Ford and GM say factories in US face axe
http://observer.guardian.co.uk/business/story/0,,2156191,00.html

 James Doran in New York
Sunday August 26, 2007
The Observer

Ford and General Motors have threatened to leave Detroit and take their
car manufacturing operations overseas if unions do not agree to a
massive pay cut for hourly paid workers.

The threat to quit the city they call Motown because of its rich
automotive heritage would be a crippling blow to Detroit, which is
suffering amid a prolonged economic downturn and has been hit by the
sub-prime mortgage crisis.

Ford and GM are in the thick of negotiations with the United Auto
Workers union, the most powerful labour group in the industry. The car
makers maintain they must dramatically reduce manufacturing costs if
they are to survive in today's global economy.

Their biggest burden is the current labour cost per vehicle - an
estimated $71 (around £35) per man hour. Workers earn about $27 an hour
with the remainder made up of overheads such as pensions and healthcare
costs for the thousands of retirees on their books.

Ford and GM have made it clear that they expect to reduce the hourly
cost from $71 to about $50 - a cut of about 30 per cent. The companies
are keen not to cut workers' hourly pay, but they insist that other
overheads must be reduced.

If a deal cannot be reached, Ford and GM negotiators have said the
companies will have no choice but to move their North American
operations to countries in Latin America and Asia where manufacturing
costs are cheaper.

The current credit crisis is not helping the ailing US car manufacturers
to reverse their fortunes. Many senior figures in the industry are
calling for action from the Federal Reserve to spur markets and the
economy. Bob Nardelli, the new Chrysler CEO, has been most vocal in
calling for an interest rate cut to help boost consumer activity.

Alan Mulally, the Ford chief executive, said last week that economic
conditions were proving to be a 'big headwind' working against the
company's turnaround plan. He stopped short of calling for an interest
rate cut but stressed the importance of 'focusing on economic growth'.

A GM spokesman said: 'From a GM perspective, the focus of the talks is
on closing the competitive gaps and building a viable long-term future
for the company and our people.'

Sources close to senior GM executives confirmed that the prospect of
shifting operations away from North America was very real. 'We have seen
it in every other industry,' one said. 'There are no sacred cows today.
Globalisation means just that, it's a worldwide playing field.'

Dave Cole, chairman of the Centre for Automotive Research, a leading car
industry think tank in Detroit, said: 'This threat is very real and the
UAW is aware of it. Both GM and Ford have made it clear to the union
that you do whatever you have to do to stay in business.'

The car makers are also discussing ways in which they can work together
with the UAW to offload billions of dollars of pension and healthcare
costs they have amassed. It is understood the talks focus on creating a
'Voluntary Employee Beneficiary Association', which would be part-funded
by the companies to take care of retiree health care costs. The talks
must reach a conclusion before their current contract with the UAW
expires on 14 September.