Big Three Auto Contracts: Lowlights of 2011

Against the Current, No. 155, November/December 2011

Dianne Feeley

BY THE END of October, autoworkers at the Big Three will have approved their 2011-2015 contracts. Since Ford was the most profitable corporation, and one that had avoided bankruptcy, it was the logical corporation for the UAW to target. During the economic crisis Ford workers voted down a round of concessions that would have suspended their right to strike until 2015, so by bargaining first at Ford the union could have maximized its potential power to put an end to the concessions.

United Auto Workers President Bob King stated that each worker had lost between $9,000-30,000. But Ford was put on the back burner while the UAW entered negotiations with the two corporations that had emerged from bankruptcy, GM and Chrysler, where the workers did not have the legal right to strike.

Rather than a pattern contract across the industry, each agreement was crafted to meet the specific issues of the corporation. Despite the fact that cost-of-living-adjustments (COLA) were suspended in 2009 and that there has not been a wage increase since 2005, the agreements’ main selling points were signing bonuses and a few other lump sum payments.

GM workers will receive a $5,000 signing bonus while Ford workers will get a grand more. Chrysler workers are guaranteed a paltry $1750 and the promise of another $1750 if the company does well. Other lump sum payments are based on meeting company-set standards for quality, an annual sum to represent full payment for inflation and a profit-sharing bonus.

By 2015, production workers hired before 2006 will have gone without a raise for a decade and the suspension of COLA for six years. Assuming a two percent inflation rate (so far this year the rate is almost twice that!), their base wage will have declined by almost $2.20 an hour. (“Putting the new GM-UAW contract in historical context,” by Abby Ferla, Remapping Debate)

Most importantly, the 2011 contracts institutionalize the concessions extracted from the UAW workers over the last four years. These include a growing percentage of the work force earning a third less than the longer-term workers, with fewer benefits. The classifications of skilled trades have been downsized to three, as outsourcing has increased. Other concessions range from fewer holidays and draconian absentee policies to less break time. The jobs bank, which protected autoworkers from the volatility of the market, is history.

But even greater than the economic loss is the daily grind that speedup causes. The idea that a person can start out at an assembly plant and work into better jobs, or even gain a skilled trade, is less possible. The previous model is being replaced by a maquiladora method, of using up a worker within a decade. Who will survive the job long enough to earn a pension?

These contracts were touted by management, the union and the media as “job-creating.” GM promised 6,200 new jobs, Ford 5,750 and Chrysler 2,100. All of these would be at the lower-tier wage and benefit packages. Given that there are 60,000 fewer UAW workers at the Big Three than there were in 2007, this minimal expansion is needed when the Big Three’s market is growing by at least 10%.

But of course many of the “new” jobs aren’t really new. For example, the Ford “highlights” of the contract explain that “Many of the product commitments in this agreement are from vehicle manufacturing re-sourced or in-sourced directly from other countries, including China, Japan and Mexico.” As the Autoworker Caravan leaflet analyzing the GM contract remarked, “Shifting work from one plant to another isn’t ‘new’ work. Laying off autoworkers in Mexico is not ‘creating jobs.’ Talk about new work, why didn’t the Union challenge the corporations to make fuel-efficient buses that every U.S. city could purchase?”

As a result of the 2011 contracts, the Big Three’s labor costs will rise by approximately one percent annually — the smallest increase over the last four decades. It is also the first time since 1953 that retirees did not get a raise in pensions. In fact their Christmas bonus — in lieu of COLA — has been eliminated. Employers prefer to offer lump sum payments because they do not raise the base wage.

At GM and Chrysler the retiree health care plan was converted in 2007 into a Voluntary Employee Beneficiary Association (VEBA) that was even further underfunded during the 2009 bailout, when the U.S. Treasury demanded that the VEBA board of trustees cut benefits. [See]

The 2011 contracts will put 10% of the workers’ profit-sharing into VEBA. During the GM contract vote the VEBA board signaled their intention next year to restore some of the lost eye and dental benefits.

What’s the trick of operating plants with a reduced work force and a minimum number of skilled tradespeople? Readers might conclude that technology has reduced the need for skilled trades, but in reality the formula is to force more work onto the production workers or contract out the work.

The Lake Orion Model

For GM the assembly plant in Lake Orion, Michigan is the model. Contract language allowed the UAW and the corporation to find “innovative” ways to keep the plant open. Workers never thought they had agreed to give up their right to ratify whatever was negotiated — but the UAW officials claimed they had.

In order for GM to build a subcompact car “profitably” in the United States, the union agreed that over time the plant would become a 100% lower-tier plant. The local agreement reached last year marks the plant as having 100% of the work force at the lower tier within 20 years, beginning with 40%. Four hundred workers had to make the decision about whether they would stay in the plant at the lower tier, transfer to another GM facility, often hundreds of miles away, or voluntarily quit.

Lake Orion is also a “model” in the number of outsourced jobs, with six different contractors with their own work force functioning within the plant. These workers earn $10 an hour or less, often belonging  to a separate UAW unit.

The corporation has decided to outsource jobs that do not directly “produce value,” including kitting and sequencing parts for assembly, staffing the stores for tools or uniforms, transporting parts to or from the line or performing janitorial services.

Lake Orion is also a model in cutting two-thirds of the skilled trades workers it takes to run the plant. When skilled trades workers are called out to service a machine, they are instructed to teach the team leader how to repair it. In turn the team leader is supposed to teach the operator. GM estimates that every skilled trades worker who can be eliminated saves the corporation $57,000 a year, according to Kristin Dziczek at the Center for Automobile Research.

The Lake Orion model has been perfected by GM’s experiments in plants around the world. In fact globalization has two distinct functions:  not only to find cheap overseas labor, but equally important,  to scare U.S. workers into accepting concessions even at a time of enormous corporate profitability for fear of having the jobs go overseas — and the overseas plants become workshops in which companies can perfect speedup.

Win-win for Whom?

It should not come as a surprise that reopening plants such as the GM plant in Spring Hill, Tennessee are to be negotiated under conditions where “innovative staffing arrangements will be required” and “specific exceptions and modifications” will be agreed between the UAW and GM, repeating the formula used for Lake Orion.

The Lake Orion model is one that Ford and Chrysler will want to adopt.

Unfortunately Big Three autoworkers felt they were between a rock and a hard place, with UAW officials agreeing that their task was to ensure the companies’ profitability, and the corporations intent on maintaining previous “temporary” concessions. For those who bothered to vote, whether they voted “yes” or “no” didn’t make much difference in terms of their analysis of the contract.

The rank and file knew the union would not sanction a strike or work to develop a strategy for winning one. They knew there were supposed to feel grateful they still had a job. Those who voted yes felt that given the situation they were in, they had better just take the bonus money and run.

For GM, the total cost over the life of four-year package is $215-245 million. Morgan Stanley projects that this increase might reduce GM’s profit per vehicle from $7,000 to $6,500. Although GM went through a quick bankruptcy, it is sitting on $32.8 billion. Ford has a nest egg of $33.5 billion. Chrysler, considered the most vulnerable of the Big Three, has had its cash rolled into Fiat’s for a total of $27 billion, leading the industry with the highest cash-to-revenue ratio of 36.2%. (“GM Says UAW Contract Raises Labor Costs $215 Million by2013,” Business Week, 9/29/11; “Auto industry’s huge cash cushion helps insulate against double dip,” Automotive News, 10/12/11.)

Although most of the media proclaimed a win-win for the company and union, some reporters dared to point to the obvious: GM throws away a billion dollars a year in poorly executed product development plans, and upper management’s compensation packages are outrageous while labor and manufacturing costs total only 15% of the vehicle cost.

Corporate heads are still stuck on producing private vehicles that will choke the earth rather than developing the mass transportation we so desperately need.

November/December 2011, ATC 155