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Tuesday, October 25, 2005

The Turning Point

GM's recent deal with the UAW, and Delphi's looming battle may mark the turning point for unionized industrial labor in the U.S. This will be a turn towards the iceberg, not away from it.

Once upon a time, not too long ago, a high school graduate could go to a plant, and through luck or nepotism, get a union job on the assembly line. With little education, and few skills, that worker could make a nice middle class wage, with generous benefits, and excellent job security. A skilled worker, such as an electrician, could make as much money as an engineer or manager, with overtime.

The problem with this system is that it out-paced the labor market in general. In non-union factories, pay and benefits are lower than UAW plants. At automotive assembly plants, the wages are similar, but other aspects are dramatically different. For example, non-union assembly plants don't give their workers as much rest time each day. Non-union workers are paid through investment type retirement plans. Healthcare arrangements are much less generous. These differences alone amount to a huge pile of money.

But the biggest difference is flexibility for the employer. A non-union shop can shrink its workforce if it needs to at any time. A poorly performing worker can be fired, rather than just reprimanded. Strict work rules are not enforced, which require workers with certain classifications to perform only the tasks those trades have been assigned. (Just try to go into a UAW plant and re-solder a broken wire, if you are an engineer!)

Because of this flexibility, workers are highly motivated to keep their jobs, and absenteeism is low. In UAW plants, absent workers cost companies millions of dollars each year. In non-unionized plants, quality tends to be higher, or perhaps more easily attained, because of better motivation.

Like anything else in a market system, if a commodity becomes too dear, market forces rise to correct the imbalance. Except in the case of companies like GM, Ford, Delphi, and Visteon, the market forces don't operate on the UAW directly, instead they work to squash the company*.

What can the UAW do to maintain its position? Strike? If the employer goes bankrupt, the UAW has no bargaining position. Either the UAW gives concessions, or the UAW is forced to accept less. Either way, the days of milk and honey are over. The UAW will have to decide between protecting current workers, and protecting retirees. Between keeping more benefits for fewer workers, or keeping more jobs with fewer benefits.

Can the UAW rely on the U.S. Government to save them? So far, I have not heard of any likely plan that is bold enough, or any bold plan that is likely. The government won't raise tariffs, not as long as Republicans or centrist Democrats run the show. The government won't create socialized medicine, to remove the healthcare burden from the corporations. The government doesn't even appear to be willing to go to the mat with Japan and China for their currency policies.

Don't get me wrong, I do not wish any harm to the UAW workers. They are decent people who want to make a good living doing honest work. But I do think that reality has caught up to the UAW. That reality is that working class folks with a highschool education and no specialized skills are no longer valued at $23/hr, with full health coverage, 67 paid holidays, near-bulletproof job security, and a generous retirement plan. For comparison, a pest control tech (exterminator) makes about $13/hr, and this is not an unskilled profession.

As the UAW loses bargaining power, and its members lose buying power, Michigan's economy will slow down even further. Many workers will leave the Midwest for warmer economic climates. Real estate values will be hurt, local government tax revenues will be hurt, and the numerous small businesses that cater to the UAW workers will be hurt.

In this way, when the UAW loses, we all lose.

*Update: I don't mean to say that the American automakers are losing because of the UAW. If GM had maintained or increased its marketshare, the UAW benefits would not be such an issue. GM and Ford did it to themselves through poor strategy, poor quality, and timid design.

*Update: As BigFordFan points out, the 67 holidays are over 4 years; the UAW is actually getting ~17 paid holidays per year. However, this is still significantly more than the average 11 days per year that most people get.

12 comments:

John B said...

When the collective agreement adds "a local Election Day holiday on Nov. 8, 2005, and retains the two national Election Days negotiated in the last agreement" then you know the UAW and its members have jumped the shark.

Years ago I met a manager (employee relations) in a Ford plant in Windsor. The stories he told regarding union members ducking responsibility and abusing collective agreements. This would be the CAW but I'm sure the same attitude applies to the UAW.

Anonymous said...

I think there is an important new development which has begun to make the union somewhat obsolete: the lawyer. Back in the day, H. Ford could abuse workers and those people suffered. Today, the workers have access to open-minded lawyers and progressive laws. Harassment, abuse, etc., can easily be reprimanded by competent counsel, tribune, and media.

Worker abuse is dying. So are unions.

Anonymous said...

Here's some abstract thinking for you:

The American corporation is bad at vertical organization. We're just too individualistic to be good at it. We never should have been the best at making cars. But we bombed the hell out of the people who are good at it in the 1940s, and as such, we amassed a huge lead in the market.

And the union did it's part to capitalize.

Now, the world market is correcting. Americans car manufacturers are being relegated to their rightful place as niche players. The cultures which do vertical well, Germans and Japanese, are pulling ahead. There is less fat for all. Everyone suffers. The Union is suffering as a result.

Anonymous said...

I always lease Honda Accords. Built in my home state by non-union labor. I only take them to the dealer for regular maintenance. I replenish the gas and check the tires now and then, and that's it. Zero problems in 12 years and 6 Accords.

American based non-union shops are competitive. But the big 3 can't have non-union shops in the US or Canada. So, they open plants in Mexico. PT cruisers are made in Mexico. Hemis are made in Mexico.

GM plants in Janesville, Wis., Arlington, Texas, and Saltillo, Mexico make big SUVs. Guess which ones will close as demand dries up?

Ford will be making the Ford Fusion, Mercury Milan, and Lincoln Zephyr midsize passenger cars in Mexico.k

sh said...

Anonymous #2 -
"Abstract thinking" is probably the greatest threat to America today.
Gray thought, political correctness and Demming's "Total Quality" Six-Sigma junk takes workers to confusion and management to timidity.

Big Ford Fan said...

AutoProphet, here's a question, why do you post that they have 67 paid holidays and not explain that it's actually 17 per year over several years? How many paid holidays do you get a year? I usually am in agreement with your posts and respect your writing, but this is obviuosly a cheap shot at the union and it's workers.

I get 14 Holidays a year plus 5 personal days. What's your alotted days?

And $23 an hour is not really a high wage these days, I know Security Guards that get $15 per hour.

The Auto Prophet said...

BFF,

Excellent point, I did not mention that the 67 holidays are over the whole contract, not per year.

Will add a footnote.

Big Ford Fan said...

AutoProphet, I'm sorry about the tone of my comments, but am impressed yet again with your willingness to be fair and honest.

Joe

Blue Cross of California said...

Great blog I hope we can work to build a better health care system. Health insurance is a major aspect to many.

Anonymous said...

I WORK FOR FORD AND I HAVE NEVER SEEN SO MANY UNGREATFUL PEOPLE IN MY LIFE.I KNOW THAT THERE ARE GOOD WORKERS BUT THEY ARE AFRAID OF THE THREATS FROM THE BAD WORKERS.I HAVE BEEN THREATEND MYSELF.I KNOW THE UAW IS TREATING THE SALERY WORKERS VERY BAD.THE UAW CAN GO STRAIGHT TO HELL AS FAR AS I AM CONCERNED.

Anonymous said...

THE UAW DOES NOT CARE ABOUT MAKE A GOOD PART.THEY ONLY CARE ABOUT BRINGING THE COMPANY DOWN AS FAST AS POSSIBLE.THE RATE THAT THEY ARE GOING IT WONT BE LONG.I NEVER THOUGHT THE UAW WERE THIEFS.I GUESS THEY DON'T CARE ABOUT THE FUTURE OF THE COMPANY.

Anonymous said...

WORKER ABUSE IS NOT GOING AWAY THE UAW WONT LET THAT HAPPEN.IF THE ABUSE WENT AWAY THE UAW WOULDN'T HAVE ANYTHING TO DO TO THE SALERY WORKER.THE SALERY WORKERS NEED PROTECTION.