UAW May Not Like What’s Next After Record Pacts

Under its new-style leader, the United Auto Workers just won a record economic settlement with the Detroit Three automakers. The UAW already is racking up huge wins at the automakers’ plants in members’ overwhelming votes to ratify the new accords. But the union’s expensive new contracts with General Motors, Ford and Stellantis may prove to be a pyrrhic victory at best.

That’s because the six-week strike and hugely inflationary agreements will accelerate the UAW’s losses in its war against automation, foreign automakers and the electric-vehicle revolution.

In essence, while demonstrating unusual bluster for a UAW president and wielding an old-style willingness to caricature the automakers as evil capitalist predators, Shawn Fain decided to extend the union’s recent practice of padding the compensation of its dwindling existing membership while further undercutting possibilities for future job growth that could keep the organization vital for longer.

“Even with the [lower-tiered] wages for new workers” that the automakers won during their bankruptcies and the Great Recession of 2008 and 2009, a top automotive labor-relations source told me, “senior UAW workers gave up nothing then. That’s the same kind of path [Fain] is pursuing now.”

Fain used shrill rhetoric, clever PR tactics, public shaming of automotive CEOs, unpredictable targeting of Detroit Three facilities, and the blunt instrument of idling high-profit factories to extract agreements from each of the carmakers to raise the pay of union members by a stunning 25%. Those increases over the next four and a half years of the tentative agreements comprise a bigger percentage than they’ve received over the past 22 years combined. The proposed deals also bring back “cost-of-living adjustments,” get new hires to top wages more than twice as fast as before, and significantly improve pension and 401(k) plans.

In boasting about his achievement, the UAW president claimed that the size of the wage increases also gives his union significant new hope that non-union workers at foreign-owned auto plants in the United States will be inspired to press for UAW representation. The union hasn’t succeeded in cracking any of those Asian- and European-owned carmaking facilities in the nearly half-century they’ve been making automobiles in the United States.

Unfortunately for the union as a whole, Fain only nominally addressed the concerns of low-seniority young and future members. He touted the fact that the UAW succeeded in getting the Detroit Three to put the battery and electric-vehicle plants they’re still constructing under the union’s national agreements for the automakers. But here’s how Fain actually made the UAW’s efforts to stabilize its membership base and grow its automotive representation more vulnerable:

• Not so much. Fain’s “victory” in getting the union’s national agreement to cover Detroit Three EV-making operations is basically meaningless. That’s because workers at each facility will have the right to decide whether they want representation by the UAW or by any union at all.

The automakers’ concession in this area also is complicated by the fact that many of the battery plants being built or considered are joint-venture enterprises with foreign automakers, which are under no compunction to deal with the UAW.

“The whole sticking point is that legally, [automakers] can’t tell a plant that hasn’t even been built yet that, when it is built, it’s going to be represented by the UAW, or by a different union, or be non-union,” a labor-relations source said. “What [Fain] got more than anything is a right, when one of these plants gets operating, to do a ‘card check’: ‘Do you guys want to join the union?’”

In fact, the source said, the Detroit Three “have never fought UAW representation in those plants, so [Fain] winning that is just for the headlines. He didn’t have to win that. We don’t care about that.”

• A big wallop. The strike cost the three companies billions of dollars — at Ford, for instance, the toll was $1.3 billion. That’s a big financial dent for the automakers to overcome in any case, especially at a time when the Detroit Three are having to invest so heavily in their transition to an electrified future. So while crowing about the unprecedented gains for his members, Fain has significantly handicapped their employers going forward.

As far as Stellantis is concerned, for instance, another top carmaker labor source said, “with the global footprint that it already has for auto production, [CEO] Carlos Tavares can just easily move production out of the United States.”

• Machine over man. Ballooning labor costs will simply compel the Detroit automakers to automate their factories more quickly. The UAW pacts will add about $850 to $900 in labor costs per vehicle, Harbour Associates figured — a hefty amount when the average new vehicle price these days is about $48,000, according to Kelley Blue Book. Detroit Three labor costs before the new contracts averaged about $65 an hour versus about $55 an hour for foreign automakers in the U.S. and about $45 for Tesla.

“The engineers just go to work to figure out how to offset the cost of the contract by reducing labor costs and automation and new processes,” said a source. “The higher cost of labor per hour now justifies a more expensive robot that wasn’t worth the cost before. There’s more of an incentive to automate.”

• Union virus? Fain is simplistic in his assertion that foreign-plant workers now will become more receptive to UAW membership. It could well be true to a limited extent; Toyota raised wages by 9% at its U.S. operations, effective January 1, and shortened the amount of time it takes for workers to reach top compensation levels, in the wake of the UAW settlements.

But in part, such moves by foreign automakers on balance make it less likely their employees would choose to join the UAW, not more. Detroit’s rivals could boost wages significantly and still have a big cost advantage over Detroit Three labor-cost levels.

“Toyota already pays wages close to the Detroit companies, but it’s able to offset those costs with greater use of temporary workers and by not having the burden of a union to deal with,” said a source. “And the UAW won’t be successful at Tesla, or [CEO Elon] Musk will just threaten to take away workers’ stock options.”

• EV equation. Fain’s agreements do nothing to slow the advance of electric-vehicle manufacturing, which overall uses about one-third less labor than traditional production of internal-combustion engine vehicles. All he’s done is prompt GM and Ford to give pause to their plans to build EV plants in UAW jurisdictions such as Michigan, where for sure they would have unionized workforces.

For example, GM has said it will no longer provide EV-production targets, so that it can build to market demand; the automaker also has pushed back the planned reopening of a Michigan assembly plant that will be a linchpin in its EV output. Ford, meanwhile, said in the wake of Fain’s victory that it will delay about $12 billion in EV spending.

• So long, buddy. The long era of greater cooperation between the UAW and the Detroit Three will be long gone, something that Fain promised in his election campaign. Ford Executive Chairman Bill Ford “likes to hark back to the days of [Andy of] Mayberry, and his uncle [Henry Ford II] loved the union. But now you’ve got [Ford CEO Jim] Farley maybe believing that this is just a line item for us now.”

GM CEO Mary Barra “enjoyed the time of the union as partner,” a source said. But the Detroit  Free Press quoted sources as saying Barra was considering dispensing with the traditional hand shake with the UAW president after union members presumably vote to ratify the GM agreement.

“Fain got a lot of things for his current membership, but if you’re [Barra], what are you going to do now?” This sourced added, “The current union leadership has brought in all new people who are concerned with social justice, people from the Bernie Sanders wing. It’s hard to bargain with those folks.”

• Knock-on effects. The strike and its aftermath will hurt automotive suppliers the most. The strike was devastating to many Tier 1 and sub-tier suppliers, who have laid off thousands of workers to mitigate the financial impact, Automotive News reported. Suppliers have struggled with labor for years, and their margins are much thinner and haven’t returned to pre-pandemic health.

The labor exodus from their jobs to industries with better balance and stability has been one of the biggest pain points among suppliers over the last couple of years. Fain’s costly strike is likely to accelerate that exodus, while the UAW’s remaining 146,000 workers at the OEMs reap all the benefits.

In short, Fain created quite a sensation with his unconventional strike strategy, fiery speeches and, ultimately, the huge gains he won for members at the Detroit Three. His membership is responding: For example, in one of the first ballots, a whopping 82% of the 4,800 workers at Ford’s Wayne, Michigan, assembly plant — one of the facilities struck by the UAW — voted to ratify Fain’s tentative deal with the company. But the automakers will react hugely to this bitter pill, and Fain might not be looking like such a hero to idled UAW members when he runs for re-election in 2027.

The post UAW May Not Like What’s Next After Record Pacts appeared first on ChiefExecutive.net.

Original Source Link