Much remains to be learned about the deals the United Auto Workers (UAW) reached with Daimler/Chrysler, Ford and General Motors. But early indications are that UAW President Ron Gettelfinger has, at least for the time being, abandoned the usual procedure of negotiating with one company first, then forcing the other two to accept similar terms.
This was, no doubt, a difficult decision to make. But it was probably the right one for the long-term health of the UAW, as well as for all three of Detroit’s automakers. By simultaneously negotiating with all three companies, Gettelfinger demonstrated the sort of economic savvy the union movement desperately needs to develop if it is to regain its influence in American workplaces.
The old method of "pattern bargaining" evolved at a time when Detroit, for all intents and purposes, "owned" the domestic automobile market. Representing virtually every blue-collar worker in the entire American automobile industry, the UAW was in a position to protect those workers from competitive pressure by negotiating similar contracts with all automakers.
But new competitors have become a permanent part of the American automotive marketplace. These "foreign" competitors — BMW, Toyota, and Mazda — have in effect become domestic automakers now, producing cars in factories throughout the American South. Employees of these "transplant" facilities have declined UAW representation so far, and all signs are that this is unlikely to change. UAW officials are entitled to question the wisdom of workers who have shown little enthusiasm for union membership, but the loss of their near monopoly in automobile labor is a reality with which they must deal. As a result, workers at the Big Three have non-union competitors they did not have back in Detroit’s glory days in the 1950s, 60s and 70s.
Failure to anticipate the impact of new competitors led to costly contract terms that put the Big Three at a disadvantage. On average, labor costs are $1,000 per vehicle higher for the Big Three than their transplant competitors. By abandoning the usual bargaining procedure, Ron Gettelfinger gave himself and the companies whose labor forces he represents room to address each automaker’s individual weaknesses and narrow the labor-cost gap.
For example, if Daimler Chrysler is permitted to sell seven parts plants, as has been reported under the new UAW deal, the company will be able to buy cheaper parts from other suppliers, at lower costs. Ford may be allowed to shut down four assembly plants — a big step in reducing excess production capacity, which would allow the company to retrench and concentrate on building more popular and profitable models. Pensions payments to retirees reportedly will grow at a more modest rate. All of these provisions are important for the Big Three to remain competitive. The fact that they may come to pass indicates that UAW leaders are beginning to understand that future jobs depend upon such competitiveness.
While these concessions are a good start, major challenges remain for future contracts. Health care and pensions will continue to be major cost disadvantages for the Big Three, with their older work forces and huge numbers of retirees. General Motors is in the worst shape, with over $35 billion more in pension obligations than in assets. In the long run, the only way to overcome these problems is by cutting costs and becoming more profitable. Neither will be possible without UAW cooperation.
It’s important for Michigan voters and policy-makers to remember that unions, in-and-of-themselves, don’t provide workers with jobs or incomes. Investors and entrepreneurs — the people who start and finance industries — provide the work and compensation people need to make homes for themselves, raise families and live productive lives. In fact the experience of workers in transplant facilities, who earn as much as $70,000 with bonuses and overtime, shows that auto workers can do reasonably well without a union at all.
Workers gain nothing from union leaders who denounce all but the most meager profits as a form of theft. Such hotheaded rhetoric only leads investors and entrepreneurs to set up shop elsewhere. Workers can truly gain only if they elect representatives with a thorough understanding of their industry and of the economy. Such are the only union leaders who can get the best deal possible for the workers they represent.
# # #
Note: Paul Kersey is labor research associate and Kent Davis is senior advisor for science, environment and technology issues for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
Please consider contributing to our work to advance a freer and more prosperous state.