Auto Armageddon?

Against the Current, No. 130, September/October 2007

Dianne Feeley

TOWARD THE END of July the United Auto Workers (UAW) held the traditional handshaking ceremony that formally opened contract negotiations with executives at Ford, General Motors and Chrysler, what used to be called the Big Three.

UAW President Ron Gettelfinger admonished the press that the union is not in a concessionary mode. Veteran observers and auto worker activists recognize this as a sure signal that massive concessions are imminent. Outside the UAW-GM Center for Human Resources a hundred auto workers, mostly retirees, carried signs opposing further concessions.

What are the crunch issues? Pensions, health care, two-tier wages, temporary work, job classifications: According to one well-placed source in the bargaining, “This year the companies are coming after everything. They want it all.” To understand the depth of the UAW’s crisis, we have to look at the big picture of U.S. labor as well as the auto industry’s woes.

The Long Retreat

A decade after the victory of the United Parcel Service (UPS), we look back at that successful 1997 strike for 10,000 full-time jobs that seemed to be the turning point in the one-sided class war. Instead it has been a decade of a continuing employers’ assault.

Bankruptcy has become a corporate tool across industries from airlines to car haul, imposing restructuring and concessions. Shockingly, Labor Notes recently reported that the average labor cost per major airline is now lower than the average fuel cost. Before 2001 the labor cost was double the fuel.

Today union density stands at 7.4% in the private sector. U.S. work stoppages (involving over 1,000 workers) are lower than ever before recorded. The workplace, whether blue collar or white collar, has been transformed by lean production and outsourcing. As more employers use temporary workers or contract workers, job security has become an old-fashioned idea. Today the main issue in union negotiations is a battle over the employer’s attempt to shift health care costs.

In this context, lower-wage workers no longer see higher-wage workers as setting a standard, but as having benefits they can never aspire to have. Where solidarity among workers has been trampled, competition rears its ugly head.

Gettelfinger’s militant press sound bite is lost in the wind, particularly after the UAW president had promised “no concessions on health care” in the 2003 contract, but agreed to reopen the contract at GM and Ford, saving the companies millions of dollars. As the 2007 negotiations got underway, it looked like they were calling Gettelfinger’s bluff.

Last year the Big Three posted a combined loss of $15 billion and, backed by “industry analysts,” state that reducing labor costs is critical to their survival. While labor costs represent only 10% of the price of a new vehicle, the Big Three have been waging an aggressive and sustained media blitz around the theme that wages and benefits for union-represented autoworkers are out of control.

Despite Gettelfinger’s comment, the UAW has not countered the corporations’ mantra, either in the media or internally. Earlier this year Cal Rapson, UAW Vice President in charge of GM, cautioned local union leaders that “the way we conducted business in the past when General Motors was very profitable, would have to change.” (“UAW prepares for sacrifices,” Sharon Terlep, Detroit News, 1/16/07) Local officials and even workers recently interviewed at plant gates expect the 2007 contract will contain drastic givebacks.

What’s the reality?

Market Share Drives the Crisis

The Detroit automakers’ share of the domestic market fell below 50% in July 2007, the first time in history. When I first hired into an assembly plant almost 30 years ago, GM alone controlled the majority of the U.S. market. There are as many auto workers today as there were then, but a growing proportion work in the almost completely non-union transplants or for non-unionized auto parts suppliers.

According to Sean McAlinden, chief economist for the Center for Automotive Research, less than 23% of all U.S. autoworkers belong to a union. (“UAW strike, or Detroit 3 lockout, not likely,” Dale Jewett, Automotive News, 8/8/07)

Plants in the Midwest are shutting down as plants open in the South — “right-to-work” states where unionization is locked in single digits. Meanwhile Michigan, a state with an economy 700% more concentrated in the auto industry than the national economy, saw its gross domestic product shrink in 2006.

By mid-2007 Michigan’s unemployment rate remained the highest in the country. Between 2000-06 Michigan lost 336,000 jobs (80% from manufacturing, construction and government), yet its unionization rate —19.6% — remains well above the national average. (“Economic outlook bleak,” Louis Aguilar, Detroit News, 10/18/06)

For conservative think tanks and politicians union density is the #1 reason why Michigan can’t attract new business. Their answer: make Michigan the 23rd right-to-work state! (“Worst yet to come for Michigan economy,” Louis Aguilar, Detroit News, 6/14/07; “Open-shop laws threaten unions,” Sharon Silke Carty, USA Today, 7/26/07)

While plants in Detroit, Flint, Pontiac, St. Louis and even Oklahoma City shut down, Toyota opened a plant in San Antonio, Texas; Hyundai Motor Co. inaugurated a facility in Montgomery, Alabama; and KIA is planning one for West Point, Georgia.

What’s the difference between a unionized plant and the more than two dozen non- unionized ones? Actually, transplants pay pretty well — particularly in the context of generally low-wage regions. In 2006 wages at the Toyota plant in Georgetown, Kentucky, when the $6,000 bonus was figured in, were $30 an hour. Honda workers, who have been receiving yearly bonuses for more than 20 years, brought home $26.20 per hour. Nissan workers in Mississippi earn $24 an hour and $26 an hour in Tennessee.

Hyundai Motor Co. pays its workers less than other autoworkers. In 2006 a new employee earned $14.79 an hour in its Alabama plant; after two years the wage is raised to $22.50.

Transplants also have health insurance and retirement plans, although a worker contributes more than a UAW member, who has better coverage. (“UAW losing pay edge,” Jason Roberson, Detroit Free Press, 1/31/07)

Workers in a non-union plant, however, suffer 4-12 times the injury/illness rate of UAW members in a comparable plant. With newer plants and a workforce significantly younger than most UAW-organized plants, transplants offer little job security. Given the injury rate, I suspect it is much harder for a transplant worker to remain working for a corporation for 30 years.

For the most part, only the relatively young and fit are able to survive in the “flexible” work environment — and that’s the kind of environment the Big Three want to establish as well. This environment includes draconian absentee programs, and no “light” jobs for workers returning to work after an injury — those jobs have all been outsourced.

It’s true that as the work force in transplants ages, labor costs will rise. But I suspect they will remain a lower percentage than at unionized plants. On the other hand the Big Three are doing their part to weed out workers who are injured on the job or have the audacity to miss work.

Today Detroit-based automakers complain that each vehicle they produce costs approximately $25 an hour more in labor costs per worker than a vehicle produced at a transplant. This disadvantage is broken down into $7 in wages for active workers, $5 for their health care benefits and $12 for retiree health care, pension and other insurance costs.

I assume the $7 in wages represents work rules that are already being eroded through local concessions. Additional areas in which the corporations would like to ape practices in non-union plants include outsourcing jobs not considered “productive” (maintenance and janitorial services, even transporting materials within the plant), using temporary workers, hiring new workers at a lower pay scale and with fewer benefits, eliminating or scaling back the jobs bank under which laid-off workers are still paid.

Shifting some managerial tasks to production workers — scheduling vacations, arranging group meetings, overseeing quality issues — is another way to lower wages. (“Talks likely to reshape industry,” Joe Guy Collier, Detroit Free Press, 7/1/07; “Tough Talks,” Jeffrey McCracken, Wall Street Journal, 3/2/07; and “Desperate to Curb Costs, Ford Gets Union’s Help,” Jeffrey McCracken, Detroit Free Press, 3/2/07)

Does accepting all this sound far-fetched for a longstanding industrial union like the proud UAW? David Berkholz opens his August 20 Automotive News article “UAW budges on 2-tier wage” by stating, “The UAW is quietly backing away from its bedrock philosophy that hourly employees working under the same roof should earn the same wage.”

Health Care: The VEBA Trap

The Big Three say their combined retiree health care cost is in the range of $116-120 billion. They would prefer to get out from under that liability by turning a one-time contribution over to a Voluntary Employee Beneficiary Association (VEBA) administered by the union.

Despite the reality that health care costs are rising sharply (73% since 2000), they plan to negotiate a “deal” to fund the VEBA at a mere 50-60% of the total liability. For example, GM has approximately $52 billion in UAW health-care liabilities (with another $18 billion for white-collar workers). Ford has $31 billion in liabilities while Chrysler owes $16-19 billion. (“After Years of Labor Gains, Autoworkers Face Losses,” Sholnn Freeman, Washington Post, 7/17/07)

By putting in half of what they say they owe, Detroit automakers want to be done with their promise to fund health care for retirees and wipe the slate clean. If health care costs rise dramatically, the problem wouldn’t be GM’s problem, but the UAW’s.

While everyone points to the VEBA that Goodyear and the Steelworkers negotiated last year after a strike, that VEBA was funded at 83% of the company’s liability ($1 billion of $1.3 billion). David Welch & Nanette Byrnes, writing in Business Week last May, noted that in setting up VEBAs the devil is in the details: “If the union seeks assets totaling 80% of liabilities, then GM and Ford may not be able to afford it.”

If GM and Ford can’t “afford” it, I guess that’s enough to settle it!

Rank-and-file autoworkers analyze the situation differently. Workers signed contracts on the basis that companies provided health care; now the companies want to renege on the agreement. Without that promise, autoworkers would have demanded higher wages.

Further, workers agreed to concessions when they approved their cost-of-living adjustments (COLA) being diverted to health care costs. Between 1976-2005 each worker at the Big Three gave up more than $1 an hour in COLA diversion. Now the companies are hoping no one notices that they intend to pocket that money.
(“Live Bait & Ammo #89: Deduction by Diversion”)

Does a VEBA have to be underfunded? Absolutely not. In fact, a cross-industry, multi-employer VEBA, which provided health care for all workers (union and non-union, assembly workers, parts workers and skilled trades), could be set up so that each employers paid in on a per capita rate. Employers would contribute regularly so that the fund would be remain solvent.

All of the VEBAs that have been crippled are single-employer plans, such as Detroit Diesel or Caterpillar, or have been the result of a corporation going into bankruptcy. I’d say a multi-employer VEBA would be the next-best thing to a single-payer health care program every other industrialized nation, including Canada, already has. But Sean McAlinden explained why that won’t happen:

“Each automaker can better negotiate what it could contribute to the fund.” (Quoted in “UAW strike, or Detroit’s lockout, not likely,” Dale Jewett, Automotive News, 8/8/07)

If dumping underfunded health care liabilities on the union isn’t the answer to health care costs, where might we find a solution? The first thing that pops out at an autoworker is how GM brags about “saving” $1,200 on every vehicle it manufactures in Canada. Why? Because Canada has a universal health care system.

GM loves the Canadian health care system. But instead of demanding that the U.S. government control health care costs by extending Medicare and universalizing its coverage to the entire population — which would reduce the percentage each corporation would need to contribute — they insist the individual employee should shoulder more of the costs.

Whose Pensions?

The $12 figure per vehicle that is attributed to retirees includes not only health care but pensions as well. Actually corporate contributions to pension plans are tax-deductible and grow tax-free. Congress set this rule so that employers would be encouraged to provide pension plans. As a matter of fact, GM owes almost 700,000 workers and retirees about $87.8 billion as of 2005. But $95.3 billion has already been set aside, generating $10 billion in investment income that year alone.

So what’s the issue? The problem is executive pension obligations. Since these are not tax-deductible, they are typically left unfunded. While the worker’s pension is about 25-35% of his/her salary, a highly placed executive will be compensated at 60-100%.

Ellen E. Schultz and Theo Francis, writing in the Wall Street Journal last year, noted that “Benefits for executives now account for a significant share of pension obligations in the U.S., an average of 8%…. Sometimes a company’s obligation for a single executive’s pension approaches $100 million.”

They suggest that the GM’s executive pension is probably in the neighborhood of $1.4 billion, but that figure is kept securely under wraps as government regulations do not require disclosure. In fact, corporations hide their executive pension obligations by dumping them into the legacy costs they cite for their unionized work force. (“As Workers’ Pensions Wither, Those for Executives Flourish,” 6/23/06)

The Buzz About Health Costs

On the Soldiers of Solidarity email list there has been discussion about Shikha Dalma’s July 27th Wall Street Journal commentary, “The UAW’s Health Care Dreams.” Dalma asserts that the UAW has the capacity to destroy the Big Three by pushing them into bankruptcy by demanding a continuation of previously negotiated “lavish health-care and pension deals.”

Dalma contrasts UAW benefits with the 90% of all U.S. workers who don’t get any employer-provided health care coverage after they become eligible for Medicare. “Such couples, according to an analysis by Fidelity Investments last year, are typically on the hook for $10,000 in out-of-pocket annual costs for Medicare co-pays and other expenses not covered by the program, or 10 times more than UAW couples.”

This article is typical of the media coverage that tries to play off low-paid workers against workers who have been able to win more. We are supposed to be jealous of any workers who have higher wages or better benefits. On the other hand, we are to believe the corporate elite has the right to their wealth.

Eighty top executives at Ford, General Motors and a dozen auto suppliers had an average income of $4.2 million in 2006, a 22% increase over 2005. Rarely does a reporter note that it’s the elite who got the auto industry into the pickle it’s in, or raise the question of why workers should have to take concessions. That’s just the given.

Dalma cites the union as possibly pushing the corporations into bankruptcy. In fact corporations use bankruptcy as another mechanism through which they can vigorous advance restructuring and force the union to accept concessions. Here the star witness in the auto industry is Delphi, the corporation GM spun off in 1999.

Delphi’s Bankruptcy

When it declared bankruptcy in 2006 Delphi had $4 billion in cash, 24,000 workers and more than two dozen U.S. plants. Most of its losses were the result of the skyrocketing costs of raw materials. GM, Delphi’s major customer, refused to adjust the contracts; Delphi was supposed to eat the difference. Here again, it wasn’t labor cost that was the problem, but an intransigent customer! (“Delphi, The Terminator, and the Misuse of Bankruptcy Law,” interview with Mark Reutter, Executive Intelligence Review, 11/11/05)

When the corporation went to bankruptcy court, Gretchen Morgenson wrote in the business section of the New York Times, Delphi made sure that the top executives were protected while workers bore “the entire brunt of the company’s financial crisis.” Although its accounting practices were being investigated by the Securities and Exchange Commission, Delphi made sure its top four executives were in line to receive a total of $3.1 million a year. (“Oohs and Ahs At Delphi’s Circus,” 11/13/05)

At the UAW 34th Constitution Convention last year, a couple dozen delegates published an open letter “Draw the Line at Delphi.” They proposed a fightback campaign but officials did all they could to shut down discussion. Early on rank-and-file Delphi workers and their allies, organized as Soldiers of Solidarity ( met to discuss their common problems and map out a strategy.

We organized a demonstration of over 600 at the 2006 Detroit auto show, threw up picket lines when corporate executives spoke at public meetings and encouraged fellow workers to “work safely” on the job. We were strong enough to stave off Delphi’s attempt to use bankruptcy to railroad concessions, but not strong enough when Delphi, with the union’s consent, offered buyouts.

Two years later, when Delphi and the UAW agreed to submit a contract to those Delphi workers who had not been tempted by a buyout package or who could not “flow back” into General Motors, fewer than 4,000 high-seniority workers were still working. Under the two-tier agreement introduced into the 2003 contract, 13,000 others had been hired at $14 an hour.

Sixty-eight percent voted to accept the contract. Only one plant, located in Lockport, New York, where 80% of the workforce was still high seniority, voted no. As Joe Coolick, 20, hired a year ago at Delphi Flint East complex told the Louis Aguilar, Detroit News reporter, “This pay is still better than what you can make working at Speedway or McDonald’s, that why people want to keep this job.” (“Waiting on more wage cuts,” 6/21/07)

Delphi’s 4,000 high-seniority workers will be given $35,000 for three years as a “buydown” for accepting a permanent $9 an hour wage cut, or they can take a “buyout” package and leave. A competitive operating agreement will abolish a number of the work rules and reduce the trade classifications down to two, electrical and mechanical. Delphi will sell or close all but four U.S.-based plants.

Delphi anticipates emerging from bankruptcy by the end of the year. One of the 10 most expensive bankruptcies out of 74 in the recent period, the Delphi bankruptcy has cost $200 million and may reach $300 million. I’m sure they consider the price of bankruptcy necessary in order to successfully drive down wages and working conditions.

U.S. Bankruptcy Judge Robert Drain has approved $184 million in fees and $13 million more in Delphi expenses. These include lawyer’s fees of $300-400 an hour — this from a corporation that moaned over a production worker supposedly making $73 an hour including benefits. (“Delphi bankruptcy bill: $200M,” David Shepardson, Detroit News, 7/17/07)

Shortly after the Big Three-UAW 2003 contracts were signed, the corporations wept over their loss in market share, with GM and Ford first in line to demand health care concessions. The UAW, which had announced a “no health care concessions” policy going into the negotiations, hired investment bank Lazard Ltd. as consultants but after listening to Lazard’s report, reversed course and reopened negotiations.

The UAW then recommended its membership vote to divert already bargained cost-of-living adjustment (COLA) to health care and accept higher co-pays. Last year at GM alone this concession saved the company $15 billion in retiree health care benefits and almost $3 billion in health care for current employees. Ford trimmed $5 billion.

Having secured a COLA diversion of seventy-nine cents per worker between 2005 and 2011, which will be placed in a VEBA, General Motors and Ford moved ahead on their restructuring plans. (“UAW May Higher Lazard for Advice in U.S. Auto Talks, People Say,” Jeff Green & John Lippert, Bloomberg News, 6/28/07; “UAW prepares for sacrifices,” Sharon Terlep, Detroit News, 1/16/07)

By the time still profitable Daimler Chrysler indicated it too wanted concessions, opposition was growing and the UAW’s DaimlerChrysler Council, made up of local union officers, blocked reopening of their contract. Thus the UAW pattern contract, long a source of pride, today exists only at the now Cerebus-owned Chrysler.

What Happened?

How could Ford, posting an industry record profit of $7.2 billion in 1999, have ended up six years later with a $12.7 billion loss? In 1998 the Harbour Report, an industry efficiency study, estimated Ford could assemble a new vehicle in 36 hours, 10 hours faster than GM or DaimlerChrysler, but 5-6 hours slower than Toyota and Nissan.

Didn’t Ford executives analyze the data and notice, two years later, that GM and DaimlerChrysler were reducing the gap? Apparently not. By 2006 the Harbour Report found Ford two hours behind GM and DaimlerChrysler, slipping 6-7 hours behind Toyota and Nissan. (“Tough Talks,” Jeffrey McCracken, Wall Street Journal, 3/2/07)

Ford executives acknowledge that they didn’t prepare for the future — but immediately sought a fix by approaching the UAW and demanding concessions on work rules. Over the past year 33 of the 41 UAW locals have reopened negotiations, altered their contracts in mid-point and accepted “competitive operating agreements.”

Provisions vary from plant to plant but include allowing non-Ford workers earning lower wages to take certain jobs in the plant (such as sorting and packing or transporting components within the factory), waving seniority rules, broadening job definitions and working four 10-hour days without collecting overtime pay. This makes the work force more “flexible” and sets a precedent for the upcoming contract talks.

After all, if it is the UAW’s job to save the corporation money, it certainly can’t take a militant stance in persevering and extending workers’ rights, wages and benefits.

In fact, the crisis of the Big Three is not that labor costs are so outrageous but the irresponsible decisions management made. Since the profit per vehicle is higher on trucks and SUVs than on small- or medium-sized cars, management decided they’d pass up production on efficient and well-designed passenger cars and concentrate on the higher profit market. Today trucks still represent 30% of the vehicle mix at Ford and GM, while only represent 5% at Toyota. (“U.S. automakers lose majority of domestic market,” Tom Kirsher, AP, 8/1/07)

With little concern about the future of the earth, management downgraded research and design and fight tooth-and-nail against government standards to improve fuel efficiency. While Toyota spends 12% of its capital expenditure revenue on research and development, GM spends just 8.4%. (“A Deal That Could Save Detroit,” David Welch and Nanette Byrnes, Business Week, 5/28/07)

To date Ford has eliminated 38,000 of its 87,000 hourly work force and plans to idle 14 plants. GM is slashing 34,000 jobs and announced it will close 12 plants. Chrysler anticipates eliminating 9,000. Each corporation is offering a severance package for those who leave or retire. (“Ford to Cut 25,000 to 30,000 Jobs by 2012,” Dee-Ann Durbin, AP, 1/23/07)

With the stampede to get these workers out, the Big Three and auto parts suppliers find they don’t have enough workers. By June 2007 Ford was employing between 2,000- 2,5000 temporary, part-time production workers. Technically in the union, these temps earn half the pay of full-time workers, have minimal benefits and no ability to move to permanent status after working a set number of days. They can be terminated after one “offense.”

Meanwhile executive pay plans continue to be lavish. Ford president and chief executive Alan Mullally last year received a compensation package of $39 million, GM’s Richard Wagoner made $9.6 million and Chrysler Group executive Tom LaSorda brought home $5.2 million. (“Talks likely to reshape industry,” Joe Guy Collier, Detroit Free Press, 7/1/07)

Although their market share is still in free fall, at the end of the second quarter of 2007 both GM and Ford reported profits: Ford earned $750 million and GM came in at $891 million. As the business pages announced these profits, reporters wondered if this might enable the union stave off an utter rout.

What Should Our Union Do?

In fact, many autoworkers who oppose concessions have concluded that the Big Three and the top-tier part suppliers are pulling a scam. Labor costs are not the problem. Today’s work force is productive, and yesterday’s already won the right to health care and pensions.

We see how the corporate elite are giving themselves higher salaries and benefits even though they skimped on research and development, they banked on an oil-based economy, they did not analyze reports that revealed the weakness of their decisions.

Clearly the Big Three is in a crisis that requires serious rethinking and retooling. But this does not mean nickel-and-diming its work force, as Detroit automakers intend.

What should inform our proposals as we face this manufactured crisis?

First, we need to reassert the centrality of solidarity. If we as a work force allow ourselves to be pitted against each other — temporary workers vs. permanents, active workers vs. retirees, lower-wage workers vs. seniority workers, production workers vs. skilled trades and all the other ways a diverse population can be split — we all lose.

This also means we must oppose outsourcing of jobs and the ruthless practice of having workers in one plant take concessions in order to “win” new products, or products that workers in another plant are producing — all of which is happening now.

Second, we need to understand that local concessions do not “save” jobs but fuel corporate ability to play off workers in one site against another. The European metalworkers unions have attempted to deal with the problem by raising the slogan “No plant closures and equitable use of capacity.” These unions followed through with concrete acts of solidarity when GM unilaterally shut down a third shift in an Astra plant. We must do the same.

Third, we need to campaign to end the stranglehold corporations have on all workers by supporting the extension of Medicare to all who reside here. This would go far toward winning lower-wage workers to seeing higher-wage workers bring up the wages and benefits of all. It would eliminate the terrible gap in medical care that exists here, with 47 million without coverage. It would also deprive corporations and the media of their argument about how autoworkers don’t “deserve” the welfare-state coverage we have with our health insurance.

Fourth, we need to organize the growing number of autoworkers who do not belong to the union. This includes not just the unorganized transplants, but the auto parts sector, which today is only 20% unionized. I don’t believe this organizing will occur under the traditional organizing model, but can only be carried out successfully when a core of activists at a plant declares itself a union and initiates campaigns that are in the interests of the majority. This model referred to as non-majority unionism.

Fifth, we need to protect any autoworkers fired for being a union member or acting with others to build union-organized campaigns. This protection should include legal channels but the most important aspect needs to be publicizing the cases through pickets, rallies, fundraisers, etc. This campaign cannot be confined to our national borders.

Sixth, we ourselves need to develop a big-picture understanding of our economy and our role as workers, members of a community, and stewards of our world. Why should we support the auto companies as they fight to reduce emission standards?

Yet once again this August the UAW planned more than two dozen anti-CAFÉ rallies, supporting the Big Three’s position. The reason the UAW does so is “jobs.” This reminds me of the dilemma posed by Jack Benny’s joke when the man with a gun says “Give me your money or your life” and Benny asks, “Give me a minute to think about it.”

GM, Ford and Chrysler expect us to go along with concessions because they believe “there is no alternative.” Instead of tying ourselves to the company we work for, we need to be thinking about the world we want to create. There is plenty to do to oppose the concessions, but there is also the need for serious democratic discussions about the possibility of building more efficient transportation systems — to sustain not only our jobs, but our planet.

from ATC 130 (September/October 2007)