MotorWorld by Alex Taylor III Column archive

Is the UAW strike for real?

Yes and no. As long as negotiations continue, there is no need for alarm -- both sides know just how much they need each other.

By Alex Taylor III, Fortune senior editor

(Fortune) -- The United Auto Workers decision to call a nationwide strike against General Motors today is already unleashing the usual amount of consternation and hand-wringing.

Various commentators are already opining about the impact of the strike on the U.S. economy, as well as on the thread-bare auto supplier industry. And historians are reaching for comparisons to a bitter strike against GM back in 1970 that lasted more than two months.


Don't be fooled. There isn't much to worry about. There are a number of signs that this is only a token strike called to fire up the faithful and put a little more pressure on GM (Charts, Fortune 500).

--The union said that it was willing to immediately return to the bargaining table and resume negotiations. If it were serious about inflicting harm on GM, it would have declared an impasse and stayed away from bargaining until the automaker made a counter-offer.

--GM's stock didn't get hit right away. If investors thought there was a realistic chance for a meaningful strike, they would have dumped shares long ago. As analyst Himanshu Patel of JP Morgan wrote earlier today: "The fact that the UAW-GM talks have continued so long past expiration [nine days] is a broadly encouraging sign to us."

-- Credit rating agencies like Standard & Poor's haven't budged on their GM ratings. "We still expect GM and the UAW to reach an agreement in the near future," it said today. "We remain mindful of the potential positives that could result from an agreement."

The biggest impediment to a prolonged strike is the knowledge by both sides that to engage in one is to assure mutual destruction. Auto companies only make money when they produce cars. To halt production for even a week or two at a time when the automaker is ramping up production of 2008 model cars would put a serious dent in GM's revenue.

By starving dealers of cars, it would send even more potential customers fleeing to the arms of the imports, undermining GM's ability to provide jobs and pay pension and health care benefits in the future.

Since the union has been talking with GM about this very subject for the past two years, its leadership is painfully aware of this fact, even if the rest of the union membership -- the so-called rank and file -- is only painfully coming to that realization. Having hired its own investment bankers to scrutinize GM's books, it knows well what a precarious financial position GM is in.

So why did the UAW bother to go on strike in the first place? For one thing, it puts a little additional pressure on GM, which must now deal with shutting down factories and curtailing production. Two, it signals that the UAW leadership is serious about getting the best contract terms it can negotiate.

But perhaps the most important reason is that it sends a signal to the union membership that its leaders are working hard on their behalf, and will squeeze GM as much as they can. The UAW is a democratic institution in that the members elect their leaders and they vote for those who can do the most for them. The leaders, for their part, are not anxious to return to the rank and file.

So to demonstrate toughness to their own members, they let them go out on strike. The weather is still pleasant in Michigan this time of year, and another opportunity for some hunting and fishing is always welcome.

The leadership is also setting the stage for eventual ratification of the contract. Again, they have to convince their constituents that they have struck the best possible deal so that the contract will be approved when it is put to a vote. Sending members out on strike is the best way of demonstrating that.

If the walkout were to continue for a week or more, it would be cause for alarm. For the time being, though, it is best to regard it as no more than political theatre. Both sides, however, have good reason to hope that this particular show closes opening night. Top of page