American Axle Strike Tips U.S. Nearer Recession as GM, Suppliers Idle Workers

From Detroit Free Press

DETROIT — At the beginning of this year, it seemed like Detroit’s great labor battles were over, after industry-changing deals at the Detroit automakers and the likes of parts giant Delphi Corp.

But now, as the UAW strike against American Axle & Manufacturing moves through its second month with no end in sight — talks have been sparse with little progress made on key issues — the auto industry’s latest labor dispute has become about more than wage and benefit cuts for a few thousand workers.

The strike has idled dozens of factories at former owner and top customer General Motors Corp., as well as several other parts makers. Those companies are losing out on sales, while thousands of workers are missing their paychecks, and that may well be what pushes the nation into an official recession.

But perhaps more than that, this strike reflects the challenges that are central to the nature of labor in 21st-Century America: How many jobs can U.S. factories support and what kind of lifestyle will those jobs provide?

"We need to be able to keep work here in America, no matter how much it costs," said Adrian King, president of UAW Local 235, which represents about 1,900 of the striking workers at American Axle.

The company is trying to cut its costs to compete with newly reorganized Dana Corp. and automakers’ in-house axle operations and others.

The UAW, which has said it needs more data to substantiate the company’s demands, argues the cuts are too steep for a healthy, profitable company.

Workers, who walked off the job Feb. 26, say they can’t risk the prospect of cutting their pay in half, after basing house, tuition and car payments on a wage of about $27 an hour.

"I’m not trying to get rich here. I’m just trying to support my family," said Bill Feldbush, 39 of Clawson.

GM plants shut down

The strike at four American Axle plants, employing 3,650 people in Michigan and New York, has forced work to stop or slow down at 29 GM plants already. At the 10 plants that have been completely idled, as many as 18,385 hourly workers have been laid off.

It’s not clear how many workers have been affected at the other factories, but the ripple effects keep growing. Suppliers have laid off workers — at least 5,000 of them — as they shut down production lines and plants that make parts GM doesn’t need.

"It’s just a direct hit for many people right now because they’re distressed, anyway," said Kimberly Rodriguez of Grant Thornton’s automotive practice, a consulting firm. "It’s not like they could substantially reduce costs in this interim period."

Deutsche Bank auto analyst Rod Lache has lowered first-quarter earnings expectations for GM and American Axle, as well as suppliers Lear Corp. and Magna International Corp., because of the strike.

Similarly, Standard & Poor’s Rating Service is thinking about cutting the credit ratings of American Axle, GM, Lear and supplier Tenneco Inc.

‘This hurts us’

ZF Lemforder, a division of German supplier ZF Friedrichshafen AG that makes suspension parts, has laid off 75 workers at four plants, including one in Lapeer, Mich., because of the production shutdowns at GM.

"Make no mistake. This hurts us," said Denise Lee, ZF Lemforder’s vice president of sales and marketing, who said she could not disclose specifics. "We already had forecasted a tough year in 2008 anyway. This makes the situation more concerning to us."

It’s another obstacle for suppliers to Detroit automakers, who already face high raw material and energy prices, inflating health care costs and declining market share.

"They don’t need any more volatility," said Phil Biggs, executive vice president of Grand Rapids, Mich.-based auto consultant IRN Inc. "They’ve got enough question marks right now."

And sales are down, too.

In what already is expected to be the weakest sales year in a decade, Edmunds.com expects new vehicle sales to drop 13 percent in March, compared with last year, including a 15 percent drop for GM.

With high inventories of large pickups and SUVs, GM isn’t expected to make up lost production of models hit by the strike.

Take the Chevrolet Silverado. The automaker started March with 129 days’ supply of Silverado pickups, according to data from Automotive News.

Jesse Toprak, executive director of industry analysis at Edmunds.com, said he expects selection to deplete enough to send potential buyers to other models or brands by the eighth week of the strike.

"Although you still have cars in the inventory, the selection for consumers goes down," Toprak said.

GM could become vulnerable as the strike’s effects seep into its passenger car production. Monday, the automaker expects to shut down its Detroit-Hamtramck plant, which makes the Buick Lucerne and Cadillac DTS.

Unemployment rises

The effects of the strike are now bleeding into the nation’s economy. Layoffs at GM and several of its suppliers helped boost the number of newly filed unemployment claims earlier this month.

Lost vehicle production from the strike in the first quarter boils down to a 0.3 percent decline in the gross domestic product, or GDP, said Nigel Gault, chief U.S. economist at Global Insight.

The GDP measures the value of goods and services produced in the United States, and two consecutive quarters of a shrinking GDP is the textbook definition of a recession.

"It’s possible the strike could make the difference between a positive or a negative GDP number, because we’re so close to the zero mark," Gault said.

‘Bad for everybody’

At the heart of the American Axle labor dispute, both sides say they understand the broad impacts the strike has caused.

"This is bad for everybody. It’s bad for our industry," American Axle Chief Executive Officer Dick Dauch told the Free Press.

The company, he said, must be competitive in its U.S. plants, or he would be forced to move the work overseas.

UAW officials, and many workers who are receiving $200 a week in strike pay, say the alternative would be worse.

Said UAW Local 235 President Adrian King: "If we just roll over and accept what American Axle is offering us, we’re going to lose everything, anyway."