Oct. 18 (Bloomberg) -- Debbie Werner is the face of an American workers’ revolution.
In a break with decades of U.S. auto-union tradition, the prevailing wage paid to new unionized autoworkers is less than that of the average laborer producing items ranging from metal and wood products to food and beverages.
Werner has lived through it all: She joined General Motors Corp. in 2008 before its bankruptcy, lost her job when the factory closed and then was rehired in 2011 when it opened again after the bailout -- joining thousands of new workers earning about half what autoworkers were paid before 2007 and without traditional pensions and retiree health care.
Part of President Barack Obama’s re-election platform is his 2009 decision to support an $85 billion bailout for the U.S. auto industry, the subject of a vigorous exchange at this week’s presidential debate. Less understood is the new class of autoworkers who, even before the bailout, started taking jobs that gave up decades of union gains and agreed to an uncertain economic future to bring thousands of jobs back to American factories.
“In 1960, an autoworker was the symbol of high productivity, global leadership and a middle-class future,” said Harley Shaiken, a professor of labor relations at the University of California at Berkeley. “Today, an autoworker is a symbol of all the pressures of the global economy.”
Werner, though, said she couldn’t be happier.
“It’s just an opportunity for me,” said the 30-year-old, who installs seat-belt covers and dashboard parts on Chevrolet Sonic and Buick Verano cars at General Motor Co.’s factory in Orion Township, Michigan. “It’s a better life for my kids.”
Since 2007, the United Auto Workers has agreed to let automakers hire new workers who forgo traditional retiree health care, equal pay for equal work, job security and pensions in exchange for jobs that would have gone to Mexico or Asia. About 13 percent of GM, Ford Motor Co. and Chrysler Group LLC hourly workers, or 15,155 employees, now are entry level.
The union’s concessions were inconceivable -- and easily rejected by labor leaders -- just a few years before. Now, as many as half the workers at the Michigan factory assembling Sonic and Verano sub-compact cars make less than the $19.10 hourly average U.S. manufacturing wage and lack traditional union retiree benefits.
The U.S. economic recovery has been built on the shoulders of autoworkers such as Werner, who left a $9 an hour job at a nursing home in November to earn $16.78 an hour at GM, and David Ramirez, 39, who earns $18.41 an hour installing mounting brackets for transmissions at the same plant. In August 2011, he escaped an $8 an hour job making doughnuts at Wal-Mart.
While the rest of the U.S. economy continues to lag, the significance of the auto industry’s comeback is hard to overstate. Autos contributed 18 percent of the 2.2 percent average rate of growth for gross domestic product in the recovery that began in the third quarter of 2009 -- when GM followed Chrysler out of U.S.-backed bankruptcy -- to the second quarter of 2012, according to data from the Commerce Department.
The U.S. auto industry sold cars in September at a faster rate than in any month since March 2008, before the failure of Lehman Brothers Holdings Inc. GM earned $9.19 billion last year. Automakers throughout the U.S. have been on a binge of hiring that has led to third shifts in eight states.
“This is the reason we have job growth in the United States,” Kristin Dziczek, director of the labor and industry group at the Center for Automotive Research in Ann Arbor, Michigan, said in an interview. “I don’t think we would have seen the new investments and the job growth in the United States without some movement in labor costs.”
The compromises will close the labor-cost gap at GM, Ford and Chrysler factories with those at U.S. plants for Toyota Motor Corp. and Honda Motor Co., Dziczek said. By 2015, GM’s total cost for wages and benefits will be about $59 an hour, compared with $56 at Toyota. In 2007, GM estimated the gap with Toyota at $25 to $30 an hour. Chrysler’s average hourly labor costs may fall by 2015 to $53, lower than Toyota’s, CAR said.
The price is steep in terms of an elite working-class standard of living that has been a hallmark of the UAW, said Shaiken, the labor professor. The risk is that the concessions will spread through the U.S. labor market in much the same way union gains of the past seven decades have benefited workers, he said.
“They’re making a wage where hopefully they can have a reasonable family life,” Michigan Governor Rick Snyder, a Republican, said in an interview at Bloomberg’s New York headquarters. “Everyone had to make some sacrifice. The cost structures were so high.”
Until now, autoworker pay has never dropped below the average industrial wage since Henry Ford instituted the $5-a-day wage for factory workers in 1914, according to a comparison of historic prevailing UAW wages provided by Ford in 2011 and pay data from the U.S. Bureau of Labor Statistics.
Applying the hourly rate for Werner and Ramirez to a 40-hour week, 52 weeks a year, would total about $35,000 to $38,000 annually. Overtime and other premiums, such as for working night shifts, can increase those totals. This is unfamiliar territory for a U.S. autoworker: between the 2011 median income of $50,502, and the poverty line of $23,000 for a family of four.
“Henry Ford pioneered it and the UAW and other industrial unions ensured it became a feature of life for the American worker,” Shaiken said of the middle-class lifestyle. “This just underscores that we’re in a very troubled time.”
Werner doesn’t feel troubled by her new job at GM. It’s much better that what she confronted four years ago, when she first came to GM for a temporary job at the Orion plant, which was then building Malibu sedans. Her cousin, who works at another GM factory in Michigan, helped her get that job. GM was about to enter bankruptcy and the plant was expected to close.
“In 2008, it was very depressing,” Werner said in an interview over lunch at a Denny’s restaurant not far from the elementary school her two sons attend in Sterling Heights, Michigan. “Both the permanent employees and the temps knew they were going to get let go.”
She said she didn’t want to live on unemployment benefits after the plant shut down, so she took the job at the nursing home. In the meantime, she went back to school to add a bachelor’s degree in health-care management to her associate’s degree in business from Baker College. Her bills mounted. Her sons, ages 6 and 8 now, heard “no” way more often than “yes,” she said.
“I gave up on GM,” she said. “I didn’t think I’d ever go back.”
The Orion plant closed in November 2009. While GM said at the time it might open at some point, workers weren’t sure.
One of them was Rachelle Wakefield, 27, a lower-paid, entry-level worker who got into the plant originally thanks to a referral from her father, Pat Sweeney, president of UAW Local 5960, which represents workers there. After Orion closed in 2009, Wakefield landed a different job with the union: calling members to help them find services and support to get back on their feet. In many cases, the phones of the 40 or so workers she tried to reach each day were disconnected because they couldn’t afford service. Many lost their homes.
“It was amazingly hard,” Wakefield said. “It was scary. We didn’t know if we were ever going to come back.”
In August 2011, Orion did open, as a very different plant. The agreement means there are fewer of the expensive, specialized workers known as “skilled trades.” In addition, union workers share some of the 4.3 million square feet under the factory roof with outside subcontractors who do non-assembly jobs for even lower pay than entry-level GM workers, Sweeney said.
Orion began making Sonics in August 2011 and in November added the Verano.
On Nov. 24, Debbie Werner got a call to be at the Orion Township plant the next day if she wanted her old job back. She was a temporary worker until June, when she was hired full-time. All her benefits will kick in shortly after a probationary period expires, she said.
Suddenly, this $16.78 an hour job that seems austere by auto standards looks to Werner like a comfortable life, an escape from the hardship facing so many other people still struggling to dig out from the 2009 recession.
Werner has moved out of government-subsidized housing and bought a newer sport-utility vehicle with leather seats and a built-in television screen. She’s planning to use profit sharing next year to look at buying her first home.
“Now I can take my kids to Chuck E. Cheese,” she said. “They actually had a real Christmas last year and I’m debt-free.”
She picks her boys up from school, sometimes making a stop at McDonald’s, before she heads to the plant for a 5:30 p.m. shift start. Her father watches the boys overnight. She carpools with her sister, who is now a temporary worker at the plant, making a regular stop each night for cigarettes and energy drinks to get ready for the shift. She gets out in time to take the boys to school and then goes to sleep, she said.
“I think things will all just go up from here,” she said. “I feel secure in my job. I feel like I have room for advancement.”
Werner’s relative prosperity is a sharp contrast with the lives autoworkers lived in past decades when UAW members often made 20 percent to 50 percent more than the prevailing manufacturing wage -- particularly from the mid-1980s, according to U.S. data. Overtime during a truck boom in the late 1990s meant some workers cleared $100,000 a year.
The pay, which is still about $58,500 before overtime for a traditional worker, meant they could afford a robust middle-class life with perks such as cottages in Michigan’s northern vacation areas and collections of snowmobiles, jet skis or motorcycles. A fixed pension and health care plan helped workers maintain many of those perks in retirement.
The onslaught of cheaper models churned out by non-union workers with lower labor costs at the U.S. factories of Toyota and Honda finally weakened U.S. automakers to the point where the union was forced to make compromises in 2007 they had long resisted, said Art Schwartz, a top GM labor negotiator who worked on the agreement that created the entry-level workers before he left GM in 2009.
GM, Ford and Chrysler’s share of the U.S. market fell from 87 percent in 1970 to about half of the market in 2007.
“The UAW lost their grip on the situation when the transplants came in and they couldn’t organize them,” Schwartz said. “They came to the realization that something needed to be done.”
The deal Schwartz helped craft allows automakers to hire new workers at a wage about half what traditional members were paid and exclude them from the current $36,000 a year retiree pension plans traditional ones will get, a benefit first negotiated in 1949.
Instead of the pension, the new workers such as Werner and Ramirez have a 401(k) program that includes a small provision toward health care. Under today’s contracts, the new workers may eventually reach the same pay as traditional workers. They never will receive the fixed pension or paid retiree health care.
The U.S. autoworkers went further than others: In 2006, Volkswagen AG employees in Germany agreed to extend their work week by six hours for no extra pay in return for VW’s promise that all of its German factories would remain open. The deal was an important part of VW’s renaissance.
While the concessions were profound, they came too late to prevent GM and Chrysler from slipping toward bankruptcy in late 2008.
When the automakers first sought a bailout in late 2008, members of Congress cited UAW pay as an issue. They demanded the UAW and automakers eliminate the so-called jobs bank, a plan added in 1984 that allowed workers whose plant closed or job was eliminated to continue to receive most of their pay without having to work until they retired or found a new factory job.
Now, thanks to the UAW’s flexibility, lower paid entry-level workers and the ability to start the factory with a “clean sheet” design that allows for efficient technology, GM can afford to build small cars in Orion instead of Mexico, said Gerald Johnson, GM’s North America manufacturing manager since 2002.
Many of the techniques learned in Orion Township are spreading to other GM plants, Johnson said.
As U.S. automakers hire new, lower-cost workers the UAW has posted two straight years of membership gains, to 380,719 members last year, according to a March union filing with the U.S. Labor Department. UAW membership peaked at 1.5 million members in 1979.
The UAW has said that Chrysler and GM can have as many as 25 percent of their workforce represented by entry-level workers by 2015 and Ford is capped at 20 percent. If the automakers have more workers than that in 2015 at the entry-level wage, some of those workers may be eligible to make $28 an hour.
Already, 9 percent of GM’s 49,500-member UAW workforce is entry-level, according to the automaker’s data. About 12 percent of Ford’s 42,700 hourly workers are new hires and 20 percent of Chrysler’s 27,000 hourly workers were entry level in June.
The UAW wasn’t allowed to strike GM and Chrysler in 2011, a condition of the bailout. In 2015, it will be a traditional bargaining session and if companies are still posting healthy profits, workers may try to get back some of the benefits they gave up, Dziczek said.
“What I make right now, I could live off of it,” Werner said. “Do I want to live off of it the rest of my life? No -- $16 an hour, single mom, is not going to put two kids through college.”
While some workers may grumble about people who do the same job at the Orion factory and make more money, Ramirez isn’t one of them. He lost a GM factory job in 2009 at a plant that was closed in the automaker’s bankruptcy. He spent two-and-a-half lean years scraping by as he hoped and waited to be called back.
Besides the doughnut stint at Wal-Mart, Ramirez also tried to pay the bills by cutting lawns and by making doughnuts at a Tim Horton’s fast-food restaurant alongside a woman who had to live out of her car with her daughter.
Now, Ramirez says he feels he has been delivered from the edge of poverty onto a pathway to prosperity. Not only did his new GM job allow him to pay off his mounting debts, he also was able to afford what was once the epitome of American automotive luxury: a Cadillac. Sure, it’s an eight-year-old Caddy, but it beats the 21-year-old Ford Taurus he was driving.
“People were just surviving and now we have great jobs,” Ramirez said. “We’re the wave of the future.”
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