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Themes
Human Resource/ labor relations/ industrial
relations/ Collective Bargaining
Case Length : 19 Pages
Period : 2005-2008
Pub Date : 2008
Teaching Note : Not Available
Organization : General Motors
Industry : Automotive
Countries : USA
Abstract:
This case is about the collective bargaining
agreement between one oI the world's leading
automobile manuIacturers, General Motors
Corporation (GM), and the United Auto Workers
in late 2007. The agreement, which a number oI
experts have termed as 'historic', was the result oI
a very complex bargaining process.

GM, which dominated the US market till 1980,
with a market share oI 46 percent, saw its market
share decline steadily aIter the entry oI Japanese
competitors. In addition to issues relating to its
products and marketing, GM's Iortunes were
severely aIIected with under-Iunded pension
liabilities, rising employee and retiree healthcare
costs, and a decreasing market share in the US
automobile market.

The company's US market share Iell to less than 25 percent in 2006. In 2007, GM inked a new
labor contract with UAW which, analysts Ielt, would change the competitive landscape oI the US
auto industry and go a long way in ensuring GM's survival. Analysts Ielt that the deal also
showed the changing role oI the labor union in the 21st century.
Issues:
Understand the challenges Iaced by GM in the US automobile market while competing with
Japanese competitors.

Understand the impact oI GM's healthcare and other legacy costs on its ability to compete in
the US automobile market.

Understand issues and concepts related to the collective bargaining process, and, also study
how GM negotiated a historic deal with the union that was expected to contribute to its
turnaround strategy.

Explore and discuss the changing role oI trade unions in the 21st century.
Contents:
Page No.
A 'Monumental Outcome oI Collective Bargaining' 1
Background Note 3
EIIect oI Healthcare & Other Legacy Costs 4
GM's Initiative to Reduce Costs 6
UAW's Nationwide Strike 7
The Agreement 9
A Win-Win Ior Everyone? 10
Outlook 12
Exhibits 14
Key Words:
Collective bargaining, Negotiation, Collaboration, Trade union, Strike, social contract, Labor
union, Labor contract, Human Resource, attrition program, Turnaround, Strategy, Competition,
Japanese competitors, competitive advantage, restructuring, VEBA, Healthcare, GM, Ford,
"This agreement helps us close the fundamental competitive gaps that exist in our business.
Theres no question this was one of the most complex and difficult bargaining sessions in the
history of the GM-UAW relationship."
1

Rick Wagoner, Chairman and CEO, General Motors Corporation, in 2007.
"Its a very important day for GM, probably one of the most important days in a decade. It has
taken one of the perennial issues at the company ... and its really applied a solution. This is not
your grandfathers contract."
2

Michael Robinet, Vice President of CSM Worldwide, in 2007.
"Overall, what these negotiations sought to forge is a social contract for the 21st Century -- a
more competitive General Motors, translating into middle-class fobs. In the context of the
pressure of globali:ation and the stumbling of the domestic industry, thats not a small feat. That
proves a relevance for unions under these circumstances, rather than a hint of their demise."
3

Harley Shaiken
4
, a Professor at the University of California at Berkeley, in 2007.
A 'Monumental Outcome of Collective Bargaining'
On November 12, 2007, an agreement was signed
between General Motors Corporation (GM), the
world's second largest automobile manuIacturer
5
,
and United Auto Workers
6
(UAW) Ior providing
healthcare beneIits to workers.

The agreement was reached aIter a strike by the
workers oI GM Iollowed by a collective
bargaining process. The prime objective oI the
contract was to reduce the company's healthcare
costs by Iorming a Voluntary Employees' BeneIit
Association
7
(VEBA) Iund. Under the agreement,
the UAW was entrusted with the responsibility oI
administering the healthcare beneIits oI workers.

A 'Monumental Outcome of Collective Bargaining' Contd...

The agreement with the UAW put an end to the
problems GM had been Iacing with regard to the
rising healthcare costs Ior its employees.

GM had been the market leader in the US till
1980, with a market share oI 46 percent.
However, with the entry oI Ioreign car
manuIacturers like Honda Motor Company
8

(Honda) and Toyota Motor Corporation
9
(Toyota),
GM began to Iace intense competition and it lost
market share to these new players. Analysts Ielt
that GM had lost its market leadership position
because oI its sluggishness in designing new
models when compared to its Japanese
competitors who kept coming out with new
designs.

In addition to this, GM's Iortunes were severely aIIected with under-Iunded pension liabilities,
rising employee and retiree healthcare costs, and a decreasing market share in the US automobile
market.
The company's US market share Iell to less
than 25 percent in 2006. Also, Ior the third
quarter that ended September 30, 2007, the
company reported losses oI US$ 39 billion
(ReIer to Exhibit I Ior GM's Iinancial
perIormance).

These problems had GM teetering on the
brink oI bankruptcy in 2005.

The company put a turnaround plan in place in
2005. The plan Iocused on reducing costs
among other things. The company worked
with the UAW to decrease its healthcare costs
and also to Iacilitate huge job cuts...
Background Note
The history oI GM can be traced back to 1887,
when Ransom E. Olds started the Olds Motor
Vehicle Company, Inc., (OMVC) with a capital oI
US$ 50,000 in Michigan and built the Iirst
Oldsmobile vehicle. In May 1903, Buick Motor
Company (Buick) was incorporated by David
Dunbar Buick.

The company produced its Iirst car in 1907.
Between 1901 and 1908, OMVC managed to sell
6,500 Oldsmobile vehicles per year. However,
Olds was being driven down by competition Irom
Buick, Cadillac Automobile Company (Cadillac),
and Oakland Motor Car Company (OMCC)...

Effect of Healthcare & Other Legacy Costs
One oI the major problems Ior GM was its mounting healthcare costs as it was the largest
provider oI healthcare to its employees in the US. In 2004, GM spent US$ 5.1 billion as
healthcare costs Ior its 1.1 million workers, retirees, and their Iamily members (ReIer to Exhibit
II Ior GM's healthcare costs between 1996 and 2005)...

GM's Initiative to Reduce
Costs
GM had built up a long-term relationship with
the UAW. Negotiations with labor unions
Iormed an essential component Ior GM in
sustaining its business in the long run. The
spirit oI mutual give and take was evident
since GM and the UAW had negotiated and
reached a tentative agreement in October
2005...
UAW's Nationwide Strike
On September 24, 2007, the UAW called Ior a
national strike since the GM management had
overlooked the deadline set by it. The 73,000
workers went on a strike at 80 Iacilities at 30
locations...
Excerpts Contd...
The Agreement
On September 26, 2007, a tentative agreement
was reached between GM and the UAW (ReIer to
Box I Ior the highlights oI the GM-UAW deal).
Commenting on the agreement, Wagoner said,
"This agreement helps us close the Iundamental
competitive gaps that exist in our business.

The projected competitive improvements in this
agreement will allow us to maintain a strong
manuIacturing presence in the United States along
with signiIicant Iuture investments."...

A WinWin for Everyone?

Analysts Ielt that the deal could change the competitive landscape oI the American auto industry.
KeyBanc analyst Brett Hoselton wrote, "We view the tentative agreement and its apparent terms
as a historic milestone toward the long-term improvement in Iundamentals and survival at the
North American automakers."...

Outlook
With the historic UAW deal behind it, GM
was hoping Ior a better Iuture.

Wagoner said, "We're delivering on the
turnaround plan we established in 2005, and
have exceeded expectations on virtually all
counts. We've set a strong Ioundation that we
can truly build on. We're encouraged by our
progress in revitalizing our product portIolio,
strengthening our brands, reducing structural
cost and growing the business globally. At the
same time, it's clear that we'll Iace some
challenging headwinds in 2008."..