'Very sophisticated' CAW contracts
seen smoothing the road for Big Three

10:23 PM EDT Sep 28, 2005
by GARY NORRIS

TORONTO (CP) - After an unusually smooth set of negotiations, General Motors, Ford and DaimlerChrysler have contracts with their Canadian unionized workers and can concentrate on the future of their businesses.

That future looks mixed at best as the Canadian units of what used to be the unchallenged Big Three North American automakers confront flat or falling car prices and market shares, amid a host of other problems ranging from the strong Canadian dollar to high gasoline prices.

On the positive side, they have three more years of labour peace.

And this month's settlements with the Canadian Auto Workers - annual pay raises of 1.5 per cent, one per cent and one per cent, plus inflation protection - "are not excessive, as long as the plants are humming," Kam Hon, an industry analyst at Dominion Bond Rating Service, said Wednesday.

The contracts also give the companies a breathing space as they struggle against competition, largely from Asia, which has cut their share of the North American market in the past decade from about 75 per cent to roughly half, said University of Toronto management professor Joseph D'Cruz.

CAW president Buzz Hargrove "understands that industry even better than the CEOs with whom he is negotiating," D'Cruz said.

"His approach to negotiation is therefore a much more sophisticated approach."

D'Cruz said Hargrove can be adversarial and "bloody tough," but "when it seems more important for the union to collaborate with the companies for the greater good of both parties, he's very good at doing that."

The resulting "very sophisticated" contracts, D'Cruz said, recognize that the adversary was not on the other side of the negotiating table - "the enemy is the Japanese and the Koreans and eventually the Chinese."

Hargrove said all three domestic automakers regard the CAW contracts as enabling them to become more competitive.

"Did we make some changes to save the company money? Yes," the CAW chief said.

"If we can bargain something that doesn't disadvantage our members and helps make the place more productive, with better quality and lower costs, that's always our objective."

"Are we going to lose some jobs? Yes," he acknowledged. Each of the three agreements contemplates the elimination of about 1,000 positions, but "we've done an exceptional job here of bargaining restructuring benefits."

Now, the CAW is "moving on to deal with the real problem of the industry - and that's unfair trade."

Hargrove noted that in addition to operating non-union transplant factories in Canada, Toyota, Honda and others import millions of units from Asia, whose markets remain all but devoid of North American vehicles.

However, that issue is a red herring, said DBRS analyst Hon: "If you have the car people want to buy, it doesn't matter where they import it from."

Going forward, Hon said, the problem for the Big Three in Canada is the integrated North American market - which means the value of the Canadian dollar against the U.S. dollar is a key factor.

"Eighty-five cents is sort of the 'ouch' point," Hon said. "Beyond that, Ontario starts to lose competitiveness."

In the long term, the crucial factor is product, and how vehicles from Canadian assembly plants are received in the market.

At Ford, the Freestar minivan has been a major disappointment and sales have likely peaked for the F-series pickup, the other product from the Oakville complex west of Toronto, Hon said.

DaimlerChrysler Canada is in good shape, he said, with the strong-selling Chrysler 300 sedans made in Brampton, and Windsor secure with the company's minivans.

At GM's massive complex in Oshawa, east of Toronto, the near future is "quite bright," Hon said, with strong demand for the cars and trucks from three plants rated among the most productive and high-quality on the continent.

But the financial profile of the wider General Motors Corp. is the shakiest among the Big Three, Hon said.

Ford Motor Co. has "critical" problems but "they just have to build cars that people want to buy," he said, while GM also needs a significant financial restructuring to deal with its retiree costs.

Ford is enduring a dearth of big-volume exciting products but still has positive or at least neutral cash flow, but GM is burning through cash, Hon said.

"If they don't stop the cash burn, then eventually the cash pile in the balance sheet will be used up, and then they will run out of liquidity. And then GM will face a Chapter 11 (bankruptcy restructuring) situation."