THE WORKPLACE Commentary: The Auto Talks: Who Really Won
It looked like a clear case of highway robbery. The United Auto Workers reached into the pockets of Detroit's Big Three carmakers during recently completed national contract talks and drove off with the richest terms in two decades. By the time the new pacts expire four years from now, the 370,000 UAW members at the Big Three will be raking in $25 an hour, up 25% from today--plus a nice bonus and richer benefits. The union even forced auto makers to cough up expensive wage and benefit guarantees for workers affected by their parts units' spin-offs. Overall, the average worker will receive some $30,000 in added wages and benefits.
But nobody blinked an eye, not even Big Three shareholders or inflation-wary Wall Street economists. For while Detroit might appear to be a holdup victim, in fact the UAW's winnings--of 3% annual pay hikes--are less than the 4% that union workers have won at Boeing (BA), AT&T (T), and elsewhere. Auto makers also grabbed some goodies of their own that will more than pay for all the dollars they are doling out. Chief among them: the freedom to restructure their workforces and boost efficiency. This is particularly important for General Motors Corp. (GM), which trails other carmakers in productivity. And new job-security language, which for the first time prescribes the formula for replacing retirees, has enough wiggle room to allow GM to cut its still-bloated workforce by about 20%--a huge accomplishment for the No. 1 U.S. auto maker.
SHAKY PROGRESS. Equally important, Detroit was able to buy labor peace at a time when it couldn't afford a confrontation. DaimlerChrysler (DCX), which the union targeted first, didn't want a strike to disrupt its already shaky merger progress, especially since 60% of its profits come from its U.S. factories. GM was desperate to turn over a new leaf with labor--following a devastating 54-day strike in 1998 and the divisive spin-off of its Delphi Automotive Systems (DPH) auto-parts unit earlier this year. Even Ford Motor Co. (F), which in recent weeks faced the biggest risk of a strike over plans to sell its Visteon Automotive Systems parts unit, managed to keep the peace. It agreed to guarantee jobs and pay levels of Visteon workers for life.
The relative ease of the auto industry's national labor talks this year reflects a pragmatism on both sides. When negotiations began in June, the union had two major objectives: It intended to grab a larger share of Big Three profits. And union leaders were eager to expand the UAW's share of auto industry employment by getting the manufacturers to demand that suppliers not resist efforts to sign up their workers. As part of this strategy, the UAW hoped to prod DaimlerChrysler to let in the union at its Mercedes plant in Alabama.
Yet when it came time to deal, UAW President Stephen P. Yokich swapped the future strength of the union for fatter paychecks for current members. With U.S. auto sales on track to exceed a record 17 million units this year, the UAW's leverage was at a peak. Yokich decided to take the money and run, says Michigan State University labor professor Dale G. Brickner. He says union members ''felt they better claim some of this now or they might not see it again.''
In exchange, though, Yokich largely gave up on demands for help on union organizing. Instead, he settled for weaker language that encourages auto makers to tell their suppliers not to threaten job cuts during UAW recruitment drives. Yokich also backed off a threat to strike DaimlerChrysler over Mercedes' resistance to unionization at its Alabama plant. The UAW did win the right to have recruiters meet with employees inside the facility during nonwork hours. But it failed to get its key demand: that Mercedes voluntarily recognize the union without an election if more than 50% of workers signed cards saying they wanted the union.
DIGGING DEEP. Auto makers, too, faced facts as they wrapped up the smoothest round of national bargaining in years. The industry is awash in record profits, thanks to boffo truck sales and improvements in manufacturing methods. So the Big Three were prepared to pay through the nose this time around. GM and Ford, in particular, knew that they would have to dig deep to assuage the union's fears over the spin-offs of their parts units.
And they did. GM agreed to give Delphi workers until Jan. 1 to retire with a GM pension. And employees won the right to apply for GM openings when they occur. GM also guaranteed many benefits for Delphi workers if its ex-parts unit encounters ''financial distress'' in the next eight years. Meanwhile, Delphi matched GM's contract terms for the new pact plus four more years.
Ford went even further to avoid a showdown over its planned Visteon spin-off or sale. It guaranteed that current Visteon employees would receive Ford paychecks and other Ford-paid benefits until they retire, even after Visteon becomes independent. In effect, Ford agreed to lease its employees to Visteon. That was vital to Visteon workers, who didn't want to give up their lucrative Ford benefits. Ford also agreed that after the spin-off, all Visteon employees hired in the next three contract periods, up to 12 years, would earn the same pay as Ford workers for life. (For more on the Ford agreement, see BW Online, 10/14/96, "The UAW's New Deal with Ford Could Hardly Be Sweeter.")
The auto makers agreed to such seemingly rich promises because they have learned that most of the job-security measures they agree to in the national contract can be bent--or even ignored--in plant-level negotiations, analysts say. Under the 1996 national contract agreement, GM was nominally required to hire one new worker for every two who left. But many local union leaders agreed not to enforce the language in order to keep their plant competitive or attract new investment.
DUTY TO HIRE. True, the new job-security provisions in this year's contracts are tougher than previous pacts. The new contracts for the first time prescribe the rates at which auto makers must hire new workers if employment sinks below certain levels, no matter what the reason. There is one important exception: If jobs are lost because of market-driven reductions in sales volumes, the new-hire obligations don't apply. That could be crucial for GM, whose market share has been shrinking steadily. ''Closing facilities will be difficult, but not impossible,'' says Morgan Stanley Dean Witter analyst Stephen J. Girsky. Overall, GM officials say they can cut the union's ranks by 20%, to about 115,000. The contract ''requires us to be more creative, but I'm happy as punch,'' says GM CEO John F. Smith Jr.
The biggest win for GM may be a new era in labor peace. And after potential flare-ups, DaimlerChrysler and Ford, too, have preserved a delicate balance with labor. With the industry chugging along at record levels, no one wants the party to end.
By Joann Muller
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Detroit Poker: How They Split Up the Pot
UAW Won a 25% hike in pay and benefits over four years, to $25 an hour, but failed to stem the erosion of union jobs in the auto industry.
GM Paid through the nose to achieve labor peace but retained the flexibility to slash its workforce by 20% through attrition.
DAIMLER CHRYSLER Agreed to give the UAW easier access to nonunion plants but refused to forgo a contentious election at its Mercedes plant in Alabama.
FORD Guaranteed that workers at its Visteon parts unit will be paid Ford-level wages and benefits until retirement, even after it is spun off.
DELPHI GM's former parts unit got its own UAW contract but agreed to match GM's expensive wage and benefits scale for eight years.