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September 26, 2001
DETROIT (Reuters) - U.S. automakers may be gearing up for a fight with the powerful United Auto Workers union, as the companies mull plant closures and massive layoffs to slash excess production capacity amid the slowing economy, analysts said on Wednesday.
Technically, there is a moratorium on plant closings in the United States under the contract between the UAW and Detroit's Big Three automakers that took effect in 1999 and expires in September, 2003.
But U.S. auto companies, a driving force behind the sputtering economy, have been reeling from a sharp drop in consumer confidence and other effects of the airborne attacks on Sept. 11.
And some analysts believe the attacks could prompt the automakers to invoke an emergency clause in the 1999 labor contract that allows them to negotiate plant closings. The vaguely worded clause refers to an ``act of God'' or extraordinary ``conditions beyond the control'' of the Big Three as a possible justification for plant shutdowns.
"The events of Sept. 11 are probably going to fall into the category of
an extraordinary event for the purposes of the contract,'' said Merrill Lynch
auto analyst John Casesa.
"I would think that is going to be a pretty credible argument for the OEMs to make,'' he added, using the acronym for original equipment manufacturers to refer to General Motors Corp. (NYSE:GM - news), Ford Motor Co. (NYSE:F - news), and the Chrysler unit of DaimlerChrysler AG (NYSE:DCX - news) (DCXGn.DE). Casesa said he estimates production would only meet real demand for new vehicles by shutting 40 plants worldwide, with six to 12 in North America.
"Even before the events of Sept. 11, the domestic companies had a material amount of excess capacity. Now with the probably accelerated decline in demand, the pressure will intensify to close plants more quickly.''
None of Detroit's automakers has acknowledged that they are considering using a legal loophole in their agreement with one of the world's most largest trade unions to lay off its workers and shut down U.S. assembly plants. And the impact of an announcement on Tuesday that GM was closing a Quebec assembly plant -- operated under a less stringent labor contract with the Canadian Auto Workers -- was muted by the fact that the move had long been expected since the Camaro and Firebird cars were near the end of their product life cycle.
Even before Sept. 11, the industry was awash with rumors that Dearborn, Michigan-based Ford, the world's No. 2 automaker, was studying plant closures as part of a sweeping restructuring program in North America, however. And Ford, struggling to reverse falling U.S. sales and profits amid ever-rising consumer incentives, is not denying that plant closings may be in the offing.
"Everything's on the table, that's what I've said,'' Ford spokesman Jason Vines told Reuters when asked about the restructuring plan this week. "We're looking at every single component of our business. Looking back and going forward"
Spokesmen for the UAW were unavailable for comment on Wednesday on the possible use of the emergency clause in their collective bargaining agreement. But a source familiar with the union's leadership said its president, Stephen Yokich, was unlikely to make any concessions when it comes to job cuts or plant closings.
"I don't think the contract is so much of an issue,'' said Merrill's Casesa. "It's just a question of how much the two sides are willing to strain the relationship ... And it's also a question of how much the companies are willing to pay to compensate those employees that will lose their jobs.''
Compensation is a huge issue for U.S. automakers, since the 1999 agreement mandates that any UAW members who are laid off get nearly full pay for the life of the contract.
"Even though they produce and produce at a loss, they make more money than if they were to close the plants,'' said Seth Glickenhaus, head of Glickenhaus & Co., a New York money management firm. "It's very difficult for them to eliminate plants,'' he added, referring to the need to pay idled workers. Glickenhaus agreed with Casesa nonetheless, saying automakers were likely to invoke any emergency clause they could to cut excess capacity.
"It would be unfortunate if what we see here is a pattern of companies attempting to use this tragedy to reduce commitments to workers,'' said Richard Block, a professor of labor and industrial relations at Michigan State University.
Noting that some U.S. airlines had already been using the Sept. 11 attacks to invoke contract provisions that let them cut jobs without the ordinary notice or severance, he said he would be surprised if the automakers followed suit.
"It has the appearance of a company saying 'how can we use this tragedy to our benefit?','' said Block. "And in a situation where the country is trying to stay unified, I think that's not the sort of thing one would like to see.''
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