The GM-UAW contract: Pace car for the U.S.?

Detroit's autumn tradition of unveiling new car models has gone the way of fin wings and chrome grills. This fall, however, GM and the UAW did roll out a new model for the American economy. Their proposed contract signals a new urgency in the US to step up to global competitors.

Concessions by both General Motors and the United Auto Workers were both huge and atypical, possibly setting new and healthy directions for unions, industry, and the healthcare debate.

For one, GM agreed to keep all 16 of its US assembly plants through the four-year contract and to build 12 new plants in the US. That deal on job security will save more auto jobs from leaping overseas. Given how well Japanese plants do stateside, though, GM has little excuse not to keep investing in American workers. And given recent Pentagon complaints about how the loss of an industrial base in America has hampered armor manufacturing for the Iraq war, GM's concession will help stem that loss in military defense.

GM's concession was a necessary step to win two UAW sacrifices.

Because GM, with all its red ink, had a choice between Chapter 11 or cutting costs to catch up with top carmaker Toyota, the UAW wisely decided to allow reduced wages and benefits for many new workers. More important, it would take on the long-range burden of healthcare for its workers and retirees.

To do otherwise might have seen Detroit follow the route of troubled airlines and declare bankruptcy to extract even bigger union concessions for a reemerged enterprise. For the UAW, it was better to take half a loaf than crumbs.

And the UAW knows it must somehow retain its remaining clout in the face of steep declines in industrial unions, which are now dwarfed by unions representing service workers, teachers, and government employees.

With this contract, both GM and the UAW have set difficult tasks for themselves.

GM has largely lost its excuse that it can't compete with foreign automakers because of a $50 million healthcare burden. While this contract doesn't go all the way to reduce the company's labor costs down to Toyota's, it does open the opportunity for GM to plow more money into research and development. That should not only help it to make more competitive vehicles, but also to gear up for the inevitable shift to reduced carbon pollution.

For the UAW, the task ahead is to run a new type of healthcare enterprise, called a "voluntary employee beneficiary association"(VEBA). GM's initial contribution of $30 billion to VEBA will keep it going for a while. But some VEBAs in other industries have failed. The UAW must show that a consumer-driven healthcare system can work by restraining costs, such as providing incentives for preventive healthcare.

Any success with this type of private healthcare could alter the debate over government versus private systems. The current dispute over increased federal funding for children's health in Washington would take the US further toward government-run care. But major Democratic presidential candidates have shifted to emphasizing private systems.

As UAW workers vote on this contract, they can set the pace for difficult reforms in the US economy and keep it a leader in a pivotal industry.