The contract negotiations between the Detroit automakers and The United Autoworkers Union (UAW) continue apace. The employers are adamant: they need union concessions to survive. BIG concessions. Citing a $25/hour labor cost differential between their operations and those of the transplants, The Big 2.8 claim their salvation depends on taking food from union workers' table negotiating large pay and benefit cuts. But would such concession from the carmakers' "partners" actually bail them out of hot water? 

First, the majority of that disparity comes down to The Big 2.8's retiree overhang. Including workers' spouses, Chrysler pays health care and pensions to 78,435 non-active UAW beneficiaries. Ford pays out to 123,007 off-line union dependents. And GM signs checks to 338,902 non-working union members. Take those numbers out of the equation and the actual direct labor costs between domestic and transplant automakers are roughly comparable.

Second, when it comes to union concessions, what's the big deal? For the sake of argument, let's say the UAW negotiators lose their collective [bargaining] minds and agree to a $20/hour cut. GM has approximately 80K active UAW workers on its payroll. Cutting $20/hour from their union personnel costs will save them $1.6m/hour. Now, let's take that out to a year, based on a 40-hour work week (2,080 hrs/year). In theory, GM would save $3.3b/year. 

Let's also assume GM sets up a union-controlled VEBA for UAW retiree health care. That little item would run anywhere from $30b to $40b. While a UAW VEBA would only require a one-time payment of cash and stock, it would take The General at least ten years to recoup the cost from the resulting savings.

Ford? Same boat. FoMoCo's in hock up to and including their Blue Oval, facing a mountain of long-term debt. Any savings The Blue Oval Boys realize from cutting UAW salaries/benefits might cover their interest payments. Chrysler must fry the same fish.

Detroit must look for more fundamental solutions. The Big 2.8's existing union contracts and a woeful lack of flexible manufacturing capacity make it cheaper to keep a factory turning out cars (and let them pile up on storage lots) than it is to suspend production (and let supply decrease to match diminished demand). The results: excess inventory, fire sales,and continued brand degradation. Union negotiations need to focus on facilitating efficient operations, rather than simply cutting costs.

Meanwhile, the crucial adjustments must come from management. They can try to lay blame wherever they want, but the union didn't approve the lackluster designs that have been rolling out of Detroit for years. The union's not responsible for badge-engineered product planning. The union didn't fill the executive suites with yes men (and women) who will kiss whatever they have to kiss to keep their jobs. And the union had nothing to do with putting beancounters in charge instead of engineers.

Bottom line: labor costs have zero impact on what cars consumers decide to buy. You could argue that an extra grand here and there– taken out of direct costs and plowed back into new vehicles– would make The Big 2.8's vehicles more competitive. Given the failure of heavily discounted domestic product to strike back against the Toyotas of the world, you could make an equally compelling case that lowering the domestics' production costs wouldn't have any impact on the end result and, thus, U.S. consumers' choices.

While Mulally's Ford seems to "get it." GM under Wagoner singularly fails to recognize this simple fact. And Chrysler is now even more of a question mark. Lest we forget, the automakers have been digging themselves into this very deep hole for a very long time. Decades of hit-or-miss product planning, questionable quality, emphasis on quarterly profits instead of long-term results and obscene executive bonuses have all yielded a lineup that can't cut the mustard.

There's only one way to "save" Detroit. American automakers and their unions must set aside their adversarial relationship and find a way to build the world's best cars– price no object. That's right: they must stop focusing on margins and start focusing on market share. Making a small profit on a smaller and smaller slice of the U.S. market will do nothing more than prolong The Big 2.8's agonizing journey on the road to oblivion. They need to recapture the high ground, destroy the transplants' mindspace advantages, restore America's carmaking reputation and THEN think about profits. 

Is there enough time? Probably not. At this point, committing all remaining resources to building the world's best automobiles at any cost is a death or glory strategy that has more than a whiff of the grave to it. But thinking that Detroit's future depends largely on reducing labor costs is the worst kind of self-delusion: the kind without any chance of working. 

When it comes to the United Auto Workers (UAW) contract negotiations with The Big 2.8, employee and retiree health care is the 1000lbs. monkey on the automakers' backs. General Motors' health care obligations total $46b, Ford clocks in at $23b and Chrysler's looking at an $18b tab. And consider this: GM's 432k retirees pay roughly $750 per year out of their own pockets for medical care, while their former employer shells out $3.3b on their medical benefits. That's a Hell of a lot of bananas.

The Big 2.8's beancounters estimate that retiree medical coverage adds $1k to $1.5k to the price of every new car and truck they sell. In response, the UAW has been calling for a national health care policy. But even if Michael Moore's mantra passed into law tomorrow, it would take years for the new policy to have any effect on the automakers' bottom line. And right now is when the automakers need relief.

The Big 2.8 has to do something at the bargaining table; at the least, they must show both Wall Street and their stockholders they're not down for the count. So they've decided to go cold turkey and foist all their retiree health care obligations onto the UAW. 

There is precedent. In last year's contract with the United Steelworkers (USW) union, Goodyear agreed to transfer all their USW retiree medical obligations to a Voluntary Employees' Beneficiary Association (VEBA).

A VEBA is a trust fund set up specifically to pay eligible medical expenses. It's funded by employer contributions, payroll deductions and other sources (e.g. cashing-out unused leave upon retirement). The assets in the account are tax exempt, and they can be used to pay medical expenses directly or reimburse participants.

At the time the contract was signed, Goodyear's total health care obligation to their retirees stood at $1.2b. Goodyear will make a one-time $1b payment in cash and stock into the VEBA. After that, the company will have no further obligation to their retirees, current or future. They get to move a $1.2b liability off their balance sheet. In return, Goodyear's retirees get medical benefits that can't be touched should Goodyear file for bankruptcy.

If The Big 2.8 succeed in setting up a similar arrangement with the UAW, the initial payments would be high, but the long term savings would be impressive. If GM got the same deal as Goodyear– paying 83 cents on the dollar– they'd end up forking out a bit over $38b to rid themselves of a $46b debt. Ford would pay just over $19b, and Chrysler could shell out just under $15b. A lower rate would save even more money.

It's likely the UAW would agree to such a plan. Again, there's precedent. When the UAW signed its "historic health care giveback" with GM (upping members' contributions), the General set up a $3b company-controlled VEBA [partly] to cover members who couldn't afford the additional payments.

The UAW knows they've got to do something. At a union seminar earlier this month, UAW vice president Bob King acknowledged that Ford could easily be forced into bankruptcy. Assuming the UAW wants to help Ford avoid Chapter 11 (and believes it can), and assuming Ford could find the money to fund the plan, a union-controlled VEBA would certainly be viewed as "helpful."

And of course, if Ford gets a health care VEBA, GM and Chrysler will want one too. And that means the UAW could end up running one massive medical fund for all their automotive industry retirees. And, as the UAW has been recruiting members from other industries, it's logical to assume other employers would want to join the VEBA club.

The U.S. health care industry is one of the UAW's growing "partners." That's right: the UAW's organizing an industry they could soon be paying to support. In fact, under the VEBA scheme, the UAW would become their own customer. The prospect of the UAW entering into the health care management business creates some interesting "what ifs?"

If the union went looking for the lowest health care services rates possible (as most medical plans do), would they refuse to pay for care at a hospital where the charges are higher to cover the increased benefits paid to their UAW employees? Would they make their retirees use a non-union medical facility because it costs less? Would they call for a strike at a hospital where it could put their beneficiaries at risk of sub-standard care when the nurses and technicians walk out?

If the UAW balks at a health care VEBA, the automakers may file for Chapter 11. If the union agrees to a union-controlled VEBA and an automaker goes belly-up before the deal goes down, the union's stiffed. Even if everyone stays in business, a UAW health care VEBA will encounter the exact same inflationary pressures formerly experienced by the union's previous employers AND it will generate tremendous conflicts of interest. Regardless of what happens, someone is going to be unhappy with the outcome. 

According to the now-infamous Georgetown, Kentucky memo, ToMoCo’s brass are concerned that their workers’ wages are growing faster than the company's profits. To rectify this situation, Toyota’s newest plants will pay workers based on local manufacturing wages– not United Auto Workers (UAW) scale. Naturally, the UAW is using this as flamebait to organize Toyota’s stateside operations, starting with Georgetown. Toyota’s launched its next salvo in this ongoing war of wages: they’re contemplating pulling Tacoma production from NUMMI.

GM and Toyota formed NUMMI (New United Motor Manufacturing Inc.) in 1984. The Fremont, California facility was Toyota’s first foray into American manufacturing and GM’s chance to learn about Toyota’s take on lean manufacturing. The 380-acre NUMMI facility currently cranks-out approximately 250k cars (Toyota Corolla, Pontiac Vibe) and 170k trucks (Toyota Tacoma) per year.

The NUMMI plant employs around 5440 “team members.” Some 4550 of these employees also play for the UAW. This makes NUMMI the only Toyota plant using UAW labor and one of the highest-labor-cost manufacturing facilities in the entire American automotive industry.

Some NUMMI workers earn more than $32 per hour, plus benefits. Combine this compensation with the joint venture's location– a high-cost area away from Toyota’s major suppliers– and it’s no wonder the factory’s drawn negative attention from its Tokyo taskmasters. 

In a prepared statement, NUMMI officials recently declared that the plant must do more to improve its “competitiveness” and stated it would only stay in business “only if it is able to do so.” That’s management-speak for “if we can’t get labor costs under control we’re abandoning this turkey.” 

Moving Tacoma production from Freemont to a lower-cost production facility does not pose insurmountable difficulties. Toyota’s Tijuana plant already makes the beds for all Tacomas, along with small quantities of complete trucks (34K in ’06). For the money saved in labor costs, the world’s largest automobile manufacturer could expand their Mexican production facility to accommodate increased Tacoma production.

Toyota also has excess capacity at their new Tundra plant in San Antonio. As the automaker builds Tundras in both Texas and Indiana, they could shift production around to open up some spare capacity for the Tacoma, at either location. And Toyota could also modify plans for their new plant in Elvis' birthplace (Tupelo, Mississippi) to build Tacomas as well as Highlanders.

The UAW knows Toyota’s serious about walking away from NUMMI. Last week, leaders from Local 2244 and 890 told their members that they stand a good chance of losing Tacoma production and warned “we are now fighting to exist.”

There are still a couple of years before the axe falls; the current UAW contract at NUMMI expires in August 2009. In the meantime, a “no layoff” clause means Toyota can’t trim costs by jettisoning employees. So the union must devise other alternatives to entice Toyota to change their mind.

The UAW’s already started making nice with management, offering proposals for the increased use of temporary employees and other cost-cutting measures. These stopgap measures may or may not satisfy Toyota. The Wall Street Journal recently reported that high level Toyota executives are actively contemplating cutting back North American production.

According to the report, Toyota’s U.S. production capacity is growing faster than sales, and a cheap yen makes importing cars from Japan a cost-efficient proposition. Toyota’s pulling back on plans for new plants and revamping pay policies. They’re on a cost-cutting spree, and anything between the Pacific and the Atlantic is fair game. 

NUMMI's Toyota bosses will be watching the outcome of this summer’s UAW negotiations with The Big 2.8 with considerable interest. As Toyota products account for the vast majority of NUMMI production, when it comes to any decisions regarding the facility's operating costs or, indeed, its future, Toyota calls the shots.

Toyota is sure to use the upcoming negotiations as a barometer of the local UAW’s willingness to accept wage or benefits cuts and/or changes to work rules. These concessions will be the deciding factor when Toyota makes their final decision on whether or not to maintain California production.

But two years is a long time to wait if you’re trying to cut costs. And there’s just so much you can do with suppliers, utilities, work rules and other expenses. Short term, Toyota has two choices: coerce the UAW into giving back some of what they gained in the last contract or move production elsewhere. Look for the Japanese automaker to take the path of least resistance.

The uncertainty surrounding NUMMI reflects the fact that the union’s future isn’t looking too rosy right now. Delphi’s UAW workers just took a massive cut in potential earnings and other benefits. The upcoming negotiations with The Big 2.8 seem to have the deck stacked in Detroit’s favor. And in spite of the UAW’s attempts to gain ground in Toyota’s plants, Toyota still holds the trump card. 

Late last week, the United Auto Workers union (UAW) and Delphi signed a tentative contract. Even though the two sides spent 21 months wrangling over the deal, Delphi's remaining UAW workers have only a few days to ratify the agreement. To make sure they do, the UAW has dispatched "national leaders" to perform the requisite "sales job" on Delphi's denizens. Once again, as always, the union expects their membership to do as they're told. Only this time it may not work.

Delphi separated from GM in '99. The newly-independent parts maker inherited a hefty UAW-negotiated wage structure and 4K laid-off employees (drawing full pay in the "jobs bank"). When Delphi filed for bankruptcy in October 2005, the company had 185K workers on their payroll. Of these, roughly 25K were UAW members, averaging about $27 per hour plus benefits. The new management team wanted to kill the jobs bank, cut union wages by more than half and trim benefits.

Bankruptcy or no, the UAW wasn't having it. They threatened an industry-killing strike. Delphi responded by threatening to void the UAW's contracts in federal court. GM and Judge Robert Drain weren't having that. Negotiations dragged on, and on, and on.

Meanwhile, GM shifted away from Delphi as a supplier. Both companies used the interregnum to radically downsize their union workforce (with GM's cash), move production overseas and pay their executives large bonuses (despite ongoing losses) for their amazing management skills. 

Cerberus then made a play to buy the smaller, more Eurocentric Delphi. The UAW balked at a deal that was worse than their current setup, but better than Delphi's demand. When Cerberus pulled out and bought Chrysler, GM finally stepped in and cut a deal that will cost them around seven of their borrowed billions, and just under a billion per year thereafter.  The UAW left singing GM's praises but viewing Delphi CEO Steve Miller as the demon spawn of Satan.

Under the agreement, Delphi will cut all wages to the new-hire rate, about $14 to $18 per hour. Employees with seniority will receive $35K cash annually for three years to "make up" the difference. All workers' health benefits will change to match those of new hires, with higher out-of-pocket expenses. (Needless to say, nothing was said about decreasing union dues for workers experiencing pay cuts.)

The contract also calls for [more] drastic downsizing. Some 4k of Delphi's remaining 17k employees will be offered buyout payments ranging from $70k to $140K (depending on their seniority). Delphi will close up to ten plants, give three to GM (or a third party designated by GM), sell four and keep four.   

Delphi's UAW members will now vote on the contract tomorrow (Thursday). It is NOT a lock. According to the Detroit Free Press, the mood at union meetings held at Delphi plants on Monday "ranged from relief to frustration." In fact, it may be less of a "range" and more of a "transition."

Initially, many union workers are happy they've still got jobs. The old union-bashing tool– accept our offer or we'll close this plant, move overseas and leave you without work–was in full force during the negotiations. Now that the plant issue has been resolved, the workers who've been spared obsolescence will breathe a sigh of relief, have a look at the fine print and say WTF?

For example, the $105K three-year "top up" offered to senior UAW members to compensate for the wage cut is really just a forced landing for GM-era members working at full pay. It also means those 4k higher-paying Delphi jobs are headed for extinction. Which leaves 13k [lower paid] newbies bumping up against a glass ceiling; these union members will NEVER earn the wages and benefits enjoyed by their elder colleagues.  

Back when there were 45k UAW members at Delphi, it's highly unlikely this contract would have been ratified. The UAW– and by extension GM and Delphi– is counting on the malleability of a smaller, psychologically-weakened workforce: the "temps." By offering this majority job security, they hope to overwhelm the GM-era workers, who are looking at three more years of their current compensation before taking a 40 percent cut in their wages. 

But the size of the remaining workforce cuts both ways; it makes it easier for a relatively small group of determined union organizers to mount a campaign against the agreement. The union knows this; hence the 21 month negotiation vs. four-day deliberation schedule. The UAW "Soldiers of Solidarity" splinter group– which published the contract on the Internet (thanks guys)– better watch their backs.

Anyway, why would the UAW agree to this kind of two-tier contract? 

You could argue that the strategy reflects a new realism from the UAW bosses. It provides the union with an exit strategy from the gold-plated wage and health care deals that threaten their host's survival– without alienating their longtime, hardcore members.

Yes but– playing it down the middle is a risky strategy. If this blows up, all bets on the future of the American auto industry are off.

The poker game known as the United Auto Workers' (UAW) contract negotiations officially begins on July 23rd. To hear the main participants, the cards have already been dealt. Ford and GM claim they're bust, or about to go bust. They say there's only way they can get back in the game: the UAW has to share some of the chips they stole won from their tablemates. The UAW is saying yeah right sure. Shut up and play. And Chryslerberus just sits at the table, wearing dark shades, saying nothing. 

The stakes couldn't be higher. While much of the media conjecture leading up to the negotiations has centered on health care costs that make the word stratospheric seem pedestrian, there are other points that'll require agreement: plant closures, the infamous (and still unspecified) jobs bank, temporary hires and more. 

Setting the tone for the upcoming negotiations, UAW President Ron Gettelfinger "strongly disagrees that we are part of the problem in the auto industry." He also declared that he considers reports that American auto companies "need" a $30 reduction in hourly wages and benefits as "nothing more than posturing." The UAW boss pooh-poohs this "supposed" gap between Detroit's union and the transplants' labor costs.

Meanwhile, The Detroit News reports that "sources inside Ford" state that unless the UAW agrees to lower their workers' $71 per hour wages and benefits down to $50 per hour, The Glass House Gang will go out of business. And the Wall Street Journal quoted "an unnamed Detroit executive" saying the domestics will move production overseas if the UAW doesn't help them compete with their ascendant competition.

Again, the battle lines are drawn, even before the game begins. Once they start, interested parties (and who isn't?) will have eight weeks to hammer out a new agreement before the old contract expires. And if they can't?   

During a Q&A session with UAW members, a worker asked his president if a strike is an "option in the national negotiation." Gettelfinger responded with a simple "yes." In his address to the UAW Bargaining Convention in March, Gettelfinger stated the union would fight at the bargaining table and "if need be on the picket line" to protect their standard of living. In January, the union reported that their strike fund totaled $900m.   

Would the UAW be stupid determined enough to launch a strike against GM or Ford? As noted in our Deathwatch series, both automakers' finances are in a precarious position (i.e. mortgaged up to their eyeballs). The UAW's 47-day strike against GM in 1998 reportedly cost the automaker $1.6b– roughly $34m a day. Given The General's and Ford's current cash reserves, a drain of that size or duration would have disastrous financial consequences.  

If a strike stretched into months, it would force either– or both– automakers into Chapter 11. While bankruptcy doesn't automatically void the UAW's contracts, it certainly wouldn't help their bargaining position.

Back when Detroit owned the domestic auto market, the UAW called the shots. Now, the automakers are saddled with expenses they can't afford: high wages, the job bank, "cradle to grave" health care benefits and restrictive working practices. The golden days of huge union membership, enormous dues and unbridled power are gone.

In spite of the posturing, Gettelfinger knows someone has to give. He's already stated that the union's now willing to give Chrysler the same "concessions" they allowed Ford and GM in 2005.  But will the UAW really be willing to surrender anything substantive?

That depends entirely on how you define the word "substantive." There's a high likelihood there will be some kind of deal on retiree health care provision. The most likely scenario: The Big 2.8 will divest themselves of retiree health care liabilities through a UAW-run VEBA similar to the health care deal and the recent agreement with Goodyear (i.e. they'll pay them now so they don't have to play them quite as much later). 

You can also bank on the jobs bank cashing out– slowly. The automakers will want to kill it dead. But the UAW will negotiate a grandfather clause for current employees. In other words, old employees will live out their lives of leisure while new employees will not enjoy the protection of having a non-job job waiting for them when if their services be excess to requirements.

Temporary employees will be another hot topic. The Big 2.8 will want to use temps whenever and wherever they see fit, even in traditionally unionized jobs. The UAW will demand restrictions on their use or, at the least, require union dues. The union will concede on many job classifications. In return, they'll get their money.

Should the UAW and their employers reach an agreement, it's important to remember that there are– and always have been– suckers at the table. Truth be told, both the union and management are playing with someone else's money. Once upon a time, it was the American consumer's cash. Now it's the automakers' shareholders and union workers funding the game. No matter what happens, they're both bound to lose their shirts.

Never mind all that “buy American” and “Asian cars are the enemy” rhetoric. The United Auto Workers (UAW) would love to get their hands on the transplants’ southern redoubts. With their numbers dwindling due to Detroit’s plant closures and buyouts, the UAW realizes they have to go trolling in the transplants’ ponds to stay alive. Last Saturday, they tested the waters with a small group of Toyota workers at the brand’s Georgetown, Kentucky plant. The UAW is smacking their lips at the prospect of dining on catfish sushi.

The meeting was the direct result of a major management screw up. In January, Toyota’s leadership discovered that an employee at the plant had unearthed a confidential file on a shared network drive . The document disclosed the fact that ToMoCo's management was discussing "a greater emphasis on variable pay and ways to slow the growth of our labor costs, including the cost of benefits."

The memo recommended that Toyota work to bring its wage structure into closer alignment with other local industries and "not tie ourselves so closely to the U.S. auto industry or other competitors." Translation: Toyota’s higher ups are unhappy that the company’s labor costs (as a percentage of sales) are increasing faster than their profit margins.

Despite Toyota’s attempts at damage control, the press got ahold of the memo. Rather than fess-up and explain their competitive dilemma, Toyota sacrificed a pair of a scapegoats. They fired two Georgetown plant employees for allegedly accessing and distributing the confidential document.

The employees admitted reading the doc (as did several hundred others), but denied sending it to the press. As allowed by Toyota personnel policy, they pleaded their case before a five-member peer review board. The board ruled that they were both innocent. Toyota management overruled the review board’s decision and fired them.

Salting the wounds, Toyota remained silent on any investigations into– or disciplinary actions against– the person or persons who left the confidential document on the company-wide computer network.

As expected, the UAW seized upon this “unpleasantness” to step up their efforts to unionize the Toyota plant, to gain a precious foothold deep in the heart of non-union territory. On Saturday, the UAW hosted a town hall forum entitled “The Human Cost of Toyota’s Success” in Lexington, Kentucky.

About 150 UAW representatives, Toyota employees, members of the press and other interested parties attended the meeting. Even though the Georgetown plant employs almost 7k workers, only five people spoke at the gathering, including the workers who were dismissed over the confidential document. No representatives from Toyota management attended– at least not officially.

The speakers addressed the document’s implications for Toyota’s HR plans. They also aired a number of complaints about the way the Georgetown plant is managed. They asserted that Toyota does not take workplace injuries seriously, that full-time workers have “disappeared” (to be replaced by lower cost temporary workers) and that training opportunities have dwindled to the point of extinction.

Needless to say, it this was music to the UAW’s collective ears. “It’s time for Toyota to sign a contract with us like everyone else they do business with,” Vice President Terry Thurman announced. The man who directs the UAW’s National Organizing department and helped organize the meeting added, “This is all about Toyota workers.”

The sequence of those two statements tells you everything you need to know about the UAW’s priorities. There’s only one reason they’re making a full-court press against Toyota: it’s their only hope for survival. If the UAW has any success organizing Georgetown you can rest assured they’ll start looking for further inroads into the rest of the transplants’ non-union plants.

Even though the UAW stated their Toyota kvetchfest was not an “organizing event,” they now have a foot firmly in Toyota’s door. The UAW and the National Jobs with Justice Campaign plan to capitalize on their success by establishing a Worker’s Rights Board in Kentucky. According to the UAW's press release, this organization “will be available to hear personal stories of Toyota workers and recommend appropriate remedies when necessary.” In other words, they’ll be collecting information they can use to further their attempts to organize the plant.

And they’ll be moving on from there. One worker from the Toyota plant in West Virginia attending the Kentucky meeting asked if the UAW could conduct a similar meeting for workers at his plant. Of course, the union immediately agreed, seizing the chance to get a presence established at a second Toyota location.

Toyota has no one to blame but itself for this perilous state of affairs. Their sloppy record keeping and short sighted damage control could give the UAW the leverage they need to start pulling Toyota into the same rat hole that disappeared Detroit. Meanwhile, even as they seek to organize Toyota, the UAW continues to call the automaker their enemy. And so it is. 

While the United Auto Workers (UAW) were busy plotting their future, The Detroit News ran a Cyber Survey. “Have UAW members given up enough or should auto makers expect more concessions?” As of the time I’m putting electrons to pixels, only 26 percent of the respondents agreed with the ungrammatical assertion “there’s been enough concessions.” The other 74 percent voted that the “UAW needs to make more concessions.” It’s not too promising when the home town crowd starts turning against you. But does it really matter?

Admittedly, on-line surveys are far from statistically significant. However, the “put your hands up for Detroit” results are a clarion call to the UAW. The days when the union could demand the sun and get the moon are gone. Even a brief look at the automakers’ balance sheets indicates that they can no longer afford to keep idle workers on the payroll, or pay for full time employees who work on a part-time basis, or carry enormous “legacy costs,” or even keep pace with rising health care costs. 

Yet the UAW is like Oliver Twist on an endless loop; they keep asking for more. The speeches and 103-page Resolution approved at their collective bargaining convention all indicate they’re not willing to give many (any?) concessions to their employers. In fact, the UAW wants MORE benefits and job guarantees.

Saber rattling? Don’t be so sure. The UAW doesn’t seem to grasp the simple concept that they’re on the verge of pricing themselves out of a job. The organization is deeply infused with a sense of entitlement, a “Don’t mess with us, we ARE the company” credo that informs everything they do– even if it threatens to take them all the way to the unemployment line.

UAW President Ron Gettelfinger signalled that his union brothers and sisters are ready, willing and able ($847m strike fund and counting) to down tools should their employers get stroppy. Even though Big Ron’s got a look at the automakers' books, he doesn’t believe The Big 2.5 are on the ropes. The fact that Ford and GM have recently topped-up their checking accounts, that investment bankers are clamoring to buy Chrysler, merely reaffirms the UAW's bottom line: where there’s a contract, there’s a way.

Bankruptcy? Fuhgeddaboutit. Gettelfinger vehemently denounced Delphi for trying to use bankruptcy to break their union contracts. Yet Chapter 11 awaits any of the The Big 2.5, should their unionized work force choose to strike. Make that all. If any one of the domestics collapses, it will cause a chain reaction that will end the American auto industry as we know it.

Of course, the automakers aren’t innocent victims in any of this. No matter what you’ve heard, the paradigm has not changed. The automakers still threaten to close plants or withhold new cars from particular plants, using new models and continued employment as hostages to get what they want from the UAW. The workers at GM’s Lordstown, Ohio plant are sweating bullets right now.

What's more, auto company executives are equally mired in the entitlement mentality. According to Ron Tadross at Banc of America Securities, the base salary of the average GM, Ford, or Chrysler vice president is about the same as the total compensation for the CEO of Toyota (just under $1M). Add in the bonuses and stock packages (regardless of how well the company did) and Detroit’s top dogs are making 40 to 50 times as much as the workers they say they can no longer afford.

When was the last time you heard any of these executives offering to take a pay cut or refusing a bonus to preserve their company’s future?

You want to know why the Cadillac DTS, Lincoln Town Car and Chrysler Aspen’s interiors look and feel cheaper than a $17K Honda? Why Motown’s motors lag behind in fuel economy and alternative propulsion? Detroit’s overheads are so high, their bureaucracy so stratified and stultified, that they simply can’t afford to produce what the market demands at a price that the market expects. That’s why the American auto industry, once known for technological innovation and trend setting, is playing a perpetual game of follow-the-leader.

And so the UAW and the Detroit-based automakers continue to squabble like a couple of four-year-olds, each threatening to knock down the other’s blocks and go home. The first concession both sides should make is to reality. The reality is that the old ways no longer work. Those of us on the outside realize this, from top-flight industry analysts all the way down to the poor sap on the dealer floor, trying to sell lackluster domestics against the class leading transplants. But there is no indication whatsoever that the UAW, GM, Ford and Chrysler “get it.”

A wake-up call is on its way, and it ain’t gonna be pretty. 

For decades, Toyota has balanced superb management, impeccable quality, exemplary financial discipline and flawless product planning. As other manufacturers chased market trends and neglected core models, Toyota made incremental improvements to existing models and introduced new models slowly and carefully. Their perseverance has paid off; they’ve elbowed Ford aside and are nipping at GM’s heels. But as Toyota prepares to replace The General as the world’s largest automaker, they’re finding out that getting to the top is one thing; staying there is something else altogether. 

No doubt about it: Toyota’s on a roll. They posted a record $3.6b third quarter corporate earnings and hope to exceed $13b profits for this fiscal year. In spite of growing profits worldwide, the picture isn’t so rosy on this side of the globe. Although their revenues in North America were up 17.3 percent, their North American operating profits were down 22.4 percent in the third quarter. 

Part of Toyota’s American problem relates to federal contract-sized cost overruns on their new truck plant in Texas. When ToMoCo started the project, they budgeted $850m to git ‘er done. To date, the company’s sunk almost $1.3b on the plant– and they’re still spending.  The expenditure seems manageable enough, until you tote-up the cash they’re also shelling out to build another Canadian facility and modify the Subaru plant in Indiana to build Camrys. 

Perhaps Toyota should be putting some more of their resources into making sure their products live up to their reputation for quality. As production numbers rise, their recall rate is keeping pace. The latest recall– involving faulty ball joints in the previous generation Tundra and Sequoia– could end up costing Toyota more than $600m.

And then there are the high hundreds of millions of dollars Toyota may need to settle the class-action suit for oil sludge (affecting about 3.5m Toyotas and Lexi). All in all, we’re talking about a serious chunk of change coming directly off the bottom line.

Meanwhile and in any case, sales of the Pious Prius are down. Whereas the automaker once measured the model’s supply in hours, there’s now a 30-day supply sitting on dealers’ lots. Though it’s nothing like the 80 day supply of GM product lingering on their dealers’ lots, the growing Prii glut is definitely trending in the wrong direction.

The extra inventory is attributable to a combination of factors which, uncharacteristically, Toyota didn’t read correctly. They increased production just as gas prices started going down, the hybrid tax credits started going away and those buying hybrids to make a social statement had bought them. So, for the first time in the model’s short lifetime, Toyota’s offering incentives.  They’re nothing on the scale of The Big 2.5’s spiffs of course, but it’s cash on the hood nonetheless.

These issues pale in comparison to one problem that could make or break Toyota’s North American operations:  their relationship with their hourly workers. In a confidential memo that accidentally ended up in workers’ hands, Seiichi Sudo, president of Engineering and Manufacturing in North America, discussed the cost of American labor and the steps they need to take to control those costs. 

The memo, which was inadvertently stored on a shared computer drive, states the US auto industry pays some of the highest manufacturing wages in the world. It compares American wages to those in France and Japan (50 percent higher) and Mexico (500 percent higher). They project their American labor costs will increase by $900m over the next four years.

Toyota’s concerned that even though their profit margin is increasing, it’s not growing as fast as their labor costs. Their strategy: “base our Hourly Wages more closely with the State Manufacturing Wages where each plant is located, and not tie ourselves so closely to the US Auto Industry, or other competitors.” Their “challenge”: how they’ll tell the workers “so that they can understand and accept change.”

The bottom line: “Human Resources is developing strategies which will reduce Labor Cost (and increase Profits) by $300 Million by Fiscal 2011 by focusing on: Headcount and Rate (Wages and Benefits).” This isn’t exactly what you want the rank and file to hear. 

This memo could do more to damage Toyota’s future than any other factor. Toyota got a lot of press when the (non-union) workers at their Kentucky plant made more than union workers on average last year. Now they want the same workers to take a pay and benefit cut. Is that the UAW I hear knocking at the back door?

Ironically enough, Toyota is in the roughly the same position (re: its labor relations) as GM during the ‘70’s. Of course, GM basically rolled over and played dead for the UAW, burdening itself with an unwieldy labor force and an unsustainable cost structure. Will Toyota make the same mistake? It’s not likely. But it is possible.

[Read the Toyota memo here ] 

I may be the only American automotive journalist who thinks the United Auto Workers (UAW) won't make any significant concessions in their new contracts with The Big Two Point Five. Window dressing? Absolutely. I fully expect to read breathless accounts of breakthough announcements– and discover familiar pay postponements, paper shuffling and prevarication. Genuine, honest-to-God, we’ll reduce the amount of money we’re draining from your coffers concessions? Never. And then I read Sharon Terlep’s piece in the Detroit News– “UAW: Expect Sacrifice”– and changed my mind. For five minutes.

I’m not saying Terlep’s article was pure propaganda, but if it’d been a bag of cocaine, the dealer would have cut it several times to prevent cardiac arrest. The writer assembled the usual suspects to predict the familiar bacon saving concessions: Big Ron Gettelfinger, UAW Vice Presidents Cal Rapson and Bob King, and GM spokesman Dan Flores.

"Sacrifice," "put aside the adversarial approach," "our fates are linked;" yada, yada, yada. I mean, they would say that wouldn’t they? The UAW and The Big Two Point Five’s management have been in bed for so long they have to turn every thirty minutes to avoid sores.

Meanwhile, testimony from the sharp end gave Terlep’s game changed analysis some major oomph: “’If we don't make a profit, we don't have a plant,’ said James Kaster, president of UAW Local 1714, which represents workers at GM's factory in Lordstown, Ohio. The plant has a program under way to educate workers on why GM's financial success should matter to them.”

Now THAT’S convincing stuff. Well kind of. I mean, can you imagine the “education” involved? “So, explain to me again why my salary and benefits get whacked because the guys upstairs green light crap cars.”

As is the way of such things, Kaster’s quotelette only implies a willingness to make financial concessions. As Terlep’s piece progresses, the front line rhetoric begins to soften and stink, like goat cheese left in a hot sun.

“’If the U.S. auto industry is going to survive, it's going to have to change, and we're going to have to change with it’ said Skip Dziedzic, president of UAW Local 1866 representing a Delphi Corp. plant in Oak Creek, Wis.”

In this case, the reader is left wondering if the "change" in question has any monetary value whatsoever, or if it simply means that more UAW workers will get more payoffs to sit on the sidelines and watch Delphi amp-up its foreign factories. 

And then… “’It's very delicate this year,’ said Jim Stoufer, president of UAW Local 249, at Ford's plant outside St. Louis. ‘Common sense tells you this is going to be rough. We are going to have to play ball with Ford and keep them competitive. But there is going to come a line that we won't cross.’

That line is, of course, a picket line. Think it won’t happen? Neither do I. Again, GM’s “health care concessions” are the new template.

You know; announce that you’ve hammered-out a historic agreement to trim $3b from the compensation package, and then shove $3b into a union bank account and call it good. Or say that workers are forgoing a pay raise, and then earmark the money for health care benefits. That sort of thing. 

The actual line which the UAW won't cross is easy enough to identify: their retired and active members’ current salary and benefits. The union and its paymasters can wrangle all they like about working rules, new workers’ pay and bennies, retirement buyouts, etc. They can monkey around with who gets the money how and when. But there is no way that a single one of the UAW’s current or retired workforce is going to take a major hit on their wallet.

By the same token, The Detroit News can tout the UAW’s “pragmatic stance” and the “unprecedented pressures” facing The Big Two Point Five. But no one’s cutting nothin’.

It all boils down to a simple, inescapable, unavoidable, unanswerable, inarguable question: why should a union member take a cut when the bosses are sitting pretty? UAW workers know that GM CEO Rick Wagoner and his minions are wearing golden parachutes, banking millions. In fact, Rabid Rick’s retirement plan is bankruptcy-proof. Try explaining THAT to the rank and file.

The Big Two Point Five can’t afford their current agreements and they know it. They can’t get out of them and they know it. Their real plan? Weasel, cut and run. Ask the PR flacks how their employers can bear the burden of union-based legacy costs, and they talk about a “new spirit of cooperation,” the value of automation, and the great gains in production efficiency. Meanwhile, they’re all busy moving vehicle production out of the U.S.– even as non-union transplants move production in.

I once heard detente described as a confrontation between a blind mongoose and a paralyzed cobra. Need I say any more?

[Read the original Detroit New article here.]

I wouldn’t join any union that would have me as a member. And yet the United Autoworker’s Union (UAW) wants me. Yep, UAW Local 1981 represents freelance writers. The pen-pushing Local is part of a growing trend within the UAW. As more and more of their members accept buyouts and early retirements, as the UAW [secretly] realizes that they’ve milked their Detroit cash cow to the point of death, the union is pulling a Studebaker. They’re diversifying out of their core business before their core business goes tango uniform.

The UAW was formed in 1935. In 1969, membership peaked at roughly 1.5m members. By 2002, 639k industry workers were paying UAW dues. By 2005, the number sank to 557K members. After the next round of “attrition plans” from GM, Ford, and Delphi, there’ll be fewer than a half million active UAW members left. The exodus occurs against a backdrop of a general decline in the “market” for union representation. According to the US Bureau of Labor Statistics, national union membership has dropped from 20.1% of the U.S. labor force in 1983, to 12.5% in 2005.

What’s worse, some union members are beginning to question the UAW’s efficacy. Speaking to The Detroit Free Press, one Ford employee opting for early retirement noted "it would be belaboring the obvious to say that the UAW's nuclear option of a strike is not as evident as it used to be." If members believe the UAW has “gone soft,” labor leaders negotiating next year’s contract will be between a rock (breakaway dissent, wildcat strikes and a potential fall from power) and a hard place (clinging to contracts that kill the golden goose). Bet on Plan B.

Like many other experts, labor law expert Jim Hendricks doesn’t see it that way. "I don't think they can survive the way they used to. Manufacturers and employers feared this union because of their sheer size and strength." Hendricks thinks the UAW should merge with other unions facing the same problems. While UAW leadership hasn't ruled out the possibility, they seem more interested in conquering new territory on their own.

In the short term, the UAW faces the same problem as The Big Two Point Five: they’ll soon have more retirees than active employees. Like any clued-in capitalist, the UAW’s management knows they have to grow to keep the cash flowing. Logically enough, the UAW has spread their recruitment efforts throughout the rest of the automotive industry, including auto parts and heavy truck manufacturers and auto dealerships (mechanics and back office staff).

At the same time, the UAW is scrambling to organize any group that’s not already represented by some other labor union (and edging into some areas which already are). So far they’ve established a presence in household appliances, brewing, lawn/garden equipment, tools and hardware, firearms, boats, modular housing, toys, musical instruments, pharmaceuticals, cosmetics, food processing, public radio stations, casinos, aerospace and defense.

The UAW has also cast their net over a wide range of professions: draftsmen, industrial designers, engineers, computer specialists, health care professionals, journalists and writers, curators and librarians, graduate teaching assistants and staff lawyers.

Most promisingly of all– given the taxpayer’s seemingly limitless purse and any union’s ability to use political muscle to wrest financial concessions– the UAW is organizing state and local government employees, such as social service workers. Their latest conquest: Michigan’s home-based child care providers. So far, the UAW reports it’s organized about some 40k care providers.

And yet the UAW claims they’re being selective about potential members. UAW Secretary-Treasurer Elizabeth Bunn stated, "We are not interested in representing workers where we don't feel we can act as a powerful voice for them." Translation? Unless you’re in an industry where the UAW has a chance of establishing a stronghold or getting a lot of (dues-paying) members, fuhgeddaboudit!

With the UAW dividing its attention amongst these diverse areas, how can they successfully address the labor issues of any of their smaller constituent groups? Can an organization where the leadership has focused on workers in one single industry for the past 70 years effectively advocate for other totally unrelated industries? 

The needs and concerns of nurses and lawyers aren’t necessarily the same as those of assembly line workers, and you can’t take the same actions against government entities that you can against giant corporations. Is the UAW equipped to handle this diversity, or are they bloating their portfolio beyond any rational hope of quality, GM-style?

If successful, the UAW’s expansion is a major threat to domestic automakers. It will strengthen the only power that any negotiator ever possesses: the power to walk away. In fact, the more industries with UAW representation, the more the union needs to look tough. Autoworkers, indeed the entire domestic automobile industry, could be sacrificed on the altar of the union’s long term survival strategy.    

For over 60 years, The United Autoworkers Union (UAW) has sold itself as the protector of America’s working class. According to their web site, “We’ve used our bargaining power to demand – and win – a role for union members to ensure that consumers receive the highest possible quality cars and trucks.” Regardless of your view of the quality of UAW-built vehicles, the union’s gained tremendous power on the factory floor, secured a group of benefits that are the envy of workers everywhere and amassed a mountain of money. So, now that GM and Ford are in trouble, will the UAW give anything back? Here’s what the union has to lose…

The Big 2.5’s UAW members receive an average wage of $29.75 per hour and full medical coverage. They also get an average of 16.5 paid vacation days per year, on top of three weeks paid vacation (Canadian members get four weeks). UAW workers who transfer to a plant “outside of their area” get a $25k relocation allowance– even if they don’t change residence. Employment is guaranteed.

The UAW’s Director of Public Relations reports that only 40% of his union's membership work on automotive assembly lines. Paul Krell says the rest are drawn from a wide range of other industries— from casinos to government-funded schools. But even as the UAW successfully broadens its base, the total number of dues paying members has declined dramatically. According to Department of Labor, the UAW lost 144,719 active members from 2001 to 2005. The loss leaves them with 557,099 active members and over 500k retired members spread throughout the United States, Canada and Puerto Rico.

Crucially, despite the drop in membership, the UAW’s assets continue to grow. Over the same four years, the union’s financial holdings have increased by $93,722,955. At the end of 2005, the UAW reported assets totaling $1.235b, including over three-quarters of a billion dollars worth of treasury securities. The union earned $54.4m in interest income during 2005, mostly from their $914m strike fund.

Even when the UAW makes concessions, their cash flow remains sacrosanct. For example, the UAW struck an agreement with Chrysler that permanently denies seniority or full employee status to "temporary" employees at the automaker's Belvidere, Illinois facility. These “temps” receive 70 percent of a full timer’s pay as long as they work. After seven months, they get minimum healthcare benefits. And what do one third of Belvidere’s workers get in exchange for foregoing the usual union-negotiated benefits?  They get to pay full union dues and vote on UAW-Chrysler contracts. And that’s it.

It must be remembered that the UAW has some pretty heavy expeneses, albeit mostly overhead. In 2005, the union spent $8.2m on lobbying and political activities. Another $88m went to UAW employees’ salaries. Forty-two million more covered the UAW employees' benefits. Even if union dues drop, these payouts will continue apace. According to union rules, the Executive Board can divert $50m from their strike fund to their general fund to support operations (as they did at this year’s convention in Las Vegas). In fact, they can transfer up to $60m per year from the same source for the next four years.

In short, the UAW is a large and extremely well-funded organization. Active members enjoy high wages and benefits (estimated by bankrupt auto parts supplier Delphi to cost $76 per hour) along with unassailable job security. Retired members also receive an extremely generous pension and excellent health care provisions. But now that Ford and GM have paid off tens of thousands of the union’s senior members, it’s the less tenured and “temporary workers” who hold the key to the UAW’s— and the automakers’ —future.

Ford and GM’s worker buyout programs have removed the workers who can most afford to make concessions. It’s highly unlikely that the remaining, less well-paid UAW members will agree to significant cuts to their compensation. Union bosses know that holding the line on wages, pensions and benefits could throw Ford and GM into Chapter 11. They also know that large concessions would trigger wildcat strikes, which could also lead to Chapter 11. But most importantly of all, they know they have the cash and non-automotive member base to survive a nuclear winter.

Given these factors, the UAW will do everything in their power to maintain the status quo. In the main, they’ll hold the line on their current compensation. At the same time, they'll dress-up minor concessions as "historic givebacks:" proof of their concern for their employers' well-being. (The tactic will absolve them of any blame if and when the automakers go belly-up.) The “radical” union members are the fly in the proverbial ointment. Whether or not the union bosses can keep them in line will ultimately determine the timing of Detroit’s terminal decline.