Big Three: What Would a Successful Negotiation With the UAW Look Like?

The three big Detroit automakers will seek unprecedented concessions from the United Auto Workers union [UAW] in contract negotiations, The Wall Street Journal reported in its online edition on Thursday, citing auto executives.

Source: Reuters, June 14, 2007

Thursday the Wall Street Journal put out an article talking about how the Big 3 automakers look for "unprecedented concessions." I thought it was interesting how the reporter (Jeff McCracken) cited Big 3 estimates that says the Big 3 pay UAW workers $70 to $75 an hour (when wage, health care and pension benefits factored in) versus the $40 to $45 Toyota (TM) and other Asian automakers reportedly spend (all in with benefits) at their U.S. plants on nonunion workers.

Next week I'm sure we'll be reading some rebuttal to the estimate of what it costs (all in) for Big 3 employees versus the Asian automakers. The UAW is likely to bring up the age difference for employees at Big 3 plants versus the transplants (Asian auto plants in the U.S.).

Since the Asian automakers have been in the U.S. a shorter period of time, they have a younger workforce and therefore should have lower pension and health care benefit expenses than the Big 3. In all fairness, it is an issue the transplants will similarly face 20 years from now.

Importantly, I don't want you to get caught up in the spin. It's going to get more "heated" as the summer progresses. Most of it tends to be just a lot of rhetoric.

To be honest, I'd almost like to see a strike. I know it sounds harsh and there would be serious financial and even future operating ramifications (as I discuss below). But remember, the Delphi workers kept threatening to strike a bankrupt company. And now on the eve (so to speak) of a resolution with workers, it seems like a lot of the Delphi problems were resolved by former parent General Motors (GM) stepping in and allowing things like "flow backs" (where workers could flow back to the parent).

So I don't care what the manufacturers claim after the negotiations are all said and done. I just think a strike would be a good sign that the manufacturers are serious about getting their cost structures in line.

What would be a successful negotiation?
I am hardly going to claim to be an expert in labor affairs. I don't know what a "successful" labor contract all entails. I only know that the current agreements don't allow GM, Ford (F), and Chrysler (DCX) to be competitive.

And I suspect this lack of competitiveness has less to do with the wage (and benefit) differential as the rhetoric will lead you to believe and more to do with the flexibility in the production of the vehicles itself.

Here is an interesting observation. In the Wall Street Journal article, Mr. McCracken said the Big 3 combined employ about 210,000 UAW workers versus 62,300 non union workers at Toyota and the other Asian manufacturers. But if you look at the Ward's data for May, it suggests the Asian Automakers commanded 41.6% share of the U.S. light vehicle market. The Big 3 (in May) according to Ward's controlled 52.8% market share.

So if I am reading this correctly, it means the Big 3 require 3.4x the number of workers at their plants versus the Asian plants (in the U.S.) to generate less than a third more market share.

How much would a strike cost?
I don't have a clue. But in a February 17, 2006 article in the Decatur Daily News, it said the GM strike in 1998 cost the automaker $1.6 billion over the course of 47 days. This works out to roughly $34 million a day.

And I don't think the losses at an automaker would be the half of it. The bulk of the industry's tier 2 and lower suppliers are either going through bankruptcy restructuring or darn near it. A shut down in production could very easily wipe out one or many of these critical suppliers.

So like I said, there are financial and even operating ramifications to keep in mind when I throw out a theory like "a strike might be nice."

Have a great weekend.

Comments

[dlj_canada:]

I'm a former member of Local 222 (Oshawa North Truck) and 379 (Shaw Street Massey Ferguson) of the, then, UAW (now CAW), and if I have an overwhelming feeling about these companies, it is of the incompetence of their management. Management as I saw it among the shop=floor supervisors, and management as I saw itself instantiated in the systems in the plants I worked in.

Later, in 1974, I visited the Toyoda City plants of Toyota Motor, courtesy of the State Department and the Japanese Minister of Technology. A vignette: since I and my friend Kent Smith, one of the main creators of the modern slim Canadian Tire, have always been inventory mavens, I asked my guide how much inventory they had on the floor in front of my eyes. He said "About four hours." The he slapped himself across the face and said "No, that's a lie. It's usually about six, and sometimes it's eight."

At Massey Ferguson they had only three levels of inventory: a stack of bins to the ceiling, two stacks of bins to the ceiling, and none at all so lets all run around in circles and whine.

Sadly, knowing the incompetence of the management of the North American majors a generation ago does not add up to a solution to today's problems. (After my visit to Toyota I wrote it all up for a friend at the National Academy of Engineering, and he circulated it widely. This means that I am possibly one of the hundred or so people responsible for America's faddish -- and somewhat useful -- attempt to bring in JIT, just-in-time, inventory control in the Eighties.)

Must auto-workers give some of it up? Well, yeah, probably. At least as long as there aren't hat many AMerican cars in the top half of the J.D. Powers reviews, and, importantly, as long as there are more American work-days in aq car than there are in the equally excellent Japanese or Korean products.

What everybody realy wants to see, though, at least in my humble opinion, is some real give back: Smith, the guy who f*ked up GM's $55 billion reconstruction probably still has his spare cottage, yacht, and Bohemian Club membership.

Seems to me that UAW give-backs should be predicated on a few of the guys **really** responsible for the disaster giving up their pensions, their perks, their ripped-off pelf.

Retired auto workers should live in little cottages on $25,000 a year when retired GM executives live in back alley garages in Sterling Heights, and save up for big dates with their wives at the Dairy Queen, on $25,000 a year.


Meself, I drive Hondas.

2007 Jun 16 09:54 PM

[icebergison...:]

I used to be a member of Local 588 in Chicago Heights, Illinois. I used to work for Ford in their Chicago Height's Stamping Plant. I left with the buyout last December. I took the two year schooling program. Those figures you placed about the disparity between domestics and foreign companies are correct. The UAW is going to have to come off of a lot of things this contract. Things like FMLA were so abused during my tenure there. People just up and decide that they didn't want to work, just use FMLA. We stayed working overtime because people viewed their job as a right and not as a privilege. Don Deel Jr. was our union leader for most of the time I was there and he was clearly doing it for the money and perks. His heart wasn't in it. Things start going bad, he's handing out cups, t-shirts, and coats, but issues were rarely ever resolved. On occasion, they would round up everyone from a shift and we would go to the loading dock for a meeting. Tell us the state of the company, how bad we are doing, etc.. Almost 100% of out of hourly's hands because of poor management decisions. That was another problem there. Way too many people held positions that they were in no way, shape, or form, qualified for. The whole operation was flawed there. People never read the writing on the wall. I re-enrolled myself back into school shortly after we started the ramp up for the Five Hundred and Freestyle there. It was made very clear that if this car didn't move units, your job is in jeopardy. Not to mention the Fusion was right around the corner. They are playing us $26.45 an hour while giving the Mexican worker $2 an hour for making the Fusion. You already know which vehicle Ford is going to get behind as far as sales. Just like they are making that subcompact car in Brazil, being able to enjoy prosperity in manufacturing in this country is gone for the hourly worker. My ex co-workers are going to find that out the hard way.

2007 Jun 18 12:52 AM