r 1Under Billy Durants leadership, General Motors Company is organized on

September 16, 1908 GM was recognized as the worlds second largest automaker. It has manufacturing operations in 32 countries and its vehicles are sold in 200 countries Global automotive sales leader & it reported 60% of US market share till 1960s. Since 1970s, GM has been facing tough competition from Japanese automakers- Toyota & Honda. In year 1991, Its market share slipped down to 35% & posted a loss of US$4.45 billion in the same year. As a result, in 1995, GM decided to introduce a restructuring plan.

 The company's US market share fell to less than 25 percent in 2006. GM's fortunes were severely affected with under-funded pension liabilities, rising employee and retiree healthcare costs, and a decreasing market share in the US automobile market. In 2007, GM inked a new labor contract with UAW which, analysts felt, would change the competitive landscape of the US auto industry and go a long way in ensuring GM's survival.

OVERVIEW
This case study is all about the agreement that took place between automobile giant GENERAL MOTORS & UNITED AUTO WORKERS. This agreement was reached after a strike by the workers of GM, followed by the collective bargaining process. United Auto Workers(UAW), is a labor union which represents workers in the United States and Puerto Rico in the automobile manufacturing industry, Headquartered in Detroit.

CASE STUDY
Year 2003: GMs pension fund liabilities amounted to US$102.4 billion, in December 2003, proving to be the major reason for companys loss. Year 2004: One of the major problems for GM was its mounting healthcare costs as it was the largest provider of healthcare to its employees in the US. In 2004, GM spent US$ 5.1 billion as healthcare costs for its 1.1 million workers, retirees, and their family members Year 2005: It was particularly difficult one for the automotive giant as its two fundamental weaknesses in the US market was fully exposed: their huge legacy cost burden & their inability to adjust structural cost in line with falling revenue.

Till 2005, GM continued to give generous contributions in workers health insurance plans. While workers in non-automobile industry were themselves contributing a share in such schemes in form of premiums. GM had built up a long-term relationship with the UAW. The spirit of mutual give and take was evident since GM and the UAW had negotiated and reached a tentative agreement in October 2005... The plan focused on reducing costs among other things. The company worked with the UAW to decrease its healthcare costs and also to facilitate huge job cuts... They both agreed to set up a VEBA fund, its result will be that the GMs retirees healthcare liabilities will go down from US$15 billion to US$1 billion per annum.

 Year 2006: GM was losing its market share to its

Japanese competitors because of its tardiness in responding to the customers demand of new stylish cars. Japanese automakers had a competitive advantage over the US automakers due to favorable currency exchange rates and low legacy cost.

Year 2007: The agreement which took place in 2005,

was expiring on 14th September, 2007, and a new contract had to be signed. Negotiations started between the two parties, where GMs healthcare liability was to be completely transferred to UAW with the establishment of new VEBA fund.

Risks Vs. Benefits

The UAW rejects new plan ideas GM must cut jobs or close plants laying off thousands because new plan doesnt work If health care expenditures are not cut, GM could go bankrupt Workers could strike GM goes out of business The plan will work and GM will become more profitable Less money lost will lead to more money put into solving other company problems More money dedicated to the more fuel efficient R & D to better compete with other auto makers Share price will increase drastically and GM will re-capture the market percentage they once had

AGENDA OF THE MEETING

GM: GM focused on issues such as cutting health care costs and tried to push forward a two-tier wage system that would allow it to cut wage and pension costs. UAW: UAW on its part, wanted the company to provide job security guarantees and sizable signing bonus for GM workers.

HIGHLIGHTS
Hard negotiations were made regarding how to fund the VEBA trust to cover unforeseen increases in the medical coverage. The UAW knew VEBAs importance to GM & so pushed for concessions such as guarantees of jobs. Just when GM felt that it was on the verge of closing the deal, UAW announced a strike deadline on September 24th, 2007. The strike sent shockwaves through the automobile industry as it was the first US-wide strike by car workers in 30 years.

The strategy behind the decision to go on strike was to first bring the biggest & most powerful company to its knees & then force Ford & Chrysler to follow. But sooner it became clear that bone of contention was job-security. As workers were on strike, the two parties were back at the negotiating table and finalised the tentative deal on September 26,2007.

THE AGREEMENT
VEBA Trust- GM was to pass over its US$50 billion in future healthcare obligations to the UAW at a cost of about US$29.9 billion in cash and other assets. TWO-TIER Wage Plan- As per this plan, GM could hire a second tier of lower-paid workers to do non-core jobs. Those workers would be paid about half the hourly rate of current assembly workers Cost of Living Adjustments- Workers would divert a part of their COLA to pay for the escalating cost of healthcare, for both active workers and retirees. Bonuses- Workers would receive a signing bonus of US$3000, followed by a lump sum bonus of 3% or 4% for each year of the contract in lieu of a wage increase. New-Hires- GM would make about 3000 temporary employees permanent at the current assembly line. Product-Plans- GM & UAW shared detailed product plans and future opportunities for many of its facilities in the US.

A WIN-WIN FOR EVERYONE?

Though both the parties were trying to project the deal as a win-win situation, GM was clearly the BIG GAINER. GM had resolved the long-standing healthcare problem & also managed to get significant concessions from the UAW.

The two tier- wage benefit system would mean that GM could hire at much lower costs which would help in reducing the costs significantly.
GM was on much more solid ground considering that it was less dependent on its US operations for sales and profits and had set up facilities in places such as China, and had reduced the workforce in US.

UAWs DEFEAT:
Some of the UAW members showed their grief by saying that this wasnt a very genuine jobsecurity deal. The plants that were allowed to stay open were already allowed to operate. UAWs WEAKNESSES: The position of the UAW had weakened with its membership declining year after year as the automakers in the US cut jobs and moved production to other countries. The membership of UAW from 450,000 GM workers in 1970s to 73,000 GM workers in 2007. In every subsequent agreement concessions were sold as a trade-off for job security, as UAW was desperate enough to maintain its position in GM. For UAW, losing position in GM would have meant a setback in the entire automobile industry .

FINAL OUTCOME
With the historic UAW deal, GM hoped for a better future: It succeeded in decreasing its structural cost in US by US$9 billion. It expected the deal to reduce its expenditure on US hourly and salaried pension and healthcare from an average of US$7 billion per annum from 1993 to 2007 to approx US$1 billion per annum in 2010. It expected to achieve its global target of reducing automotive structural costs to benchmark levels of 25% of revenue by 2010 & 23% by 2012. Analysts feel that company might be able to match up the costs per car of TOYOTA by 2011.

INFERENCES
Collective Bargaining is a technique by which dispute as to conditions of employment, are resolved amicably, by agreement, rather than by coercion. Although it is said that collective bargaining is a voluntary and peaceful way of settling disputes. But the end result of collective bargaining, whether it finishes up in harmony or result into some violent activity, is entirely dependent upon any of the parties, how well it is able to play upon its strengths & catches others weaknesses. GM caught over the UAWs nerve, indirectly GM shifted most of its burden over UAW in trade off job-security guarantees. GM gained more as it was able to make out the shortsightedness approach of UAW.

FORSIGHTEDNESS

WHO CATCHES OTHERS PULSE FIRST

INTELLIGENT APPROACH.

THANK