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Commentary: Bargaining In Detroit: One Size No Longer Fits All

News: Analysis & Commentary: COMMENTARY


Is time running out for the auto industry's long-held tradition of pattern bargaining? Even as United Auto Workers President Stephen P. Yokich celebrated the deal with Ford Motor Co., much of which he expects Chrysler Corp. and General Motors Corp. to meet, that question is increasingly being raised around Detroit.

Trying to squeeze GM, Ford, and Chrysler into a one-size-fits-all contract no longer makes much sense--particularly for the companies. And even the union probably could do better for its members by using a different approach. The system is a vestige of the 1950s, when Detroit ruled the roads. Today, one-third of the market is owned by foreign carmakers not covered by the pattern. The Big Three also face divergent financial and operating problems. Chrysler, for example, spends $600 less to build each vehicle than GM does, and earns 46% more. That productivity gap allows Ford and Chrysler to use the talks as a weapon against GM.

TRIENNIAL CONTEST. In the postwar era, pattern contracts spread across the auto, rubber, steel, and other businesses. The egalitarian ideal made sense in time of U.S. hegemony: By making wages and benefits uniform industrywide, companies competed on product quality, not the backs of their workers. "You took labor costs out of the competitive equation," says ex-UAW President Douglas Fraser.

But foreign competition changed that. Pattern bargaining has been much weakened in every major manufacturing industry except autos. And today, rather that standardizing Detroit's labor costs, pattern talks put them in play more than ever.

Nowhere is that more evident than in the triennial "beauty contest" the Big Three engage in to be named as the UAW's "target." The rush to be first isn't surprising: The winner gets to establish the pattern its rivals must more or less follow. Not only can the lead company craft a deal that best suits its needs but it can stick it to rivals at the same time.

Take the deal Ford struck guaranteeing a minimum employment level only 5% below its current staffing. That's virtually meaningless for Ford, which has hired nearly 10,000 workers since 1992 and plans no big cuts. But Ford knows such a pledge hurts GM. Without a 30% cut in its labor force, analysts say GM can't reduce its productivity gap. Says Morgan Stanley & Co. auto analyst Stephen Girsky: "GM is going to have to look to get around the pattern."

Certainly, the UAW knows that, too. And problems at individual companies have led the union to interpret the pattern loosely in past talks. Still, thanks to Ford, GM will have to agree to a restrictive minimum jobs level where none existed before. Analysts say the best GM can hope for is job cuts of 15%--half of what it needs.

When the strongest company sets labor costs for the weakest, it perpetuates and often worsens the laggard's problems. Chrysler and Ford, with the UAW's complicity, drastically slashed their workforces during their brushes with death in the early 1980s. GM never had the management discipline to do so. That left GM's labor costs the highest of the Big Three--one reason why its U.S. auto profits are the lowest.

The irony today: GM seems ready to make some of the tough cuts, but the pattern system intended to protect GM's 220,000 UAW workers may take money out of their pockets. Although the 1982 UAW talks established profit-sharing for workers, GM's weakness means its workers get little compared with those at Chrysler and Ford. "The union has prevented GM from restructuring and cost each of their employees thousands in profit-sharing," says Bear, Stearns & Co. analyst Nicholas Lobaccaro.

"DEATH KNELL." GM must move fast. Some 2.7 million vehicles sold in the U.S. this year will be made at Japanese transplants. Most of their workers are nonunion--paid an average of $38 an hour in wages and benefits, vs. $43 at GM and $40 at Ford and Chrysler. "The transplant situation is the final death knell for the pattern," says University of Michigan labor economist Sean McAlinden.

Even Yokich has signaled that he is willing to make the pattern more porous to accommodate each auto maker's needs. "What do you call a pattern?" he asked this summer. "Each company is different." But stretching the pattern won't end it. Since the pattern talks increase the union's bargaining clout, the UAW would bitterly fight any attempt to dismantle them. Nor could the companies impose such a change without risking enormous labor strife.

Instead, Fraser says it may be time to construe the industry pattern far more narrowly. Rather than set industrywide rules for a thorny issue such as outsourcing, for example, he says the pattern might be applied only to hourly wages, pensions, health care, and standard benefits. The pattern is likely to survive in some form this year, but with luck, it will be the dying gasp of a 20th century tradition.By Keith Naughton

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