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As Big 3 skid, UAW braces for inevitable world of pain
BARRIE McKENNA, From Friday's Globe and Mail




Washington — North American auto workers may want to look in the rear-view mirror for a glimpse of the future.

It isn't pretty. Over the past decade, workers in the steel and airline industries have endured a devastating cycle of concessions, bankruptcies and layoffs.

Tens of thousands of jobs have vanished and generations of retirees have lost their pensions and health care benefits.

Now, the same grim fate may be in store for the United Auto Workers and its more than a million active members and retirees, according to analysts and labour officials.

This month's bankruptcy filing by auto parts maker Delphi Corp. and the worsening financial health of General Motors Corp. and Ford Motor Co. is forcing unionized workers to ponder a future of wage cuts, plant closings and an end to generous pensions and benefits.

"This is a defining moment for the UAW," said Leo Troy, a labour economist at Rutgers University in Newark, N.J.

"The labour market is catching up to economic facts."

The best-case scenario for the UAW is to deal away decades of hard-won benefits to save jobs and help stanch the bleeding at the Big Three U.S. auto makers.

Earlier this week, GM and the UAW struck a deal to slash the auto maker's health care costs by $3-billion (U.S.) a year, effectively reopening a contract that doesn't expire until 2007.

Even then, GM and Ford almost certainly will need to secure even more painful cuts from workers in the months ahead to ensure their survival, experts said.

If GM and Ford later file for Chapter 11 bankruptcy protection, decades of accumulated wages and benefits could be wiped out.

"There are some very hard choices and no easy answers," agreed Harley Shaiken, a labour expert and professor at the University of California-Berkeley. "This is a long way from over."

The crux of the problem is that Ford and GM, along with major parts suppliers such as Delphi, have fallen out of step with an increasingly low-cost and global industry, dominated by largely non-union companies such as Toyota. GM, which this week reported a $1.6-billion third-quarter loss, is now losing more than $1,000 for every car it sells. Industry executives and Wall Street analysts have pointed the finger of blame at so-called "legacy" costs, including tens of billions of dollars in long-term pension and health obligations. The dilemma for GM is that it has 2.5 retirees for every working employee. GM may also be liable for a $12-billion chunk of Delphi's pension and health obligations because of a deal it struck in 1999, when it spun off its largest parts supplier.

GM has estimated that its pay and benefits cost it an average of $78 an hour.

The downside pain for workers is huge. Delphi wants to cut the compensation (pay and benefits) of its younger workers by more than two-thirds -- to $20 an hour from the current $65. Pay alone could fall to $10 an hour from $27.

It isn't yet clear what kind of a hit GM workers will have to take as a result of this week's deal.

Adhering to a tradition of pattern bargaining, Ford and DaimlerChrysler AG are widely expected to also seek major concessions.

Experts differ on who's to blame for Ford and GM's failure to stay competitive with its rivals.

A top official at a major labour federation said attacking legacy costs is just a smokescreen for reneging on commitments to workers.

"What you're seeing in a lot of these industries is the Wal-Mart business model of low wages and no health care," the official said.

"A lot of these companies will use their troubles as a hammer to force very Draconian changes they know they wouldn't otherwise get in an honest bargaining process. Then, they go to bankruptcy court and put their obligations in a paper shredder."

Similarly, the UAW isn't responsible for the business blunders that helped get GM in trouble, such as making flops like the Pontiac Aztek or opting to buy truck maker Hummer instead of investing in hybrids, Prof. Shaiken pointed out.

"It isn't just legacy costs," he said. "GM's core problem is that it's building cars people don't want to buy."

But Peter Morici, a business professor at the University of Maryland and an expert on the steel and auto industries, said the UAW was "complicit" in letting costs spiral out of control at GM and Ford.

"The UAW agreed to deals they knew the auto makers couldn't afford." He said. "[UAW president Ron] Gettelfinger bears considerable responsibility for this mess. Unions are in the business of representing workers but they haven't done a very good job of helping workers face up to economic realties."

 

Similarly, the UAW isn't responsible for the business blunders that helped get GM in trouble, such as making flops like the Pontiac Aztek or opting to buy truck maker Hummer instead of investing in hybrids, Prof. Shaiken pointed out.

"It isn't just legacy costs," he said. "GM's core problem is that it's building cars people don't want to buy."

While the aztek was an obvious flop the new Hummer H3 has been selling very well.

GM needs to do reduce its brands to only having 2-3 cars and/or trucks each with Chevy being the only exception.

 

Regarding the excerpt that johnsocal quoted: Aztek was a flop, I suppose. Of course, it was unfairly criticized by the media, imo - owners love them. As a vehicle, they are quite competent and useful. Why are the also useful but horribly ugly Honda Element or less useful and horribly ugly Scion xB not treated as the whipping boy for ugly like the Aztek was? I swear, the stupid journalists will home in on an easy target and then jump on the bandwagon...but we've talked about "bias" enough around here, so let's forget I said that.

Anyway, I love how this "Prof. Shaiken" implies that buying Hummer and investing in hybrids was an "either/or" decision. It is a false choice. GM bought Hummer AND has invested in hybrids. And so far the Hummer name has been fairly successful.

 

Unfortunately people in the US have a fascination with Foreign made products. I don't understand it.

Domestic manufacturers have something that's called a cost "uncompetitiveness" due to higher wages, etc...

It's either protectionalism (which will fail) or a global economy and ultimately a global currency. But that would just throw some underdeveloped countries into immediate poverty.

Whoever can come up with a solution to this worldwide problem will be a very important man in the history books thats for sure.

EDIT: On a side note, Europe has this same exact problem. There's only 1 steel mill left in Germany (Thyssen Krupp). And it's actually worse there then here. But we're slowly catching up.

 

Why does protectionism fail?

 

Any major form of protectionism would fail both politically and economically at this time. There just not enough support from businesses (big and small) and politicans (left or right) to ever make it law.

The only way America would become more isolationatist would be if the world economy entered into a economic depression and Americans realized that bringing all the jobs back home would stimulate our economy better by giving Americans manufacturing jobs. The only way the world would enter into a economic depression is if it were led by a US economic depression and not vice-versa.

The negative to this is that Americans are addicted to cheap foriegn goods and any protectionist policy would cause those same foreign goods to become more expensive. Unfortunately the average American would suffer because they would have to pay more for that same item (INFLATION!!) and this would cause them to have less money for other things.

It would take something drastic (major terrorist attack, 8.0+ Earthquake in Calif*, etc) to cause our economy to collapse and get America to adopt a protectionist policy and it won't happen at the US's current 5% unemployment rate.

* California is the worlds 6th largest economy and its Pacific ports are where most Chinese and other Asian imported items are brought into America.

 

Protectionalism = USSR.

 

Simple question...
How many of these people who are getting wages cut to $10/hr will be buying "New" Cars in the next few years??
They again, have effectively shrank the pie just a little more.........

We ARE ALL interdependant, we can't continue to toss aside our workforce with NO thought of consequence.
This kind of economics is suicide...

 

Yea, thats the oldest trick in the book. It was a big deal when Henry Ford called for a $5 work day (I think thats how much). Made the workers happy, and it gave him more consumers.

 

Unfortunately its the american worker in general that chooses to buy foreign cars over domestic. This is what leads to the wage cuts and further alienates the workers from buying there own goods.

We basically just need more pride in America and realizing your last point. I do think "tossing aside our workforce" is a concequence of the american publics descisions to buy foreign products. We are all interdependant. If your friend owns a store down the street you would buy from him even if his prices were a little higher and if he can support your buisness then he will do the same. The problem is people don't realize that when they decide to buy forein made products they are putting their friend out of buisness.

My dad had a professor in graduate school that said "The single greatest effect you will have on the United States will not be who you vote for in any election, but what car you buy". Explaining he said "the United States is so dependant on it's automotive industry, not just through the manufacturers but through the supplyers and everyone else that is involved in bringing you that automobile, that as the U.S. auto industry goes so goes America."

Good quote. My dad has never bought a forein vehicle and I don't ever plan on it.

 

So out of those 24,000 Delphi workers that are facing wage cuts, how many buy a new car every year? How many of them buy a domestic car? Let's see, this might cause the big-3 to lose, oh, 10,000 sales per year at the very most.

Yes I know there are ripple effects throughout the economy. But using this argument as a reason to not reduce wages is ridiculous. A company would never gain enough in sales and profits to offset the higher wages.

 

...although the argument is not that simple. By paying workers more, you won't necessarily gain enough sales and profits to offset the higher wages directly. But these people that you are paying higher wages for are also buying more things in general, which allows other companies to make more money, which allows more people to be employed which increases sales to the original company...

These wage cuts are not going to be isolated, and they aren't going to just effect GM.

 

I can't help but feel that if Toyota/Honda made the Aztek, it would have been a success. It is far more pleasing to the eye than the disaster that is the Honda Element... or whatever it's called. Saw quite a few of those in the US last time I was there.

There has to be a psychological shift away from Japanese vehicles if the big 3 are to reverse their fortunes. The Big 3 need a marketing campaign that works... to convince people that American cars are made for American people.

 

Allowing your workers to earn significantly more than the work they put in is worth is economical suicide as well. Its a fact that if the same work can be done cheaper elsewhere, it WILL be done elsewhere.

The only way out I see for the UAW is a change in their core philosophy, to support the company on quality and efficiency. If union bosses continue to tell the rank and file that they'll get this all worked out with negotiations, Im afraid their days are numbered.

 

Has anyone in America ever considered that just maybe,... some of the auto makers woes are self inflicted by the way management runs the plant? I work at the Hummer H2 plant in the maintenance department. I see WASTE and WASTEFUL DECISIONS every day. We call this stuff to management's attention and it falls on deaf ears. America, please don't blame the UAW for all of the Big 3's problems. It's not all about wages and benefits.