About GM and the Auto Workers 

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About GM and the Auto Workers

Fat wages and benefits can’t last when competition is cutthroat

As a longtime observer of the auto industry, I’ve been watching the unfolding drama between General Motors Corp. and the United Auto Workers with mixed emotions. On the one hand, without serious union concessions, including the recent giveback on health care, GM will never gain an edge on low-cost foreign competition. Its slide toward bankruptcy will continue. At the same time, I know from personal experience that a weakened UAW – truly one of the last unions that can guarantee blue-collar workers a comfortable living – isn’t good for America’s middle class.

But the fact remains: A union auto worker still has it better than any other factory hand in the country. And while GM is hugely responsible for the fix it’s in – relying too long on gas guzzlers for most of its profits is just one in a long list of missteps – I am not convinced that the UAW rank and file fully accept that the world has changed. Yes, their vaunted lifestyle – vacation cottages in Michigan lake country, enough money to send the kids to college, living without fear of unpaid layoffs – isn’t going to disappear tomorrow. But major concessions are coming.

UAW workers have managed to freeze the clock much longer than most of their blue-collar brothers and sisters. My Father saw the writing on the wall as far back as the late ‘70s, when union power started to fade. In 1979 he made $16 an hour – the equivalent of $44 an hour today – as a union machinist at Miller Brewing Co.’s brewery in Fulton, N.Y. The union’s 1,500 workers went on strike that year over cost-of-living increases. My dad walked the picket line dutifully but thought the union was being too stubborn. After all, the nation was in recession, and many other Americans were losing their jobs.

The two sides settled the strike, but the world was about to change. Much like GM is suffering today, Miller was in pain through the ‘80s as domestic beer sales dropped. By the end of the decade it would get hit by hipper rivals – in this case brewers such as Heiniken and Corona – as well as Budweiser, which was marketing the heck out of its brews. With sales going flat, Miller laid off 100 or so workers, my father among them, with the possibility they’d be recalled if things picked up. Miller never did call, and by 1994 the Fulton brewery was closed.

UAW workers aren’t there yet, but the clock is ticking. It is becoming increasingly difficult to justify their outsize wages and benefits. Yes, the UAW will forgo most pay raises for the next two years, but their $25 an hour is still 50% better than what the average plant worker now makes. UAW workers still get free health care. They also have pensions; half of manufacturing workers and most employees don’t. Perhaps most astounding, the $752 annual premium that their retirees will pay for family medical coverage is just one-fourth the contribution that the average working family pays in the U.S.

In short, the time has come for serious concessions. The idea that UAW workers can’t be laid off without pay is an artifact of bygone era. GM has suggested that it may cut 25,000workers by 2008, but mostly through retirement. Let’s face it: If GM can’t stop its market-share slide, the auto maker is going to need many more cuts than that, and it won’t be in a position to pay furloughed workers up to 90% of their salaries like it does today.

Dirt-cheap health care won’t be around much longer, either. By getting retirees to pay some of their costs under the recent deal, GM can wring out $1 billion a year in savings.

All of this will be painful – just as it was in the early1980s for my family and countless other middle-class families. The UAW should be glad they’ve had it this good for so long.


By David Welch

Unit 4

Lean, Mean, and …German?


About two decades ago, when today's top-ranking German executives were still toiling along as middle managers, they witnessed what must have been an unnerving phenomenon. A new generation of tough bosses at the biggest companies in the U. S. and Britain were turning their organizations into lean, mean profit machines, partly to meet an onslaught of Japanese rivals and partly to make investors happy. They slashed payrolls, sold off floundering businesses, and kept their eyes on the bottom line. The result: Today, their companies are among the most competitive in the world.

Now it's the German's turn. A small cadre of hard-charging chief executives is reshaping staid German industry. Over the last five years, nearly every blue-chip company has seen a changing of the guard at the top. The German bosses of the 1990s, such as Jurgen E. Schrempp of Daimler Benz, Ulrich Hartmann of Veba, and Ron Sommer of Deutsche Telekom, are far more performance-oriented than their predecessors, and they have more international experience. “These men are the Jack Welches of Germany,” says David B. Audretsch, an expert on German competitiveness at the Center Berlin.

The new business leaders are adopting practices that five years ago were largely taboo in German business culture. Driven by low-cost competition in Eastern Europe and Asia, they have already downsized radically, sending thousands of Germans jobs abroad since 1992. Now they are progressing into a much more difficult Phase Two, which is changing the basic structure of Corporate Germany, formerly made up of sprawling, low-margin conglomerates. The goal is to boost earnings by shedding noncore businesses that don't excel. And, in hopes of using Europe's evolving capital markets instead of old-fashioned bankers to raise money, they're stressing shareholder value as never before. “This is not just a fad”, says Ulrich Cartellieri, a management board member of Deutsche Bank who sits on several corporate supervisory boards. “There are no more sacred cows”.

The tough job of divesting money-losing businesses to concentrate on strong ones is separating the winners from the losers in German management. Even before Jurgen Dormann took over in 1994 as CEO at Hoechst, the 130-year old chemical giant, as chief financial officer he had begun measuring each unit's performance against global rivals like DuPont Co. and Dow Chemical Co. He had persuaded skeptical colleagues to spin off the loss-making carbon graphite business in 1992. Now, SGL Carbon is making money and is one of Germany's hottest stocks.

GUSTO. Dormann is tackling the rest of Hoechst with the same gusto. Hoechst Marion Roussel, the drug unit, may be separately listed this year, and any Hoechst business that doesn't rank in the top three worldwide will go on the block. At Daimler, Schrempp has ruthlessly axed money-losers such as AEG, the 112-year-old electronics business, and Fokker, the Dutch maker of commuter planes. Siemens Chairman Heinrich von Pierer has sold $1.6 billion in noncore business in the last two years and has another $2.2 billion on the block, including the cable TV network.

While they shed dogs, these managers are also cutting deals to enter fast-growing markets or industries. Deutsche Telekom's Sommer, for instance, has teamed up with DeTeMobile to buy a 48.5% stake in a budding Russian mobile phone company. CEO Dieter Vogel is successfully pushing steelmaker Thyssen into high-tech arenas such as satellite communications and internet access services. Veba's Hartmann, meanwhile, is spending heavily to build up the conglomerate's chemical and trading businesses outside Germany. He plans to more than double foreign investment over next five years, to $7.5billion.

Persuading investors that they mean business is proving a formidable challenge for Germany's new corporate chieftains. The global markets swiftly punish what they don't like. For example, Sommer's successful marketing last year of Deutsche Telekom's $13 billion initial public offering to eager Germans made him the poster boy of a new equity culture. But he saw Telecom's share price slide last month, when foreign fund managers decided the stock was too expensive. Siemens' von Pierer is feeling the same discipline. Despite a 1996 profit gain of 15%, he predicted flat results for 1997, and Siemens' stock fell 10% in a single day in November.

Some managers have also realized that if the stock market is to become a cheap source of capital, they must ensure a steady flow of information to investors. Veba's Hartmann has raised investor relations to a board-level responsibility - a pioneering move in Germany. He holds regular meetings with analysts and has set up an aggressive investor relations department. Bayer, Daimler, and others have followed suit.

The trend towards openness has sharpened internal decision-making, too. At Daimler, heads of business units used to report financial performance to just one member of the eight-person management board. Problems were often hidden behind by the strong performance of sister divisions. “Now, that's out,” says Schrempp, who became CEO in 1995. For more than a year, each of Daimler's 23 business unit managers has reported as often as monthly to the full management board.

DILEMMA. Another management revolution has come in compensation. In the

past, Germany's seniority-based system offered little connection between pay and performance. Now, some companies are using U.S.-style incentive schemes. This year, the top 550 managers at Veba will receive up to 30% of their salaries as merit-based pay. SGL Carbon offers stock options for 70 managers, and the top 15 executives will be paid a bonus after three years if the company sees annual sales growth above 5% and return on capital of more than 20%.

Such steps have sparked fierce resistance from powerful union officials, politicians, and old-style managers. They, plus suffocating regulations, hinder reforms at every turn. In fact, Germany's blue-chip CEOs are caught in a clash of two worlds. On the one hand, they compete in global markets and have foreign fund managers clamoring for bottom-line results. Yet back home, they face obstacles that are uniquely European. Germany's social contract is geared above all to preserve jobs. “It's not that easy,” says Siemens' von Pierer. “I get pressure from both sides.”

The trail being blazed by these companies is closely watched by midsize businesses caught in the same dilemma between Germany's conservative climate and the demands of global competition. “Germany is desperate for leaders to guide [it] into this brave new world,” says Audretsch. The new manager will need a lot of guts as well as vision.

By Karen Lawry Miller in Davos and David Woodruff in Bonn




1. lean and mean: capable and ready for hard, efficient work

2. blue-chip: term originally used for the highest value gambling chip is now used for top companies whose shares or credit are thought to be of low risk and high quality. Blue-chip companies’ shares command high prices and yield steady earnings, and they can obtain loans at the cheapest rates

3. Jack Welch: CEO of General Electric

4. dog: something undesirable or worthless;. here: an unprofitable business

5. social contract: a unanimous agreement (usually of a hypothetical or imaginary nature) between all of the individuals composing a society concerning the basic principles upon which that society will operate. The term can also be applied to agreement between trade unions and the government*



1. top-ranking (senior, middle) manager менеджер низшего (среднего) звена

2. to slash payrolls сократить штат сотрудников

3. bottom line итоговая строка отчёта о прибылях

и убытках

4. performance-oriented companies компании, ориентирующиеся на результаты деятельности

5. to adopt practices использовать практику

6. to downsize a company уменьшать размеры (масштабы

деятельности) компании

7. the structure made up of структура, состоящая из

low-margin conglomerates низкоприбыльных конгломератов

8. to shed non-core businesses избавляться от непрофильных

(to ax money-losers, (убыточны) предприятий

to divest money-losing businesses)

9. evolving capital markets развивающиеся рынки капитала

10. to stress shareholder value подчёркивать приоритет стоимости

акционерного капитала

11. to measure one’s performance against оценивать результаты

global rivals деятельности, сравнивая их с

результатами конкурентов

12. spin-off «отпочкование» новой компании от

существующей при участии

специалистов «рискового»

финансирования и самой

материнской компании;

(её акционеры могут

получить акции новой компании):

создание новой компании

to spin-off loss-making businesses

13.to list a company допустить ценные бумаги

компании к официальной торговле

на фондовой бирже

14. to cut a deal(to make, strike, clincha deal) заключить сделку

15. a budding company многообещающая компания

16. Initial Public Offering (IPO) первичное публичное предложение


17. fund managers организации по управлению

средствами инвесторов

18. a profit gain of 15% увеличение прибыли на 15%

19. internal decision-making принятие решений внутри


20. to report financial performance сообщать о результатах

финансовой деятельности

21.business unit manager менеджер подразделения компании

22.seniority-based system of compensation система оплаты труда, основанная

на стаже работы

23.merit-based pay система оплаты, основанная на

достижениях работника

24.stock-options schemes система поощрения работников

опционами на приобретение акций

компании по льготной цене

25.return on capital доходность инвестированного

(return on investment – ROI) капитала

отношение суммарной прибыли компании до вычета налогов к её собственному и заёмному капиталу

26.to hinder reforms препятствовать проведению




I. Suggest the Russian for the following:

1. an unnerving phenomenon

2. hard charging chief executives

3. staid German industry

4. formidable challenge

5. poster-boy

6. flat results

7. a pioneering move

8. fierce resistance

9. powerful union officials

10. suffocating regulations


II. Find the English for the following:

1. входить в число трёх лучших компаний в мире

2. увеличить вдвое

3. регулярно проводить совещания

4. ежемесячно сообщать членам Совета о результатах деятельности

5. вызвать ожесточённое сопротивление

6. сохранять рабочие места

7. прокладывать путь

8. иметь мужество, быть смелым


III. Explain the following:

1....they kept their eyes on the boom-line

2. “These men are the Jack Welches of Germany”.

3. …they are stressing shareholder value as never before

4. “There are no more sacred cows”.



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