UAW Hopes, But Can't Go Back to the Future

By Dale Buss March 21, 2011

Future of the UAW.jpg

Since the United Auto Workers and the Detroit Three car makers last came up with a national labor agreement in 2007, the Great Recession has come and gone, and General Motors and Chrysler have become wards of the state. Also consider:

- Via its pension trusts, the union actually owns big stakes in GM and Chrysler – and agreed not to strike either company as a condition of the bailouts

- The UAW’s wage and benefit concessions have made it possible for the Big Three to manufacture small cars profitably in the United States

- The union has a new president, while two of the three companies have new CEOs

- The union is making another stab at organizing foreign-owned “transplants” in this country though it has failed to crack them for 30 years.

All of those monumental developments have left the future unclear as the UAW opens an internal convention tomorrow in Detroit to discuss forging new labor agreements with GM, Ford and Chrysler that are supposed to be concluded by mid-September.

UAW chart.pngThe only obvious thing is that UAW President Bob King presides over an organization much weaker than it was even four years ago, and with less than one-quarter of its peak membership of 1.5 million in 1979. And the union’s fundamentally degraded position – though influenced by all these other factors -- is likely to determine the course of bargaining over the next several months.

“I don’t see any way that the union can go back to where it was, with the the inflexibility of the contracts in terms of compensation and work rules,” said David Leiker, automotive analyst for Baird & Co., a Milwaukee-based securities firm. “If the industry does, it’ll start the kind of downward spiral again that it just got itself out of.”

UAW leaders “understand that the union’s future is tied to the future success of the industry,” observed David Cole, chairman emeritus of the Center for Automotive Research. “The union as an [entity] is not very strong.”

Sharing the Risk
The most likely course for the union and Big Three is to strengthen the profit-sharing programs that have been part of the compensation of the –rank-and-file for several years but have always been far less important than advances in basic wages and benefits. Tying more UAW compensation to growth and profitability of the companies would allow the 107,000 hourly employees to share in the rebirth they’ve helped create without re-saddling the Big Three with the threat of higher fixed labor costs of the sort that led to the demise of GM and Chrysler in the first place.

“There’s more UAW interest in profit-sharing than ever before, because they know they won’t get those old wages and benefits back,” said Ron Harbour, partner in charge of the North American automotive business of Oliver Wyman, a manufacturing-consulting firm.

GM CEO Dan Akerson recently remarked that the company would like to tie workers’ further gains to improving corporate quality and productivity. Despite the fact that Akerson was an industry outsider until he became chief last year, there is significance in his comment.

“This is different from any past negotiation,” Cole said. GM executives “never would have said this without a prior discussion with the UAW; they meet regularly anyway.” And indeed, on the other side of the table, King has said he’s open to new forms of profit sharing. One idea would be a two-part bonus, one of which could be paid in the fall as a “signing” bonus that would help lure rank-and-file workers to approve whatever new contracts emerge.

Any new profit-sharing provisions would have to present the significant potential for larger payback than current programs. Ford soon will pay hourly bonuses averaging $5,000 even under the existing profit-sharing program, while GM’s indicated payout is about $4,300, and Chrysler’s, about $750. Meanwhile, Big Three salaried workers get 10 to 15 percent of their pay in bonuses. And up to 40 percent of the compensation of Japanese production workers is contingent.

UAW President Bob King.jpg

Reason to Push Back
Yet King (above) has said that American workers must be rewarded for the $7,000 to $30,000 apiece they have given up in raises, bonuses and cost-of-living adjustments since 2005 to help the Big Three survive. The sacrifices helped GM achieve an average labor cost of $58.15 an hour last year, just $2 more than Toyota’s cost, according to the Ann Arbor, Mich.-based Center for Automotive Research.

Still, many workers will be pressing for restoration of economic milestones they can “count on” rather than indeterminate future rewards that will be iffy at best, given the instability in the global automotive market these days.

“Members may push heavily to increase their wages and benefits,” said Mike Smith, a labor historian at Wayne State University in Detroit. “And King faces some internal pressures to do that – plus, he doesn’t have the sense of crisis that Ron Gettelfinger had that would help him accommodate the automakers” as the former UAW president did in 2009 in gaining his members’ agreement to the concessions that helped the Big Three survive the Great Recession.

Workers also tend to view profits, understandably, as something that companies create rather than as chunks of compensation that union bosses deliver to their members. In that regard, King has to be careful not to undermine the UAW’s raison d’etre. Yet King and his bargaining team may bring what amounts to a big bark without the capacity to deliver a commensurate bite.

“Without the ability to threaten a strike” at GM and Ford, King “is left with the ability to talk but without the ability to get much in the way of clawing back concessions that they made during bankruptcy,” said Gary Klotz, a labor attorney at Detroit-based Butzel & Long and analyst of the UAW.

Multiple Dynamics
Other factors influencing the outcome of the talks will be:

Economic uncertainties: Despite big recent gains in profitability and a return to growth by the market, the U.S. auto industry remains in a deep hole compared with four years ago. Sales this year are expected to be only 13 million to 13.5 million units, still well below units below the 16.1 million units in 2007. Higher gasoline prices remain a specter. And for the Big Three, there are even more capable competitors – think Hyundai and Audi – than there were four years ago, despite the fact that Toyota and Honda have fallen back somewhat.

Executive bonuses: This spring has seen the return of outsized executive bonuses to the Big Three after a few years of understandably flat compensation, most notably the $56.5-million stock award just granted by Ford to CEO Alan Mulally. Such huge awards have long been a favorite whipping boy of union leaders in advance of national talks. And this time around, the UAW has in its corner an Obama administration that has demonstrated no shyness about jawboning corporate fat-cats if their union allies could benefit from the rhetoric.

But at the same time, King hasn’t yet made a big deal of the bonuses. Either he apparently doesn’t believe such criticism would be helpful; or King figures to simply remind company negotiators that UAW members deserve the potential for huge payouts at their level – or he’s keeping his powder dry for now.

Two-tier wages: It was anathema to the UAW to allow two-tier wages before the union finally agreed in 2007. Under the provision, the Big Three could hire new hourly workers at total hourly compensation roughly half that of so-called “legacy” workers – up to 20 percent of its total workforce. So far, the provision has had little practical effect because each of the companies still has huge rosters of idled workers who are eligible to be called back at their prevailing traditional wages.

But two-tier wages are beginning to appear. At GM’s Orion Township, Mich., assembly plant, for instance, the UAW local agreed to a raft of significant changes in order to cut the costs of manufacturing a new Chevrolet Aveo subcompact so that it could be profitable. Among other things, the union agreed that 40 percent of the workers who build Aveo will receive the second tier – even those who were on layoff.

And over the next few years, as rank-and-file retirements continue and the industry recovery strengthens, Harbour expects second-tier hiring to become a bigger factor in the dynamic between the UAW and the companies. For that reason, it could emerge as a bargaining chip this fall. “You might have the companies push for more than 20 percent but agree not to do so if the union would agree not to push for compensation that makes the companies non-competitive,” Harbour said.

UAW’s ownership stakes: Under the bailout packages for GM and Chrysler, the union’s pension trusts picked up huge chunks of ownership in each company. The UAW stands to gain financially as those stakes are transformed into shares in public stock offerings such as the “new” GM’s $22-billion IPO last fall. The union trust for Chrysler will own about two-thirds of the company’s shares as it goes public again. “So if the union strikes a bad deal with Chrysler this time, and it drives the share price down because the stock market perceives it as a bad deal, the union has just hurt itself,” Harbour said. “The union has never been in that position before.”

Still, having this kind of investment in the continued financial success of the companies isn’t expected to register significantly with the union’s rank-and-file, who will be much more concerned about individual compensation. So it isn’t likely to temper their demands. “The union wants to move away from that because there’s an inherent philosophical conflict when you own part of the company,” Smith said. “The tradition has been, ‘Give us hourly wage increases.’”

“Transplant” organizing: King’s first major pronouncement upon taking the job last fall was that the UAW would be attempting a large-scale organization of foreign-owned auto-assembly operations in the United States for the first time in decades. The goal makes sense for an organization which still faces existential issues. “If the UAW is going to re-grow, it’s not doing to do so at the domestic three,” Cole said. “There will only ever be small re-growth of employment there.”

Yet King faces a dilemma. He has enunciated some principles that foreign automakers must meet or risk being targeted, including “no disparaging” of the union and the provision of “secret-ballot” elections. Because these measures naturally they would tilt the playing field in the UAW’s favor, both Honda and Toyota already effectively have rejected the union’s overtures for compliance. Meanwhile, most workers at the “transplants” remain disinclined to favor unions in part because they get basically the same compensation levels as UAW members already.

And if the union ever hopes to get any kind of cooperation by any of these automakers, King “has to create a much less militant face than historically the UAW has had,” Cole said. King has noted the union’s gains in cooperation with the Big Three over the last few years, but a reasonable labor agreement with them this fall could advance his case with foreign-brand executives even more.

In any event, few expect King’s drive to bear much fruit for the UAW where it hasn’t harvested any for a quarter-century, since the union reportedly came close to getting a vote at Honda’s Ohio operations.

The union’s best hope might be to target Korean-owned U.S. plants, where experts say workers don’t get gold-standard treatment as they do at Japanese plants. Or, King could focus on U.S. plants operated by BMW, Mercedes-Benz and Volkswagen, because the powerful trade unions in Germany might support UAW organizing efforts there by leveraging their influence with the auto makers.

Another possibility is that the UAW actually is more interested in conducting a “corporate campaign” against foreign auto companies because King recognizes the probable futility of trying to organize their s workers. The union could use the companies’ non-compliance with its “fairness principles” to try to force their hand through public relations.

“They have a more widely dispersed group of allies in the community than they would have had thirty years ago,” when corporate campaigns remained a relatively untested union tactic, Klotz said. “They’ve got various interest groups, environmental groups, community activists, Democrats, and church-related groups that they can draw on for support if they want to make the case that these companies are anti-democratic.”

The Wisconsin idea: If you believe UAW leaders, the public-union unrest in Wisconsin, Michigan and elsewhere will help rally not only auto workers but also millions of middle-class Americans to the union’s own cause. Some UAW officials lately have been sporting red shirts – to match the University of Wisconsin teams’ colors – as a way of demonstrating opposition to the “Wisconsin idea” for balancing budget deficits on the backs of teachers and other public-sector workers.

Only about one-third of UAW members are auto workers any more. A huge portion of them now are direct state employees, especially in Michigan, including staffers at colleges and universities, and workers at health-care organizations and even casinos. “It’s a moment in time where the UAW might be able to rally its own forces and also more of the general populace to support the goals of the labor movement,” Smith said.

On the other hand, tying its goals at the auto-bargaining table with some general notion of American labor resurgence might not fly. The reality is that the situation of public-sector workers probably will be relegated to a point of rhetoric. “Unions aren’t in a position of favor with the American public as they once were, and as a consequence, it’s just a different world they’re working in,” Cole said.

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