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Buyout plan puts GM on a path to shape up

For decades, the U.S. auto industry was a pillar of the American economy.

These days, that pillar is crumbling, eroded by years of uninspiring cars and trucks, costly labor agreements and competition from more nimble -- and non-union -- competitors from overseas.

Never was that more apparent than last week, when General Motors Corp., buckling under more than $10 billion in losses last year, unveiled a plan to offer buyouts to all of its 113,000 unionized workers in the United States in a bid, possibly costing as much as $5 billion, to speed up its plan to slash its work force by 30 percent -- or more.

At the same time, bankrupt auto parts maker Delphi Corp. offered $35,000 buyouts to 13,000 of its 24,000 union members, while another 5,000 will get the chance to transfer back to GM, in an effort to pare its work force.

It was a rock-solid acknowledgment by GM that its days of dominating the U.S. auto industry are over and that it has to slim down in a hurry if it hopes to compete effectively against fast-rising challengers, like Toyota Motor Corp.

"The climate has changed dramatically," says Arthur Wheaton, an industry education specialist at Cornell University's School of Industrial and Labor Relations in Buffalo. "As your market share declines, you spread your fixed costs out over fewer and fewer vehicles."

The buyouts are an acknowledgment that its plans to cut 30,000 jobs, largely through attrition, won't go fast enough, prompting the auto maker to offer incentives to nudge its workers out the door sooner.

For the United Auto Workers union, it showed that the labor group is willing to grant concessions to help GM and Delphi survive, even if it means a continuation of the long-term decline in its ranks. Ford Motor Co. also is offering buyouts as part of its push to slash 30,000 jobs by 2012.

What it means for the Buffalo Niagara region and the jobs at GM's Town of Tonawanda Engine Plant and at Delphi's Lockport factory isn't clear, but it likely will mean, at best, a continuation of the gradual decline in employment there.

"These are good-paying jobs that would be hard to replace," says John Slenker, the regional economist for the state Labor Department in Buffalo.

"Do they take a buyout and leave Western New York? In that case, it's a big hole," says George Palumbo, a Canisius College economist. "There are jobs in other parts of the country. Some people might say give me $70,000 and I'll go south and work for $20 an hour."

"Or do they take a buyout and start a new business? In that case, it's an investment in the community," he says.

On the bright side, the engine plant's high productivity would seem to bode well for it maintaining much of its 2,500-person work force. But there's much less certainty surrounding Delphi's Lockport plant, where the company seeks deep wage cuts and may ask a bankruptcy court judge to void its labor contracts on Friday.

Wheaton thinks Delphi will seek to overturn the contracts, even if the talks are progressing, just to increase its leverage over the UAW. The talks can continue for at least another month before the judge takes any action on the request.

"It just forces another deadline on the union," he says.

The stakes in those talks are still high. Voiding the contracts would almost certainly trigger a strike that could open the door for Delphi to hire cheaper replacement workers. Or it could push the company to move production outside the United States. A prolonged strike could cripple GM and force it to file for bankruptcy, under which GM could follow Delphi's model and use the court proceedings to pry its own wage concessions from the union.

"That's why a lot of people are saying to take the money and run," Wheaton says. "They don't know what will happen in the future."


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