The UAW: Using Trade-Offs to Gain Traction

It's helping Detroit cut costs in exchange for membership growth

The outlook for Detroit auto makers is fairly grim these days. They've lost billions of dollars in the rough market of the past two years, and they have few hot new models on the horizon to bail them out. The Big Three also continue to lose market share to Japanese rivals whose younger workforces don't burden them with the billions in retiree pension and health costs that weigh down U.S. carmakers. Nor is Detroit likely to get significant help from the United Auto Workers when its labor pacts expire on Sept. 14. The union blames the companies' woes on poor management and has no intention of slashing members' rich wages or benefits to bail them out.

Despite the hard line, though, the UAW and the Big Three have inched in the past year or two toward some new common ground. The union has agreed to allow GM, Ford, and Chrysler (DCX ) to shed thousands of jobs through buyouts, attrition, and by outsourcing work to lower-wage parts suppliers. In effect, union leaders are helping auto makers to restructure by turning over parts jobs that pay $22 an hour to suppliers that pay just $14. Overall, the Big Three is likely to dump nearly 50,000 jobs by 2007, or about one-fifth of their collective workforce, estimates Sean McAlinden, labor analyst with the Center for Automotive Research in Ann Arbor.

In return for its accommodating posture, the UAW has persuaded Detroit to help bolster its badly depleted membership, which has slid to half the 1.5 million members it had 20 years ago. The union has gained the most from this swap at the parts suppliers, which the auto makers have leaned on to meet the UAW's demands for hands-off behavior in union organizing drives. The most recent example: In mid-August, Dana Corp., which produces everything from chassis to brakes, announced a so-called neutrality pact with the union, agreeing to forgo formal union elections and allow the UAW to launch organizing drives without management opposition. The UAW already has won more than 10,000 new members since 2001 through similar deals with parts makers Johnson Controls Inc. and Lear Corp. "We're concerned about keeping the Big Three competitive," says UAW Vice-President Bob King, who's in charge of organizing. "But we're also concerned about the future of the union."

The jobs-for-members swap also may help the UAW crack its decade-long goal of unionizing the foreign transplants. After more than four years of conflict, the union finally has persuaded DaimlerChrysler Corp. to remain neutral in sign-up drives at its nonunion U.S. factories. UAW President Ronald A. Gettelfinger and Vice-President Nate Gooden reached a secret understanding with DaimlerChrysler officials at the company's headquarters in Stuttgart, Germany, last fall, BusinessWeek has learned.

That paved the way for the union to quickly sign up 3,100 workers at two truck plants in North and South Carolina that belong to Freightliner Inc., a DaimlerChrysler subsidiary -- with little public notice. The UAW plans to follow suit at the truckmaker's other two U.S. factories, then move on to the big prize: the Mercedes factory in Vance, Ala., which opened in 1996. Skittish company and UAW officials decline to speak publicly about the deal, although the UAW's President King, who's in charge of organizing, makes no secret of his plans to go after the transplants. "We can only maintain good wages and benefits at the Big Three if their competition is paying [them]," too, says King.

The impact of all these moves could soon be felt across the industry. While the union isn't likely to grant immediate relief in its new contracts, the Big Three will see their costs decline as suppliers make and assemble more parts. The suppliers themselves face higher expenses, since many now pay as little as $10 an hour for nonunion labor. But that could be offset by the added business they will be getting from the Big Three.

Long term, even the transplants could be affected. Their $500-per-vehicle labor cost advantage vs. Detroit could begin to erode as the UAW lifts the price of labor for parts, since the transplants buy many of their parts from the same U.S. suppliers. And if the UAW finally succeeds in unionizing Mercedes' 2,100 Vance workers, the union could gain enough psychological momentum to sign up workers at the other transplants, labor experts say. The union has failed repeatedly to win unionization elections at Nissan Motor Co. and Honda Motor Co. over the past decade. But unionizing even a few would begin to even out the competitive footing across the industry. "The union desperately needs a win" among the transplants to maintain its ability to set wages, says McAlinden.

That desperation is behind the union's willingness to trade the loss of higher-wage, company-run parts plants for a leg-up with organizing in the union-hostile South. In recent years, the UAW has kept quiet as Chrysler has made plans to sell up to five parts plants. Still, it took four years for DaimlerChrysler's German execs to accept the trade-off. In 1999, both Freightliner and Mercedes mounted stiff opposition to UAW organizing drives, defeating them handily.

This time around, when Freightliner agreed to neutrality, top brass even joined union organizers at worker meetings to drive home the point that management wasn't fighting the union. "Management made it clear that the plant would be competitive" even if workers joined the union, says one UAW organizer involved in the campaign. Still, unionizing other transplants won't be easy even if the UAW wins at Mercedes, as union officials expect to do after the current contract talks. After all, the UAW has nothing to trade the Japanese for labor peace.

Where the union has leverage is with parts makers. Back in 2001, Johnson Controls, which makes seats and auto interiors, agreed to stop fighting unionization, in part under pressure from Ford, a major customer that wanted to maintain peace with the union. The UAW has since organized nine Johnson plants. Dana is already partly unionized; the union now hopes to recruit the rest of its workers.

The suppliers aren't thrilled to accept unionization. But they say they can stay competitive as long as the UAW doesn't try to hold them to the $22 the Big Three pay. Says one parts executive: "If they get greedy, it will be disastrous for the union and the companies."

Clearly, the UAW has much ground to regain. Detroit's market share -- and hence the UAW's -- fell to 60% this year as the transplants grabbed more sales. In parts, the union now represents just 23% of the workforce, down from 55% in the late 1970s. Unless it can turn those numbers around soon, its contract talks with the Big Three may look more like begging than bargaining.

By David Welch in Detroit

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