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Jobs will be ample; pay, modest at best Future work force is safe, but lower wages could dampen local economy

There's a new deal for autoworkers and big changes in store for regions like Buffalo that depend on their steady paychecks.

The United Auto Workers union signed historic cost-cutting agreements with the U.S. automakers this fall, capped by a four-year deal at Ford Motor Co. on Nov. 14.

The labor contracts will transform Ford, Chrysler and General Motors over the next four years. New hires will earn slimmer benefits and about half the current $28 hourly wage.

That means a reduced economic punch from some of the Buffalo Niagara region's mainstay employers. But it also gives the big plants a reason to dust off their long unused "help wanted" signs.

"There will be hiring," said Kristin Dziczek, senior project manager at the Center for Automotive Research in Ann Arbor, Mich. The automakers are eagerly preparing to launch early-retirement programs that will create openings for entry-wage workers.

For the Buffalo area, that could mean the replacement of about a quarter of the 2,500 production jobs at local Ford and General Motors plants. Chrysler doesn't have operations in the area.

"Obviously, it's going to affect GM's payroll, which in the past has been as high as $250 million a year," Town of Tonawanda Supervisor Ronald Moline said. The reduced economic jolt from auto plants will be felt throughout the economy, he said, as workers have less to spend at stores, restaurants and ticket booths.

John Russell started at GM in 1973, making engines for the Chevy Vega at the Tonawanda Engine Plant. He worked his way up to become a tinsmith, a skilled tradesman who fashions duct work and guardrails, making about $30 an hour.

Now he's ready to make room for someone new. "I'm looking forward to retirement . . . if there's a buyout, I'll take it," the Depew resident said.

>The next generation

When he leaves, GM can move a "noncore" employee like a stock worker into his job and replace that worker with one earning about $14 an hour -- a wage not seen in UAW auto plants in 20 years.

Russell views the wage-cut deal as a necessary compromise that helps ensure GM's survival while preserving opportunities for workers.

"It's a good thing for [new hires]," he said. "They can get their foot in the door and work their way up.

"You have to keep [the business] going for the next generation," Russell said. "I want the plant to be there because as long as it's there, I've got something backing up my retirement."

By reducing labor costs, the contracts may halt the relentless downsizing that threatened to hollow out automakers' local plants. From 2000 to 2005, area auto plants and their major suppliers lost 30 percent of their jobs, reaching 10,887. The plants have shed 16,000 jobs since peaking in 1979.

"I would suspect with this agreement, [employment] will hold steady," said Kevin Donovan, assistant Region 9 director of the UAW.

>Catching up to Japan

Detroit-based carmakers have said that the cost cuts, once fully effective over the next several years, will put them nearly on an even footing with foreign-based foes like Toyota. Ford executives said the changes will all but eliminate their plants' $30-per-hour labor cost premium over Japanese transplants.

The old deal for autoworkers was a sweet one. Called "30-and-out," it provided a full pension and lifetime health care after 30 years of work, even for people still in their 50s. Overtime work combined with high wages boosted some salaries to more than $90,000. Today's workers will continue to get the 30-and-out deal, but their numbers will fall as they are replaced with entry-wage workers.

GM workers at Tonawanda, whose average age is about 50 with 25 years of service, are already taking retirement classes, UAW Local 774 Chairman Wallace Wedington said.

"They're waiting to see what the package looks like," he said. Throughout GM, 64 percent of production workers are eligible to retire with a full pension.

The deal at Ford limits new hires to 20 percent of the current work force. At GM, new hires could occupy 30 percent of hourly jobs, including new ones "in-sourced" from contractors, analysts estimate.

GM "could get there in a year, if they offer a sweet enough program," said Dziczek of the Center for Automotive Research.

>New jobs, not careers

Wedington said he doesn't expect a sudden influx of lower-wage workers. There are 140 laid-off workers who will need to be recalled before anyone is hired.

But by the time the contract expires in 2011, he said, a large fraction of jobs in the plant could shift to new faces.

The new deal weakens auto plants' status as a route to a middle-class lifestyle. Autoworkers earning $14 an hour aren't likely to think of their jobs as lifelong careers.

"Is it enough to raise a family? Not on one paycheck," said Bruce Belzowski, senior researcher at the University of Michigan Transportation Research Institute.
"It obviously doesn't create the kind of lifestyle that workers on the line have now -- no private schools and not the same vehicles they're buying now."

Henry Ford famously said that his workers should earn enough to buy the products they make. That will be a stretch for entry-wage workers looking at the sticker on a new Explorer.

On the upside, steady turnover at auto plants could provide more young people opportunities to get manufacturing work experience, as a stepping stone toward a more lucrative career.

At Ford's Buffalo Stamping Plant, about 60 temporary workers could shift to permanent status under the contract. And while their pay would be limited, they could advance into top-tier jobs as more retirees depart, UAW officials said.

>Shifting responsibility

The other big change wrought by the UAW contracts involves health care benefits for retirees, a multibillion-dollar obligation. Newly created trust funds, managed by the UAW, will shoulder future costs. Ford will off-load $24 billion in future expenses, while GM sheds $47 billion.

Critics say the deal puts the union in a pickle, handing it the purse strings for members' fast-rising health care costs. But by collecting multibillion-dollar deposits from the automakers, the trust funds at least give retirees a backstop for the previously unfunded promise of medical benefits.

Whether the cost cuts are enough to save the ailing auto industry will depend on consumers' appetite for U.S. cars. Also a factor is the response from nonunion competitors, who don't need workers' permission to cut wages, analysts note.

"The Big Three are in a better cost position now than they've seen in the past several years," said Patrick Heraty, business professor at Hilbert College who studies the auto industry. "But there are two sides to being profitable -- the cost side and the revenue side."

>Outside factors

Some analysts are predicting a record downturn in car sales in 2008, to 14.5 million units nationwide, as the economy cools and fuel prices rise. A deep slump in sales could slow hiring of new workers, even at entry-level wages.

Previous spikes in gas prices have coincided with painful slowdowns for the U.S. automakers and deep job cuts for autoworkers. But with a product mix tilted toward gas guzzlers, the domestic industry appears not to have learned the lessons of the '70s and '80s. Toyota, with its smaller lineup, may overtake GM as the world's No. 1 carmaker this year.

Another wild card is a likely increase in fuel economy standards, which will hit the Detroit three harder than their competitors. Pressed by concern about climate change, Congress is considering raising the Corporate Average Fuel Economy standard to 35 mile per gallon in 2020, from 27.5 mpg for today's cars. Meanwhile, environmentalists have won battles in federal courts to close the "SUV loophole" that allows lower mileage standards for light trucks.

With gasoline costs rising to record levels, the cost cuts for GM and Ford may have only come just in time to prevent even deeper losses than the $15 billion booked in 2006. But reducing costs alone won't get them through the slump.

Said Dziczek, "They better have some hot cars in the barn."



>GMand Ford contract highlights

Workers covered locally: 2,500

Retirees affected locally: estimated 9,000

Wages: creates $14 entry-level wage

Benefits: creates union-managed trust funds for retiree health care

Signing bonus: $3,000

Term: four years

Source: United Auto Workers

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