Test of Wills Steps Up at American Axle

By Bernard Simon
The Financial Times UK

Thursday 13 March 2008

A two-week strike at American Axle, a Michigan-based car parts supplier, is developing into an unexpectedly fierce test of wills between the motor industry and the United Auto Workers union.

American Axle has stepped up pressure on the UAW by threatening to close at least some of the five strikebound plants, employing 3,650 workers, "if a market competitive labour cost structure cannot be attained."

The union's president Ron Gettelfinger told a Detroit radio station on Tuesday that "the line's been drawn in the sand and we're there."

The strike has forced General Motors, which is by far American Axle's biggest customer, to close or curtail production at about 30 North American plants.

The carmaker has said that it can maintain retail sales from existing inventories, but that the disruption will affect first-quarter production. The main casualties are sport-utility vehicles and pick-up trucks, which are among GM's most profitable vehicles. Chrysler is also a sizeable customer.

American Axle has demanded wage and benefit cuts similar to concessions the UAW has granted in re-cent years to rival chassis suppliers, such as Dana, and Ford and Chrysler affiliates. The company says labour costs at the five plants are four times higher than its rivals. The strikebound plants were bought from GM in the mid-1990s and are covered by labour contracts similar to those at the Detroit-based carmakers. Two other unionised facilities, acquired later, have separate contracts with lower wages and benefits. Work continues at these two operations.

The UAW has drawn a distinction between lossmaking suppliers, where it has agreed to concessions, and American Axle, which earned $37m last year on sales of $3.3bn. The company maintains that the five plants are not profitable.

Standard & Poor's has said that it will review the credit ratings of GM, American Axle and other GM suppliers if the dispute is not settled by mid-March.

"An extensive, prolonged strike by American Axle's workers would create a large ripple effect through GM that would touch most of the US automotive industry, including smaller suppliers," S&P warned.

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