Car Guys vs. Bean Counters - Bob Lutz [14]
The health care burden took a turn for the worse in 1990 when Bob Stempel, new chairman and CEO of GM, faced a strike threat from the UAW. Stempel, a brilliant technologist and genuinely all-around nice person, was new in his job, which is perhaps why GM was selected as the so-called “target” in that year’s triannual contract round. This is the year when GM, and with it the entire U.S. auto industry (Ford and Chrysler were obliged to follow the pattern set by the UAW’s “target company”), lost the family farm regarding health care. After negotiations lasting just forty-two hours, Stempel’s GM acquiesced to just about every major union demand, including expansion of health care benefits (first dollar coverage, no co-pay) not only for active members, but for retirees as well. The results were to be catastrophic, especially for GM, with its enormous pool of current and future retirees.
Upon my return to GM in 2001, I repeatedly asked those who were present in 1990 just what the hell they were thinking at the time. The consistent reply, as near to the truth as I can get, is that a strike would have been more devastating to the company at the time and that most of the non–health care demands could be absorbed through productivity or future growth, or passed on to the consumer in price. In the case of health care, the most economically damaging concession of all, it turns out that, as so often in the past, GM’s vast, IQ-packed corporate soothsaying departments, whose “scientific forecasting” techniques are about on par with astrology, had radically and fatally miscalculated. According to them, health care costs had peaked, and would rise less than inflation. Besides, they argued, GM’s gains in volume and efficiency, hence profitability, would easily offset the cost of retiree health care. In fact, the opposite set in. Health care inflation was at between 10 percent and 13 percent all through the early and mid-1990s. GM was in a contractive phase from 1989 to 1991 as the country rode out yet another downturn. The ranks of active workers shrank much more rapidly than assumed, and the number of retirees expanded.
This contract round also saw the inception of the infamous “Jobs Bank,” a system whereby workers could be laid off for reasons of productivity or economic duress, but had to be retained at close to full pay in a “labor pool.” The UAW’s ploy here was obvious: since the unneeded workers were being paid anyway, the temptation for the Big Three would be strong to place more manufacturing capacity in the United States as opposed to Mexico or Canada. “Why not? We’re paying for the labor whether we use it or not!” Once again, GM’s projections showed that granting the “Jobs Bank” was “sleeves out of our vest,” since the company’s ambitious growth plans showed all labor being utilized. Exactly the opposite happened, and the Jobs Bank, albeit to a lesser extent than health care, became yet another major boulder placed on the backs of America’s Big Three as they continued their footrace against Japan’s burden-free car companies. (The Jobs Bank was finally, mercifully, laid to rest in 2009.)
I am frequently asked if the UAW was a major factor in GM’s misery in the 1980s and ’90s. It’s a tough call. I have always found the UAW to be led by honest, competent, and well-intentioned people. Skeptics of the UAW blame it for job-padding, hostile worker attitude, and a variety of other negatives, leading to dingy and dangerous plants. But over this period GM’s plants became exemplary,