The High Price of Peace in Detroit

WHEN the biggest and costliest strike in more than a decade ended last week, neither side was particularly overjoyed by the outcome. After 58 days of standoff, leaders of the United Auto Workers and General Motors agreed on a new contract that the company says is inflationary. The union's hefty wage gain was less than the auto workers had hoped for, but they got more in fringe benefits than the U.A.W. leadership could have expected. If the strikers ratify the national contract this week, as is likely, and some sticky local issues are settled in the plants, the assembly lines can be rolling at full production by early December.

The terms of the three-year agreement represent something of a gamble for General Motors. In a major concession, G.M. acceded to a union demand for unlimited cost-of-living increases. If inflation is checked, G.M. will not have to pay out too much more in the second and third years of the contract. But if inflation continues strong, the settlement could turn out to be far more expensive than the corporation intended. The dangerous catch is that the new contract's other wage and benefit terms go far toward assuring the persistent inflation that the corporation most fears.

Early Retirement. The pact provides a first-year wage increase of just over 13%, or 50-c- an hour, for a typical assembler now earning $3.80. The raise is a compromise; the union had wanted 61.5-c- per hour and the company, whose last pre-strike offer was 38-c-, went more than halfway in meeting the union demand. The union settled for considerably lower guaranteed raises in the second and third years: 3% annually, or an average of 14-c- per hour. The figure is consistent with U.A.W. President Leonard Woodcock's contention that future wage raises can be kept in line with increases in productivity so long as workers are protected against the upswing in the cost of living.

The union won a considerable victory on the toughest issue"30 and out," or retirement at any age after 30 years of work on a pension of $500 a month. Management had argued intensely that it could not afford to lose its most skilled veterans, and that such a provision would double its pension costs of $250 million a year. In the end G.M. gave in on the principle, though not on the details.

The two sides agreed on a retirement plan that is bound to be enviedand eventually copiedby organized labor everywhere. Starting next year, a worker with at least 30 years of service can take his $500-a-month pension at age 58; the following year the age limit will drop to 56. New negotiations will open in 1973, and the U.A.W. has a good chance to get an even lower age limit. Thus this year's contract may turn out to be a historic one, leading to a substantial reduction in the retirement age for working Americans.

Pressing Reasons. All together, the fringes brought the total wage and benefit package to an average of 9% a year, or triple the company's long-term productivity gains. In wages alone, the auto workers are guaranteed increases totaling 20% over the next three years. Yet in fairness they could hardly have been expected to settle for much less; the purchasing power of their wages has dropped by 7.4% since the spring of 1969. After the settlement was announced, groups of strikers picketed the United Auto Workers headquarters chanting: "We want lots more."

Both sides had pressing practical reasons to settle. The union strike fund was due to run out next week. G.M. dealers were selling the last of their showroom cars. The corporation had lost $77 million in the third quarter, when the strike was only two weeks old, and considerably more in October and November. The cost of the walkout was greater than G.M. had anticipated.

To make up part of it, the company has had to postpone some planned 1972 model changes to 1973, and many corporate development programs have been delayed. If agreement had not been reached last week, there would have been little profit in restarting the assembly lines before the Christmas holidays, and the strike probably would have lasted into the new year. Union President Woodcock had to balance the prospect of any further gains against the cost of keeping the men out for another six weeks or more without strike pay. The settlement was speeded along by Federal Mediation Director Curtis Counts, who secretly went to Detroit last week, and presumably pointed out to both sides the Administration's interest in an early agreement.

Economic Injury. The rest of the country suffered considerable economic injury (see box). In all, the strike cost $7 billion in lost sales, wages and taxes. It caused a drop in economic growth and, among G.M.'s suppliers, led to layoffs of about 100,000 men. Stockpiled steel crammed the mills in Pittsburgh and elsewhere. The Federal Government lost roughly $1 billion in taxes. The state of Michigan was deprived of $35 million in revenue and, in addition, had to pay out $3 million in public assistance. Cities that have G.M. plants were particularly hard-hit. Some of the losses, but by no means all of them, will be made up in the catchup rush of auto production in the weeks aheada rush that will likely give the economy an unnatural boost in the first quarter of 1971.

The settlement could be even costlier for the economy than the strike was. Despite a recent jump, the rate of inflation is lower than it was last winter, and it is likely to drop more next year. Economist Otto Eckstein, for example, predicts a cost-of-living increase next year of 4%, compared with a 5.6% rise over the last twelve months. But G.M. Chairman James Roche has made it clear that higher labor costs will lead directly to higher prices for cars at a time when sales and profits are sluggish. Auto prices this year have risen an average $226, or 5.7%.* The recently posted increases on the 1971 models will show up in the October cost-of-living index, due out later this month. If G.M. boosts the price of its cars to reflect its increased labor costs over the next three years, that in turn will tempt more people to buy imports, which now account for 14% of the market and will endanger some automaking jobs.

Minimum Target. The real danger of the G.M. agreement is in its impact on other settlements. Herbert Stein, a member of the Council of Economic Advisers, said last week that "the rate of inflation from this point forward will depend on the rate of wage increases probably more than anything else." The U.A.W.'s money gains are somewhat less than those won earlier this year by the Teamsters, the construction workers and the New York Newspaper Guild. The auto raises are also below the 37% increase over three years that a presidential commission recommended last week for four railroad unionsand that the unions rejected as not enough. But the auto contract provides a new minimum target for other unions to shoot at. Ford and Chrysler will undoubtedly settle on essentially the same terms, and the union will seek to apply the G.M. formula to farm-machinery manufacturers.

To many union leaders, the most important part of the contract was removal of the ceiling on cost-of-living increases. That ceiling had been accepted by the late Walter Reuther as part of the price of ending a strike against Ford in 1967, and he later regretted the decision. Now that the U.A.W. has succeeded in abolishing the ceiling, other unions can muster strong arguments against it.

Many of the 540,000 steelworkers, whose contract comes up for renewal next Aug. 1, will expect gains similar to those scored by the auto union. Steelworkers receive pensions of about $300 a month, and no cost-of-living raises. They are now determined to catch up, but will encounter tough resistance from an industry that averaged only 2.7% profits last year. Thus the outlook is for a strike next August, followed by a rise in steel pricesand further increases in the price of cars.

Businessmen have been turning to the Administration for helpor at least guidancein holding back inflation, but so far they have received little of either. Nixon's economic game plan foresaw a profit squeeze, which was supposed to toughen management resistance to union demands. According to the plan, this would lead to some big strikes, but ultimately to a decline in pressure for extravagant wage increases. The plan has not worked out the way the Administration had hoped. The strikes have indeed hit, but in many major settlements, management has been forced to capitulate to inflationary rises in labor costs.

It is at least possible that there would have been fewer strikes and more moderate settlements if the Administration early in 1969 had begun to combat inflation with guidelines or some other form of incomes policy. That would have meant more dependence on the President's jawbone and less on management's backbone. Some of Nixon's biggest supporters within the mostly Republican business community have been calling for the President to use more of his power and prestige to influence wage decisions. If the Administration expects business to take a strong stand in fighting inflation, the time is overdue for the President to pursue an incomes policy.

*Actually the increase has been 5.9%, considering that this year, for the first time ever, the Bureau of Labor Statistics says the quality of cars has declined. Reasons: cutbacks in warranties and scores of minor price-shaving changes, such as using some cheaper materials.

This file is automatically generated by a robot program, so reader's discretion is required.