What's at stake for economy as UAW, carmakers negotiate
One week from today, negotiators from the United Automobile Workers (UAW) and General Motors Corporation, which the union selected Thursday as its strike target, will be locked in Detroit conference room trying to hammer out the final details of a new labor contract acceptable to both sides.
Some industry analysts think a strike will be necessary to bring the parties together.
The impact of any resulting labor pact will be felt far beyond the Motor City.
In the short term, a strike at General Motors would cost the economy $325 million or more a day in lost auto sales, wages, income to suppliers, and government taxes, according to Arvid Jouppi, an industry analyst in the Detroit office of Colin-Hochstin, a brokerage firm.
According to data from Ward's Auto Word, a trade journal, in 1970 the 67-day GM strike cost $162 million a day.
A strike would also reduce already tight supplies of new cars in dealer showrooms, might help ease the pressure on interest rates, and could help imports gain a little more ground against US cars. It also might hurt UAW-backed presidential candidate Walter F. Mondale - if there is a long strike or if the resulting contract terms look especially greedy on the part of labor.
Economists note that most of the lost sales, wages, and taxes would be recouped when the strike ends.
''In general, strikes do not permanently alter the course of the business cycle, they merely change the timing,'' says David Hale, chief economist at Kemper Financial Services.
The eventual settlement's longer-term effects will be tougher to measure than a strike's immediate costs, but potentially the long-term impact could be more pronounced and less likely to disappear.
If the new agreement contained major wage increases, the main effect would be on inflation and inflationary expectations, says John Hammond, director of auto service at Data Resources Inc. (DRI). The upward pressure on prices would come from higher pay for some 864,000 employees in motor-vehicle and related equipment manufacturing and from the ripple effect of the settlement on other wage negotiations next year. These include the United Rubber Workers and the Teamsters. Both will be bargaining next spring. Rising inflationary expectations could also hurt the bond and stock markets.
Mr. Hammond says a rich auto contract could add as much as 0.3 of a percentage point to the consumer price index in 1985 and 0.5 of a point to consumer prices by 1986.
Over the long term, the contract will also determine the speed with which the US auto industry shifts production and parts purchasing overseas in a bid to become cost competitive with Japanese manufacturers.
The UAW estimates that by 1987 the Big Three automakers could be importing nearly 1 million completed vehicles a year. Limiting this is one of the UAW's major goals in the current negotiations.
The nature of the contract will also influence the political climate in which Congress considers domestic-content legislation and the White House negotiates with the Japanese goverment over the extension of import quotas on Japanese cars , which are scheduled to expire next year.
Some of what both sides say during labor talks is designed to influence workers, suppliers, the public, and the investment community. Some observers, however, say the talks are moving slowly and that pressure is mounting within the UAW to select either Ford or GM as its single strike target. Last week the UAW delayed a decision on a prime target until closer to the current contract's Sept. 14 expiration date. Among analysts watching the talks closely, the ''consensus is for a strike of three weeks,'' says DRI's Hammond.
Not all analysts say a strike is inevitable. David Cole, director of the University of Michigan's Center for the Study of Automotive Transportation, talked recently with top UAW and and GM officials. He says, ''I would be surprised if there was a strike'' unless it was at an individual plant and involved local, rather than national, issues. Mr. Cole, whose father was president of GM, says, ''This is the first bargaining session where I think it is quite universally realized that the industry is in an international environment, that the rules are being determined outside our own borders.''
At least in the short term, some analysts say Japanese carmakers will not profit significantly from a US auto strike. The main reason is that dealers already face tight supplies of Japanese cars and that any extra cars Japan sells in the fourth quarter of 1984 will be those they cannot sell, under the current quota arrangement, in the first quarter of 1985, DRI analyst Hammond notes. But Cole sees imports picking up additional customers at the struck company's expense.
Current tight supplies of US-made cars and UAW restrictions on overtime at nonstruck companies during strikes are likely to keep the struck US company from losing a large number of sales to other US companies, analysts add.
Perhaps the most positive outcome from a strike would be reduced pressure on interest rates. Lacy Hunt, chief economist at the securities firm Carroll, McEntee & McGinley Inc. figures a 45-day auto strike would reduce business borrowing. As a result, he says, the federal funds rate - the rate banks charge each other for overnight loans - could rise about half a percentage point less than it would otherwise.