Big Three Win A Modular Future: Contract Hype and Reality

Against the Current, No. 83, November/December 1999

Kim Moody

THE 1999 CONTRACT talks between the United Auto Workers and the Big Three auto makers, plus General Motors’ Delphi spin-off, offer one more demonstration of what the mainstream media like to call improved relations between the union and the company. Whatever the media mainliners think of this overused phrase, in practice it means greater consensus between top union leaders and company officials.

All the talk about deteriorating relations at Ford over the Visteon spin-off, improved ones at GM after last year’s strikes, and problems at DaimlerChrysler over Daimler-owned nonunion Mercedes and Freightliner plants, simply kept up the appearance of suspense in what emerged as the crowning achievement in a two-decade long joint venture in top-down labor-management consensus-building.

This achievement is an open door to the most sweeping reorganization of the automobile industry since lean production appeared about twenty years ago. It will take place without so much as a breath of opposition from the top leadership of the UAW.

This change, often summed up as “modular production,” will cost countless union jobs, expand the low-wage sector of the industry, and produce still more speedup and work intensification.

Behind the Great Victory

How can this be? Anyone who has seen the coverage of Big Three (and Delphi) bargaining in the daily press or on TV knows that the UAW won an unprecedented job security agreement in this four-year contract, on top of a respectable 3% a year wage increase and a substantial 19% increase in pension benefits over four years, not to mention the $1,350 signing bonus. So, what’s the gripe?

If all the workers in today’s auto plants were twenty-five years old with three year’s seniority, this would be quite a deal. They would be earning top blue-collar dollar, have secure jobs for as long as the union could hang on to this year’s language (except when the market slumps), and face a generous pension in another twenty-seven years when they hit their early fifties.

Furthermore, with so many workers entrenched in the plants and having transfer rights in and out of places like Delphi and GM, Visteon and Ford, management would be hard pressed to get the kind of “continuous improvement” that sends productivity through the ceiling and workers out the gate. It would be somewhat like the “old days” when workers had time to breathe.

The problem is that the average age in today’s Big Three plants is 48, and half of the work force is eligible to retire in the next five years. The biggest workforce reduction program for the foreseeable future isn’t even the massive outsourcing the auto companies are planning, or the speedup that will accompany it—it’s attrition through retirement.

It’s big time downsizing without the embarrassing announcements. It’s a sure-fire signal to Wall Street that the way open to slimmer and trimmer plants is guaranteed for at least four years.

Taken as a whole, this bargaining round allows for two things the auto companies badly wanted. One is to continue downsizing existing plants, the other is the right to spin off their major parts plants. GM spun off its Delphi parts division unilaterally in May, without any real opposition from the union, and Ford now gets to do the same with Visteon.

Chrysler dumped its unwanted parts facilities years ago, also without a peep from the UAW leaders of that era. This leaves the Big Three with only assembly and powertrain (engine and transmission) facilities—the first step toward modular production.

An irony of this contract is that it contains the strongest anti-spinoff or divestment language ever. It’s just that the letter of agreement in which it appears exempts those plants “which have already been identified.” Those identified included all Visteon plants as well as other undisclosed facilities.

Most of the productivity gains of the last two decades in auto have been in the assembly and powertrain areas. Traditional parts plants are less susceptible to line speedup and have generally shown few productivity gains for years. Hence they are less profitable.

So, now the Big Three will be even more profitable. They will continue to harvest productivity gains in the traditional manner—fewer workers and more production.

Guaranteed Job Loss

To do this, the companies needed to be able to reduce the workforce in the remaining facilities. The job security formula in the new Big Three contracts is complex, but it allows for substantial workforce reduction through attrition as well as outsourcing.

Aside even from some visible loopholes in the language, job losses can be as much as 17% in the geographic areas where guaranteed job levels are measured, and much more in individual plants. This is certainly enough to allow even GM, which has the most “excess” workers according to competitive industry measures, to slim down and speed up.

The new contract formula would allow GM to retire or outsource at least 30,000 of the 179,000 jobs remaining after the Delphi spin-off removed 43,000 from GM’s payroll. Delphi and, when it goes independent or gets bought up, Visteon have the same provisions.

Business Week (October 25, 1999) puts the potential for workforce reduction at 20% and points out that the auto companies “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.”

The contracts further encourage attrition by putting the biggest money in a hefty 19% increase in benefits for those who take the thirty-and-out pension. About half the GM workforce is eligible. This contract was a pretty good deal for high seniority workers with an eye on retirement—which is one reason why it passed by 85% at DaimlerChrysler and 77% at GM.

“Like A Freight Train”

Modular production involves a reorganization of the industry in which first-tier firms supply Big Three assembly plants with subassembled pieces (modules) of the car. Instead of receiving thousands of little parts, the Big Three will buy whole sections of a car, like the interior, already assembled.

First-tier suppliers like Lear, Delphi, and Visteon will get economies of scale and productivity gains through growth and by becoming assemblers themselves. Evidence is found in the growth of supplier firms with revenues over $2 billion (from five in 1992 to thirteen this year).

Lear is a good example. Having bought up several other firms, it grew from $1.4 billion in 1992 to over $9 billion in 1998. Even if companies like Delphi and Visteon pay top dollar, as they will for the foreseeable future, they can become more profitable through speedup, continuous improvement and new technology.

Most suppliers don’t pay Big Three wages of $21 an hour now and about $30 by the end of the new contract. But those like Lear who pay $17 an hour in some unionized plants, as opposed to the $11 an hour average for the parts industry, will make it up in productivity.

Beneath these first-tier companies are a multitude of smaller parts firms paying much lower wages, with only about 13% of their workforce unionized.

Down at the bottom of the production chain there are fewer productivity gains to be had and less incentive to pay for new technology, so that wages will stay low unless these hundreds of small firms are unionized.

Modular production already exists in Brazil and in GM’s Lordstown, Ohio assembly plant. In these versions, supplier firms set up shop inside the assembler firms plant as well as adjacent to it. This means different workforces represented by different unions, or in some cases no union, all working under the same roof—a nightmare for workplace union representatives and activists.

Bill Caroline, a veteran of Lordstown’s 1972 wildcats and still a fighter, told a meeting of UAW activists in September of what modular is like in that plant, “It’s like a freight train. For them [management] it’s a good deal. For us, it’s the end of the road. Everything is bar coded, there’s no people. The lines of demarcation—they’re blurred like finger-painting.”

Union In Crisis

Quietly and purposefully, UAW President Stephen Yokich has steered the union into this supine position in the oft repeated belief that “job security,” i.e. the security of some jobs, depends on the health of the companies. Downsizing by attrition, and the development of larger unionized first-tier supplier firms, hold out the promise of a secure dues base for the UAW and the maintenance of high wages at the high-productivity end of the industry for some time to come.

It is no doubt this vision that led Ford and Visteon to agree to Big Three conditions for Visteon workers, even in the event of a spin-off or sale, not only for the length of this contract but for the following two as well.

If it turns out to be enforceable, the letter of agreement that states this will be unique indeed—although there is an escape clause that reads, “except where mutually agreed to otherwise.” But it is only likely to hold up if Visteon can reorganize its production along modular lines and trim its already lean workforce of 23,000 even further to sustain profitability.

Delphi has already set the trend by cutting its workforce by 42% since 1993, while increasing sales by 35%. Lear, too, shows the way by cutting jobs, spinning off units that don’t fit its first-tier profile, and moving some work to lower-paid plants.

Downsizing at GM and Delphi over the last several years and the work intensification that goes with it led to a long string of local strikes. This local-by-local rear guard resistance, too, fits the UAW leader’s strategy for avoiding a bigger confrontation and allowing the industry to trim jobs while cheering on locals that can win only tiny concessions or buy a little time.

The new contract points to just such an approach. This is particularly true since, as GM local union leaders point out, you have to fight the same fights over and over just to hold ground.

It’s not only local union people who predict more plant-level strife. University of Michigan auto expert Sean McAlinden told Crain’s Detroit Business as bargaining opened, “the war will be fought local by local after the national contract is signed.”

In addition to this development, the spin-offs and growth of semi-unionized first-tier companies like Lear will create a centrifugal pull on the already tattered practice of pattern bargaining at the Big Three. There may even be different contracts at Delphi and Visteon after the current ones expire in 2003, since the language meant to keep Visteon workers within the pattern for the next three contracts is absent in the Delphi agreement.

The further ungluing of pattern bargaining not only means more administrative headaches for Solidarity House, but more dissatisfaction among those getting lower wages or other inferior conditions for more or less the same work.

With the door opened to a rapid restructuring of the industry and the pressure in the workplaces at every level enhanced, the contradiction between a union leadership signed on to the corporations’ modular agenda and a membership pushed even harder during their ten-and twelve-hour days points toward a future of conflict.

This contradiction isn’t new in the UAW, of course, and the conflict it points to may be put off for a while longer. Many older workers are aching to retire and hesitant to rock the boat, while the flow of younger workers is just beginning.

Some old timers will tell you that the youngsters don’t understand the union way of doing things. Given what that has become in too many UAW plants, this may not be altogether a bad thing.

A new style of unionism is desperately needed. But it will take some time for new workers to get their sea legs. If the last generational (and racial) upheaval in the auto plants—from 1967 through 1973 —is any example, however, the new workers will “finally get the news.”

Right now, the organized opposition clustered around the New Directions Movement is weak, but has the ideas and analysis to create a strong, more democratic union. Furthermore, there are more signs of dissatisfaction and anger at the local level.

Yokich’s Administration Caucus has a firm hold on the national and regional structures, as evidenced by its ability to control the conventions and to get smooth passage of this year’s agreement, but its hold over the locals is certain to become more tenuous as pressures grow in the plants, long-time Administration Caucus loyalists retire, centrifugal forces pull on the union, and leaders less adept than Yokich take the helm at the International. (Connoisseurs of UAW politics will know that the alternative scenario that puts Bob King, arguably the thinking person’s bureaucrat, in the top seat after Yokich retires in 2001 appears to have been blocked for now, although it is not indefinitely out of the question. Whether this would open things up or bring them under control is debatable.)

In addition, there are possible difficulties with the merger with the Steelworkers which, if it ever does go through, would certainly complicate the leadership succession problem further.

One thing seems certain: The UAW of 2003, when the new contract expires, will be a significantly different organization in many respects—a union whose members are even more embattled than today and whose future is even more uncertain.

ATC 83, November-December 1999