As a longtime observer of the auto industry, I've been watching the unfolding drama between General Motors Corp. (GM ) and the United Auto Workers with mixed emotions. On the one hand, without serious union concessions, including the recent giveback on health care, GM will never gain an edge on low-cost foreign competition. Its slide toward bankruptcy will continue. At the same time, I know from personal experience that a weakened UAW -- truly one of the last unions that can guarantee blue-collar workers a comfortable living -- isn't good for America's middle class.
But the fact remains: A union auto worker still has it better than any other factory hand in the country. And while GM is hugely responsible for the fix it's in -- relying too long on gas guzzlers for most of its profits is just one in a long list of missteps -- I'm not convinced that the UAW rank and file fully accept that the world has changed. Yes, their vaunted lifestyle -- vacation cottages in Michigan lake country, enough money to send the kids to college, living without fear of unpaid layoffs -- isn't going to disappear tomorrow. But major concessions are coming.
UAW workers have managed to freeze the clock much longer than most of their blue-collar brothers and sisters. My father saw the writing on the wall as far back as the late '70s, when union power started to fade. In 1979 he made $16 an hour -- the equivalent of $44 an hour today -- as a union machinist at Miller Brewing Co.'s (SBMRY ) brewery in Fulton, N.Y. The union's 1,500 workers went on strike that year over cost-of-living increases. My dad walked the picket line dutifully but thought the union was being too stubborn. After all, the nation was in recession, and many other Americans were losing their jobs.
The two sides settled the strike, but the world was about to change. Much like GM is suffering today, Miller was in pain through the '80s as domestic beer sales dropped. By the end of the decade it would get hit by hipper rivals -- in this case brewers such as Heineken (HINKY ) and Corona -- as well as Budweiser, which was marketing the heck out of its brews. With sales going flat, Miller laid off 100 or so workers, my father among them, with the possibility they'd be recalled if things picked up. Miller never did call, and by 1994 the Fulton brewery was closed.
UAW workers aren't there yet, but the clock is ticking. It is becoming increasingly difficult to justify their outsize wages and benefits. Yes, the UAW will forgo most pay raises for the next two years, but their $25 an hour is still 50% better than what the average plant worker now makes. UAW workers still get free health care. They also have pensions; half of manufacturing workers and most employees don't. Perhaps most astounding, the $752 annual premium that their retirees will pay for family medical coverage is just one-fourth the contribution that the average working family pays in the U.S.
In short, the time has come for serious concessions. The idea that UAW workers can't be laid off without pay is an artifact of a bygone era. GM has suggested that it may cut 25,000 workers by 2008, but mostly through retirement. Let's face it: If GM can't stop its market-share slide, the auto maker is going to need many more cuts than that, and it won't be in a position to pay furloughed workers up to 90% of their salaries like it does today.
Dirt-cheap health care won't be around much longer, either. By getting retirees to pay some of their costs under the recent deal, GM can wring out $1 billion a year in savings. But factor in health-care inflation, and GM's outlays will be close to today's levels by the time the current labor contract comes up for renegotiation in 2007. The upshot: Union workers will likely have to start paying for some of their health care, and it will have to be more than the relatively small contribution that retirees will soon pay.
All of this will be painful -- just as it was in the early 1980s for my family and countless other middle-class families. The UAW should be glad they've had it this good for so long.
By David Welch