Twilight Of The UAW

The pressure to make wage and benefit concessions won't go away

For more than two decades, the United Auto Workers has grudgingly allowed Detroit carmakers to slash jobs as they have struggled to keep pace with the onslaught from foreign rivals. That's what UAW President Ron Gettelfinger agreed to when he signed off on General Motors Corp.'s (GM ) buyout of more than 40,000 jobs at the No. 1 carmaker and its former parts unit, bankrupt Delphi Corp. (DPHIQ ). Where the union has always drawn the line is on bedrock issues: wages and benefits for workers and retirees.

This time, though, that line won't hold. GM's buyouts are the beginning, not the end, of the concessions the union will have to make over the next few years. Unless GM and Ford Motor Co. (F ) see miraculous sales rebounds, the UAW at last will have to give ground on pay and health care. Already, Delphi's tough-talking chairman, Robert S. "Steve" Miller Jr., has issued an ultimatum requiring pay cuts of nearly 40% for the remaining 12,000 Delphi workers who can't take GM's offer. If the union continues to refuse, Miller could impose a harsher labor deal in bankruptcy court.

Gettelfinger can't look for relief across town, either. Ford has already announced plans to slash 25,000 jobs and will likely do a buyout deal, too. Similarly, bankrupt auto parts makers -- including Collins & Aikman (CKC ), Dana, and Tower Automotive -- are using the courts to cut pay or close factories. Says a high-level official at another union: "This is a leadership moment for the UAW. We've had to deal with this in steel and airlines; now it's autos' turn."

What's going on is nothing less than the slow death of what was once the country's most powerful industrial union. Despite years of relentless global pressure, the UAW has been able to maintain some of the best blue-collar posts in the U.S. But like lumbering GM itself, the union failed to realize what it would take to compete in a world economy. In the 1980s and 1990s, it fought concessions that would have helped U.S. carmakers fend off imports. The upshot: Like GM and Ford, it's paying the price today.

This year alone, the UAW will lose about 70,000 of its 640,000 members as a result of cuts at Ford, GM, and Delphi, bringing total membership to well under 600,000, vs. 1.5 million in 1980. At the same time, wages at parts makers are plunging and the paid-layoff clause, known in Detroit as the JOBS bank, is certain to be vulnerable when Big Three executives and UAW leaders face off in bargaining next year. Add it all up, and "this is the decline of the UAW," says Sean McAlinden, chief economist with the Center for Automotive Research in Ann Arbor, Mich. "We're in the 21st century. It's over."

The UAW's setbacks highlight a broader challenge faced by blue-collar America. Just as union bargaining muscle helped make the middle class, so too does its weakening signal the stiffer barriers less-skilled workers face in today's globalized economy. Just 52% of households headed by someone with only a high school degree are middle-class in 2003, vs. 68% in 1969, according to the National Center on Education & the Economy in Washington. "There are still opportunities for those without higher education, but they're shrinking every year," says NCEE Senior Fellow Anthony Carnevale.


UAW leaders bristle at the thought that they are losing clout. Gettelfinger told BusinessWeek in an interview last year that "every Labor Day there are stories written that we're going away. But we're still here." True, he does still wield tremendous power over the Big Three. He negotiated buyouts of $35,000 to $140,000 from GM rather than pink slips for workers. GM will fund the estimated $4 billion to $5 billion in total restructuring costs for its plants and those of Delphi by selling off parts of its General Motors Acceptance Corp. (GM ) finance arm and its stakes in Japanese auto companies, which is what Gettelfinger really wanted. And so far, the cuts to health-care benefits still leave his retirees with a better medical deal than most employees have. Nor have hourly workers yet lost ground in health care.

But the UAW's grip on wages and benefits can't last. America's employer-paid medical insurance amounts to an ever-increasing tax on domestic manufacturers trying to compete with foreign rivals based in countries with nationalized health care. Meanwhile, foreign auto makers get state and local tax breaks to build new plants in the U.S. that in some cases amount to five years' worth of their wage bill, says AlixPartners LLC Managing Director John Hoffecker.


There's another buzzsaw coming: cars from China. Every big auto maker is expanding production in the Chinese market, and analysts expect most to start exporting vehicles to the U.S. in a few years. "Chinese cars are coming," says Harvard University economics professor Richard Freeman. "I don't know if the UAW can hold on to its wages and benefits [in the face of that]."

The UAW's prospects look eerily similar to those that once faced another old-line union, the United Steelworkers. In 2002, after decades of relentless battering from global rivals, most U.S. steelmakers were hopelessly uncompetitive. To salvage what was left of the industry, the Steelworkers agreed to cut wages and benefits as well as jobs.

Most dramatically, the union allowed players such as U.S. Steel Corp. (X ) and Bethlehem Steel Corp. -- then headed by none other than Delphi's Miller -- to all but wipe out their legacy costs. The companies ended retiree health plans and used bankruptcy court to dump pension plans onto the federal government, cleaning billions off their books and out of steelworker retirees' pockets.

The UAW appears to be headed down the same path. "We were told by our union that we can expect to see a very different Delphi," says Skip Dziedzic, shop committee chairman of UAW Local 1868 near Milwaukee. "And I think we will." UAW workers can also expect to see a very different auto industry, and because their fortunes are so intertwined, a vastly diminished union.

By David Welch, with Aaron Bernstein in Washington

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