers the option of transferring to another GM plant as a last resort.
"The future's really uncertain," he said, "nothing's guaranteed."