2019 Talks - UAW and DETROIT 3

WHAT’S AT STAKE? THE 2019 TALKS BETWEEN THE UAW AND DETROIT 3

In mid-July 2019, the United Auto Workers (UAW) and Detroit 3 manufacturers opened the talks to renew the contract set to expire on September 14^th.  The opening statements of the parties’ respective leaders reflected the gravity of the talks.  UAW President Gary Jones set the tone in his opening statement at the kickoff with GM:

So, today I come with a message from my UAW Brothers and Sisters.

From the men and women who built the products that gave GM record-setting profits for the past years.

In fact, GM is the most profitable of the Big 3 in North America since the 2015 contract negotiations.

That message, which I have heard … loud and clear from our members is:

JUST AS THE UAW’S WORKERS HAVE BEEN THERE FOR GM, OUR UAW BARGAINING TEAM IS CHARGED WITH MAKING SURE THAT GM WILL BE THERE FOR THEM.

We all know that we have seen a Race to the Bottom over the past several years for working men and women in this country.

Cuts in benefits, retirement security in jeopardy, job loss, wage loss, more and more temporary workers, shipping our jobs to Mexico and China. And outsourcing our? ?good General Motors jobs to other companies paying lower wages in the United States.

So, what I want to say today and what I want GM’s leadership to hear is: With this year’s negotiations, we will halt that Race to the Bottom.

We will protect this workforce, their jobs and their way of life.

These ongoing negotiations will heat up right after Labor Day when the union announces its “target,” or which one of the trio of General Motors (GM), Ford, and FCA it plans to hold the next stretch of bargaining to set a pattern. The stakes for both parties are very high.  UAW members have high expectations for more gains to add to the 2015 bargain, and the leadership has faced additional pressure due to continuing revelations of a widening scandal among top union officers at FCA and GM.  The companies face challenges on the technology, cost, and demand fronts, with an escalating need to find capital to invest in the future.  Many observers believe these competing pressures make a strike distinctly possible.

I review the interests and needs of the parties in the context of a rapidly changing and uncertain industry, speculating on what might unfold.

The Industry

As a group, the Detroit 3 have generated more than $60 billion in net income between 2015 and 2018, though performance has varied widely across years and companies. In 2018, the companies’ net margins ranged from 2.29 (Ford) to 5.50 (FCA).  Auto sales (of all motor vehicles) peaked at over 17.8 million in 2015 but have dropped to roughly 17.3 million in 2017 and 2018.  Some analysts have predicted fewer sales in 2019. 

Employment in the industry has risen since its steep drop in the Great Recession, though it has not climbed to earlier levels.  For example, the number of hourly workers at Ford has increased from about 40,000 in 2009 to over 55,500 in 2018, but it is still much lower than the 90,000 in 2004. 

Labor costs for the U.S. auto companies are still high compared to the transplants.  At Ford, for example, the hourly labor costs are $61 compared to about $50 for the transplants.  Transplants employ more temporary workers and incur lower healthcare costs.  Again at Ford, the employer pays for 97 percent of the hourly employees’ healthcare costs, compared to 67 percent among automobile and transportation equipment manufacturers generally in the U.S.

In the 2015 negotiations, the UAW won sizable wage increases for its employees and a schedule to collapse the two-tier wage structure.  It also received commitments to invest in U.S. production.  Ford alone committed to invest $9 billion in U.S. facilities and create or retain 8,500 hourly workers, a commitment it has exceeded. 

While the industry picture is clearly brighter today than it was in the midst of the last recession when two companies were in bankruptcy and the third was fully leveraged.  [Ford’s current debt to equity ratio is 429 and GM’s is 270.] Both companies have unveiled restructuring plans entailing either layoffs or plant closures.  General Motors, for example, announced plans to lay off about 15 percent of its salaried workforce and close five plants in the U.S. and Canada, including ones in Warren, Michigan and Detroit-Hamtramck. It explained this decision in a November 26, 2018 statement on its accelerated transformation plan:

GM is continuing to take proactive steps to improve overall business performance including the reorganization of its global product development staffs, the realignment of its manufacturing capacity and a reduction of salaried workforce. These actions are expected to increase annual adjusted automotive free cash flow by $6 billion by year-end 2020 on a run-rate basis.

“The actions we are taking today continue our transformation to be highly agile, resilient and profitable, while giving us the flexibility to invest in the future,” said GM Chairman and CEO Mary Barra. “We recognize the need to stay in front of changing market conditions and customer preferences to position our company for long-term success.”

At the same time, FCA has committed to create about 5,000 jobs in a Jeep assembly plant on Mack Avenue in Detroit.  Each of the Detroit 3 needs more capital to invest in electrification and autonomous vehicles.  This pressure will only intensify as global competitors move aggressively in similar directions.

The Issues

From the UAW’s perspective, the key issues are:

·      Preserving healthcare benefits for current employees;

·      Accelerating the pace at which “in progression” workers reach the top wage rate (at Ford, 34 percent of the hourly workforce is “in progression” compared to 43 percent of which is “legacy”);

·      Securing an across-the-board wage increase;

·      Maintaining profit-sharing and bonuses (at Ford, for example, bonuses and profit sharing totaled about $54,700 for legacy workers and nearly $50,000 for in-progression workers between 2015 and 2018);

·      Ensuring that the companies commit to significant product development investments in the U.S. resulting in job increases and protections;

·      Restraining the use of temporary workers; and

·      Providing adequate training so workers are capable of adjusting to changing technologies and manufacturing processes.

The companies want:

·      An agile and increasingly skilled workforce;

·      A more competitive position on labor costs generally and healthcare specifically;

·      The continuing rationalization of its plant footprint to shed excess capacity;

·      More resources to invest in technology and product development; and

·      A healthier and more productive workforce.

What Will Happen?

I am going to stick my neck out and venture that GM will be the target.  GM has been the most profitable and clearest in its transformational plan.  It has also generated unfavorable publicity and animosity among workers through its announced intentions to close facilities (recognizing of course that good faith efforts have been made to relocate displaced workers and that talks are underway for another company to buy the Lordstown plant). 

The UAW-GM talks will be difficult, with a strike likely.  If one occurs, it will be targeted to a set of key facilities, like in the 1998 strike.  Such a strike, if protracted, could have a deleterious impact on the company and its supplier base, as well as the UAW and its members.

The Elephant in the Room

The elephant in the room that nobody in officialdom on either side wants to talk about is whether the scandals involving union UAW leaders at FCA and GM (and corporate executives at FCA) will affect the negotiations.  In the case of FCA and the UAW, neither side is unblemished.  The current convictions and allegations of wrongdoing involving malfeasance in the use of “joint training” funds, the shaking down of vendors for kickbacks, and questionable practices involving discretionary funds made available to certain union leaders leave a dark cloud over the UAW.  Will this affect negotiations? 

There will clearly be an indirect effect to the extent that UAW members’ expectations and trust in their leadership are affected.  A realistic assumption is that concerned members will be watching the negotiations carefully for any evidence of a “sell out.”  They will expect the leadership to negotiate a good contract that protects workers’ interests.  Leaders, in turn, will want to strive hard to meet those expectations, knowing that they are being widely and intently monitored in the talks.

Two dangers loom in these talks.  The first is one of unrealistic expectations.  Hopefully, the parties have been sharing information about their respective concerns and interests so that there is a clear understanding of the state of the industry and the companies’ positions within it.  A second danger is one of miscalculation.  If either party overestimates its power and pushes too hard, a strike could be either difficult to prevent or settle before having done significant damage.  In 1998, the 54-day strike at selected GM sites cost the company about $2.3 billion in profit. 

While at the negotiating table, it is important for both parties to focus like laser beams on how they can balance their current interests while protecting their longer-term capacities to operate effectively.  No one benefits from unrealistic expectations, miscalculations, or histrionics. 

*Marick F. Masters is a Professor of Business and Adjunct Professor of Political Science at Wayne State University, where he served for nearly 11 years as Director of Labor@Wayne and the Douglas A. Fraser Center for Workplace Issues. He is also a senior partner in the consulting firm of AIM Consulting at http://aimconsultants.com/.