GM General Motors Company

By Mike Colias and Nora Naughton 

Even as General Motors Co. and the United Auto Workers union come closer to resolving their biggest work confrontation in decades, a larger, unsettled issue is the inevitable pain for U.S. workers from GM's long-range bet on electric cars.

GM's need to free up cash to invest in electrics has led it to make deep costs in its core business, including its decision to close four U.S. factories -- a main point of friction in the longest walkout at GM since 1970.

For the UAW, there's no avoiding the harsh reality of a wider transition taking hold across the auto industry: Building electric vehicles requires far fewer workers, making it near-impossible to avoid job losses and wage cuts. In addition, fewer components are needed, and many of them are imported.

That means the union, which represents about 225,000 workers at U.S. auto makers and suppliers, faces a fight to play a central role in the industry's electric-focused future.

The engine and transmission have long been at the heart of the automobile -- and a sector employing hundreds of thousands in the U.S. But electric cars have fewer moving parts and are less complex to assemble, requiring roughly 30% fewer workers to build compared with a gas-engine vehicle, analysts and industry executives say. Morgan Stanley estimates widespread adoption of electric vehicles globally could eliminate 3 million auto-industry jobs.

The closed factories are the most visible sign of GM Chief Executive Mary Barra's focus on redirecting capital to develop electric and driverless cars, capital-intensive bets with an uncertain payoff. GM plans 20 new electric models, mostly in China, over the next few years, funded in part by the plant closures and other moves aimed at boosting cash flow by $6 billion a year.

"We are willing to make tough and strategic decisions to not only meet our commitments but to secure the company's future," Ms. Barra told analysts earlier this year.

Nearly all GM's U.S. sales are gas-powered vehicles today and that's not expected to change soon. But signs of the shift to electrics are everywhere. For instance, the company's luxury Cadillac brand recently changed the badge on the rear ends of its vehicles to reflect a measurement of torque -- an appealing trait of driving electric cars -- rather than horsepower or engine size.

Union officials worry that GM and its two Detroit rivals -- Ford Motor Co. and Fiat Chrysler Automobiles NV -- could over time outsource much of the mechanical guts of an electric car to nonunion suppliers. Today, most of the batteries installed in a plug-in car are purchased from LG Corp., Panasonic Corp. and other Asian-based suppliers.

At the bargaining table, the UAW's role in GM's electric-vehicle plans has been a focal point. GM floated a proposal to build a new electric-car battery factory in Ohio, near one of the assembly plants it is closing, that it hopes will replenish some of the factory jobs lost earlier this year, people close to the talks have said.

But the plant would likely employ UAW workers numbering in the hundreds, compared to the more than 3,000 union-represented employees assembling compact cars at the factory in Lordstown, Ohio, just a few years ago. The jobs would pay less too, people close to the talks said: Around $15-17 per hour, to be competitive with other, nonunion battery-cell facilities owned by Tesla Inc. and LG, the people said, far less than the nearly $30-an-hour full wage at GM's Lordstown factory.

GM's proposal for the battery plant already has some workers frustrated.

Brian DiRenzo, 37 years old, one of the thousands of workers affected when GM closed its Lordstown factory in March, says he has no interest in working at a battery-cell plant because of the lower pay and is holding out hope the Lordstown factory will be revived. "Workers deserve a car in that plant, not some phony battery plant," he said.

While it is still uncertain how fast the demand for electric cars will grow -- or whether battery costs will come down enough to make them affordable -- nearly all the major car companies are moving to electrify their vehicle lineups.

Along with GM, Volkswagen AG, BMW AG and other major auto makers are placing big bets on electrics, prodded by tougher emissions standards in Europe and China. Ford, which is also restructuring its business to slash costs, has said it is spending $11 billion on electrified models through 2022.

Labor leaders in the U.S. and Europe are trying to preserve jobs by pressing car companies and suppliers to build electric cars and parts domestically.

In Germany this week, labor officials were beaming as Volkswagen opened the doors of a new line to produce battery cells at its engine factory in Salzgitter. A few years ago, VW committed to a deal with the union to produce three electric-vehicle models in Germany by converting factories that it would have otherwise shut down.

When Porsche AG was deciding where to build its first all-electric car, the Taycan sedan introduced this month, labor leaders convinced workers to take a cut in their annual bonuses to persuade management to build the car in Stuttgart.

The UAW is pressing for similar moves in the U.S.

"We want new investment in technology and products to help keep us on the cutting edge, and training to make sure our workers are competitive, " UAW President Gary Jones said at the union's bargaining convention in the spring.

Beijing is requiring car companies to sell a minimum number of electric vehicles. In the European Union, the heavy cost for auto makers to comply with tightening emissions regulations over the next decade represents "the largest risk to the EU auto industry in recent memory," according to analysts at Evercore ISI.

Collectively, car companies are spending around $225 billion globally to develop electric cars over the next several years, consulting firm AlixPartners estimates. Still, electric vehicles account for less than 2% of overall U.S. sales today, and even bullish forecasts expect their market share will remain under 20% in 2030.

The capital crunch is sparking industry consolidation. A now-scuttled merger bid between Fiat Chrysler and Renault SA this year was driven by the need for scale to compete in electric cars and other budding technologies.

China is GM's biggest market by sales, adding to the urgency to expand electric vehicles across its major markets to leverage its scale.

Globally, 42% of GM's plants make engines or transmissions, signaling that efforts to retool its manufacturing operations could result in significant costs, as well as labor strife, Credit Suisse analyst Dan Levy said in a report this week.

GM President Mark Reuss, an engineer and professional racecourse test driver, sees an eventual end for gas engines. He says GM has wrung nearly all the efficiency it can from them, and electrics are the only way for it to hit tougher emissions regulations globally.

"I don't know where to spend money anymore" on gas engines, Mr. Reuss said in an interview.

Scott Harwick, an electrician at GM's assembly plant in Detroit, which is targeted for closure, is hopeful the factory will get a new life producing electric vehicles. GM negotiators have raised the prospect in contract talks of building an electric pickup truck at the plant, people close to the talks say.

"We'd love to have an electric pickup here," said Mr. Harwick, 49, during a break from the picket lines last week. "I don't care what it is -- we just want something that sells."

William Boston contributed to this article.

Write to Mike Colias at Mike.Colias@wsj.com

(END) Dow Jones Newswires

September 27, 2019 10:11 ET (14:11 GMT)

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