Detroit Free Press, January 9, 2009, Friday

Detroit Free Press

January 9, 2009, Friday

Detroit Free Press

UAW strike would kill auto loans; Auto rescue terms raise stakes in deal mandating changes in pay, benefits

BY JUSTIN HYDE and TIM HIGGINS • FREE PRESS BUSINESS WRITERS • January 9, 2009

An extraordinary new wrinkle in the federal loans to Detroit's automakers became clear Thursday from the fine print:

A UAW strike could derail the rescue effort.

The U.S. Treasury Department could declare General Motors Corp. and Chrysler LLC in default of their $17.4 billion in loans and demand the money back, according to pacts signed with the Bush administration last month.

Although the impact -- and even the legality -- of such a provision is not clear, the details of the pact highlight the complications facing the union, which must agree to make sweeping changes in wages and benefits for workers by Feb. 17. That's far more quickly than the companies have to reach agreements with its creditors.

The union has not threatened a strike, but a work stoppage is one of the strongest levers it has to resist terms with which it disagrees in negotiations.

"In effect, it makes a strike the nuclear option," said Harley Shaiken, a labor expert from the University of California at Berkeley. "In a perverse way, it strengthens the UAW but makes it much more difficult for the UAW to use this weapon."

Said Tony Sapienza, a GM spokesman: "The agreement doesn't prohibit the union from striking. The agreement is between General Motors and the federal government -- it's not between GM and the UAW and the federal government.

"However, if they were to strike, we would be immediately in default, which -- I think we all agree -- is not in anyone's best interest, " Sapienza said.

During an appearance on NBC's "Today" show, GM Chief Executive Officer Rick Wagoner and UAW President Ron Gettelfinger didn't hint at any major trouble.

"We've worked some tough stuff together over the last three or four years, and I'm confident that we'll come together and get the kind of changes that we need," Wagoner said.

Wagoner also indicated that retiree benefits, which hundreds of thousands of former GM workers rely on, would not need to be changed.

Terms of the deal
The Treasury Department set a myriad of conditions on GM and Chrysler as part of their plans for survival, under which GM will get $13.4 billion and Chrysler, $4 billion. Those terms had not been fully disclosed until GM filed the documents with the Securities and Exchange Commission late Wednesday.

The deal requires the UAW to accept by Feb. 17 a plan to lower wages and benefits for workers to match those of employees at foreign-owned U.S. plants by Dec. 31. It also requires the union to take half of the money it is due for a retiree health care trust fund in company stock, rather than in cash or company debt.

As part of the loan, the treasury defined several conditions that would trigger a default, including that "any labor union or collective bargaining unit shall engage in a strike or other work stoppage." If the loans are in default, the treasury has the power to call them back immediately and force the automakers into bankruptcy.

A UAW spokesman did not respond to questions for this story.

Chrysler's deal has not been made public, but its loan includes a similar provision, according to a person familiar with the agreement.

Talks could get more complicated
GM and Chrysler have until Dec. 29, 2011, to pay back the loan under the current deal.

The UAW has a no-strike clause in its current national labor contracts with the automakers, which expire in September 2011.

However, the UAW's local chapters can hold strikes for health and safety violations or work standards disputes, said Shaiken, the labor expert.

"With that said, I think it's more molehill than mountain because nobody is talking about a strike," he said. "Both sides are seeking to work together and work through this."

Peter Henning, a professor at Wayne State University Law School, sees the strike-default provision in the federal loans deal as making the next labor negotiations much more complicated.

"In 2011, unless the economy turns around in a major way, it maybe the most bizarre auto negotiation we've ever seen where no one has any leverage," Henning said. "The UAW can't walk out. ... GM can't let them walk because they could get the loan yanked."

Henning also cautions against thinking that a strike would immediately result in the loans being called. "They could be called," he said. "That doesn't necessarily mean the loan would be called. It would give the government leverage."

John Pottow, a law professor at the University of Michigan Law School, said the provision is similar to what would be found in debtor-in-possession financing used in bankruptcy and implies that the government is working to protect the needs of GM.

"They're not preventing the union from striking. The union can ... strike if it wants to," Pottow said. "They're simply letting GM, the company, borrow money and saying as a creditor, 'Your loan is in default if your employees strike.' "

The union's leaders began meeting this week to talk about ways to meet the demands in the loan agreements. But Gettelfinger said the union would not reopen its labor contracts. Gettelfinger said Thursday that the UAW is looking at changes that could be made to the contracts that would help the companies.

"We want to ensure that whatever we do is done in the best interest of our membership as well as our retirees but we're also taking in mind that we want to keep this company competitive," he said during the "Today" show appearance.

Negotiations could begin as early as next week, but the UAW plans to ask its members to vote on any concessions that are reached. The UAW has also indicated that it could press Congress and the Obama administration to change the terms of the loan agreement in the coming weeks.

Harry Katz, dean of Cornell University's School of Industrial and Labor Relations, doesn't see the strike-default provision impacting the negotiations between GM and the UAW but questioned whether such a provision that could bar a strike is legal.

"Workers have the right to strike guaranteed under the National Labor Relations Act," he said. "It's maybe there symbolically."

Contact JUSTIN HYDE at 202-906-8204 or jhyde@freepress.com.