Employee-Management Relations

Facing Business Challenges at Saturn¹

Negotiating a Radically² New Contract

Richard LeFauve of General Motors and Donald Ephlin of the United Auto³ Workers (UAW) had been adversaries⁴ for years. LeFauve represented management (white col­lars, planners, order givers) and Ephlin represented labor⁵ (blue collars, strong backs, order takers) as they faced one another from opposite sides of the negotiating table. However, when LeFauve became president of GM's Saturn division, both men agreed that a drastic change was needed in the relationship between management and labor. Facing aggressive Japanese auto makers⁶, both men be­lieved that management and labor had a lot to lose un­less an altogether new relationship could be forged.

LeFauve recognized that GM was battling fierce competition. Honda, Toyota, and Nissan had aggressively entered the U.S. market, reducing GM’s share to about 35 percent. Customers believed that buying GM meant they were getting less car for their money, and GM was finding it increasingly difficult to compete on cost alone. For one thing, Japanese companies could build a car in about 100 hours, including suppliers' labor. General Motors took twice as long, and LeFauve saw union work rules as one cause of low productivity. At some plants, union jobs were divided into more than 100 classifications, so an entire assembly line might be shut down while a lone⁷ electrician rewired a faulty outlet⁸. Disagreement over employees' seniority rights, job security, and wage increases threatened successive contract negotiations⁹ as GM tried in vain to streamline¹⁰ production rules. LeFauve believed that changes were necessary to keep the company competitive.

Yet Ephlin saw union members facing more than the possibility of losing market share. Employees were concerned with personal security: More than 230,000 union jobs had already disappeared because of foreign competition, and at least 83,000 more were expected to vanish as Japanese carmakers stepped up production in nonunion US. factories. Pride was also at stake. Auto plants in the United States were averaging 82 defects for every 100 cars, whereas plants in Japan averaged only 65. Union autoworkers blamed the problem on managers who were more interested in production schedules and quotas¹¹ than in raising employee proficiency¹². Ephlin noted¹³ that Japanese autoworkers received an average of 370 hours of job training, whereas their US. counterparts re­ceived perhaps 46 hours. Ephlin believed that change was necessary to improve the skills and job security of his union members.

As General Motors planned its Saturn Division, both LeFauve and Ephlin were facing some of the most crucial questions in their long careers. How could man­agement persuade labor to streamline production rules for the good of the company? How could labor persuade management to look beyond purely¹⁴ financial goals? Most important, could management and labor become team­mates instead of adversaries?

Meeting Business Challenges at Saturn

Saturn could be viewed as one of the most expensive and risky¹⁵ experiments in the history of U.S. manufacturing: $5 billion for a mile-long factory to produce a car that, as one dealer¹⁶ said, "drives and feels like a Honda." To Richard LeFauve and Don­ald Ephlin, it was the beginning of a new relationship between management and labor. Although parts of the agreement be­tween General Motors and the United Auto Workers have, been implemented¹⁷ in other industries, Saturn's agreement was the first to combine so many ideas in one pact¹⁸.

Instead of the traditional boss-worker structure, man­agers and employees are joined into teams and committees to make decisions by consensus¹⁹. These groups decide everything about Saturn's operation, including who does what job, who goes on vacation when, how to engineer component²⁰ parts, how to market the car, and even the company's long-range strategy. For the first time, labor is involved in decisions concerning prod­uct, personnel, and profits. Union representatives helped choose an advertising²¹ agency and helped select which GM dealers²² would sell the car. Union employees are paid a salary instead of an hourly wage, and 80 percent of them-determined by senior­ity-cannot be laid off, except in the case of some catastrophic event. Even then, the joint²³ management-labor committees can reduce the hours of operation or even stop production to pre­vent layoffs²⁴.

For its part, the UAW agreed to streamline the produc­tion process. The key change was a reduction in job classifica­tions from more than 100 to a maximum of 6 for production employees and up to 5 for skilled employees. This change, com­bined with state-of-the-art production processes and equip­ment, helped boost productivity. The union also agreed to an initial 20 percent cut in compensation in exchange for the salaries and management-style bonuses employees now receive. Future salary levels are decided²⁵ by consensus of the Strategic Advisory²⁶ Committee, the highest group of decision makers in the Saturn hierarchy²⁷, and these levels are based on the average hourly rates at all U.S. manufacturing plants, including those owned by Japanese companies. Finally, in an effort to tear down the walls between management and labor, all employees park in the same parking lots and eat in the same cafeterias.

In contrast to the 597-page UAW contract covering all other GM operations, which must be renegotiated every three years, the 28-page Saturn agreement is known as a living doc­ument, and it never expires. However, it can be altered at any time, as long as both parties agree. Some other plants have been the scene of angry confrontations²⁸ between labor and manage­ment as GM closes some factories, outsources parts production, and takes other steps to cut costs. The Saturn plant, on the other hand, has generally avoided such problems because its contract allows both sides to be flexible in dealing²⁹ with issues as they arise. When falling demand for smaller cars led to production cutbacks and shrinking employee bonuses at Saturn in early 1998, a large majority of the UAW Local 1853 still voted to keep the unique contract. Shop chairman Mike Bennett said the vote reaffirms that Saturn emp1oyees are “committed to the original Saturn idea,” and that “The partnership³⁰ is alive and well in Spring Hill."

Whether the UAW will let GM negotiate a similar contract for future plants is an open question; so far, GM contracts have generally followed the pattern bargaining of the industry. Still, Saturn’s success shows that union and management are capable of working together so that both benefit. These days, 6,000 Saturn employees produce about 300,000 cars a year, and the car has earned a reputation for quality. That success has both Chrysler and Ford³¹ looking carefully at the model of cooperation that the UAW and GM have established.