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r 1Under Billy Durants leadership, General Motors Company is organized onSeptember 16, 1908

GM was recognized as the worlds second largest automaker. It has

manufacturing operations in 32 countries and its vehicles are sold in 200countries

Global automotive sales leader & it reported 60% of US market share till1960s.

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 ofUS$4.45 billion in the same year.

As a result, in 1995, GM decided to introduce a restructuring plan.

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The company's US market share fell to less than 25percent in 2006.

GM's fortunes were severely affected with under-fundedpension liabilities, rising employee and retiree healthcarecosts, and a decreasing market share in the USautomobile market.

In 2007, GM inked a new labor contract with UAWwhich, analysts felt, would change the competitivelandscape of the US auto industry and go a long way inensuring GM's survival.

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OVERVIEW This case study is all about the

agreement that took place betweenautomobile giant GENERALMOTORS & UNITED AUTOWORKERS. This agreement wasreached after a strike by the workers

of GM, followed by the collectivebargaining process.

United Auto Workers(UAW), isa labor union which represents

workers in the UnitedStates and Puerto Rico in theautomobile manufacturing industry,Headquartered in Detroit.

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CASESTUDY Year 2003: GMs pension fund liabilities

amounted to US$102.4 billion, in December2003, proving to be the major reason forcompanys loss.

Year 2004: One of the major problems for GMwas its mounting healthcare costs as it was thelargest provider of healthcare to its employees

in the US. In 2004, GM spent US$ 5.1 billion ashealthcare costs for its 1.1 million workers,retirees, and their family members

Year 2005: It was particularly difficult one forthe automotive giant as its two fundamentalweaknesses in the US market was fully

exposed: their huge legacy cost burden &their inability to adjust structural cost in linewith falling revenue.

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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 agreementin 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.

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.

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Year 2006:GM was losing its market share to itsJapanese competitors because of its tardiness in respondingto the customers demand of new stylish cars. Japaneseautomakers had a competitive advantage over the US

automakers due to favorable currency exchange rates andlow legacy cost.

Year 2007:The agreement which took place in 2005,

was expiring on 14th

September, 2007, and a new contracthad to be signed. Negotiations started between the twoparties, where GMs healthcare liability was to becompletely transferred to UAW with the establishment ofnew VEBA fund.

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RisksVs. Benefits The UAW rejects new plan

ideas

GM must cut jobs or closeplants laying off thousands

because new plan doesntwork

If health care expendituresare not cut, GM could gobankrupt

Workers could strike GM goes out of business

The plan will work and GM willbecome more profitable

Less money lost will lead to moremoney put into solving other

company problems More money dedicated to the more

fuel efficient R & D to bettercompete with other auto makers

Share price will increase drasticallyand GM will re-capture the marketpercentage they once had

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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.

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HIGHLIGHTS Hard negotiations were made regarding how to

fund the VEBA trust to cover unforeseenincreases in the medical coverage. The UAWknew VEBAs importance to GM & so pushedfor concessions such as guarantees of jobs.

Just when GM felt that it was on the verge ofclosing the deal, UAW announced a strikedeadline on September 24th, 2007.

The strike sent shockwaves through theautomobile industry as it was the first US-widestrike by car workers in 30 years.

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The strategy behind the decision to go on strike was to firstbring the biggest & most powerful company to its knees & thenforce 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 thenegotiating table and finalised the tentative deal on September26,2007.

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THEAGREEMENT VEBA Trust- GM was to pass over its US$50 billion in

future healthcare obligations to the UAW at a cost ofabout US$29.9 billion in cash and other assets.

TWO-TIER Wage Plan- As per this plan, GM couldhire a second tier of lower-paid workers to do non-core

jobs. Those workers would be paid about half thehourly rate of current assembly workers

Cost of Living Adjustments- Workers would divert apart of their COLA to pay for the escalating cost ofhealthcare, for both active workers and retirees.

Bonuses- Workers would receive a signing bonus ofUS$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 temporaryemployees permanent at the current assembly line.

Product-Plans- GM & UAW shared detailed product

plans and future opportunities for many of its facilitiesin the US.

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AWIN-WINFOREVERYONE? 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 & alsomanaged to get significant concessions from the UAW.

The two tier- wage benefit system would mean that GM could hireat much lower costs which would help in reducing the costssignificantly.

GM was on much more solid ground considering that it was lessdependent on its US operations for sales and profits and had set upfacilities in places such as China, and had reduced the workforce inUS.

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UAWs DEFEAT:

Some of the UAW members showed their grief

by saying that this wasnt a very genuine job-security deal. The plants that were allowed tostay open were already allowed to operate.

UAWs WEAKNESSES:

The position of the UAW had weakened withits membership declining year after year as theautomakers in the US cut jobs and movedproduction to other countries. The membershipof UAW from 450,000 GM workers in 1970sto 73,000 GM workers in 2007.

In every subsequent agreement concessionswere sold as a trade-off for job security, asUAW was desperate enough to maintain itsposition in GM. For UAW, losing position inGM would have meant a setback in the entireautomobile industry .

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FINALOUTCOMEWith the historic UAW deal, GM hoped for a better future:

It succeeded in decreasing its structural cost in US by US$9billion.

It expected the deal to reduce its expenditure on US hourlyand salaried pension and healthcare from an average ofUS$7 billion per annum from 1993 to 2007 to approx US$1billion per annum in 2010.

It expected to achieve its global target of reducing

automotive structural costs to benchmark levels of 25% ofrevenue by 2010 & 23% by 2012.

Analysts feel that company might be able to match up thecosts per car of TOYOTA by 2011.

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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, isentirely 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.

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FORSIGHTEDNESS

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WHOCATCHESOTHERSPULSEFIRST

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INTELLIGENTAPPROACH.

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THANK