Labor Cost Is One of Thesis

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The company entered into new deals with both the CAW and the UAW in order to shed some of the legacy costs (Merx, 2009). The deal in the United States gave the union-run Retiree Health Care Trust a 17.5% stake in the post-bankruptcy version of GM and a warrant for another 2.5% stake in exchange for GM's $20 billion obligation to the trust. In other words, GM has swapped out what was essentially a debt owed to the retirement trust for equity, reducing their burden by $20 billion (Associated Press, 2009). The company asserts that the deal will bring its total hourly labor costs in line with those of Toyota.

Information with respect to GM's labor costs is highly transparent. The story is a major news item and the firm is up front with its cost structure, both in the media and on its website.

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The major decisions have already been taken. The company needed to dramatically lower its costs, and by swapping out $20 billion of those obligations for equity, they were able to do so. Going forward, General Motors must keep these costs from escalating in future, in order to remain competitive with Toyota and other competitors. For General Motors, this means strong negotiating with the unions. The latter have made substantial sacrifices in order to maintain jobs and will want the company to return the favor when conditions improve. General Motors still faces pension and health care costs for existing workers. If it can find creative ways to keep these costs down lower than similar costs for competitors, it will be able to allow the union wage increases and develop a competitive advantage at the same time.

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