Employees work on the assembly line of the F-150 pickup at a plant in Kansas City, Mo.
It is particularly galling to the United Auto Workers (UAW) that, in addition to numerous rounds of layoffs and givebacks dating back two decades, the union is being cast as the enemy in the U.S. auto industry's fight to survive. "Our contracts with Chrysler, Ford and GM represent only 10% of the cost of assembling of a vehicle. But most days, it seems like we get 110% of the attention," said UAW president Ron Gettelfinger in a recent speech. In the wake of GM's most recent quarter, in which the company lost $9.6 billion — $30.9 billion on the year — the fight is getting more desperate. So the union is back at the table, negotiating more relief for the Detroit Three.
The UAW's image problem stems from the fact that it has been arguably much better at doing its job than the Big Three management teams have been at theirs. Over the past 60 years, many of the benefits that both blue- and white-collar workers hold dear were either won or expanded by the UAW. That includes pensions, early retirement, overtime, total health-care coverage and paid holidays. At congressional hearings in November over a proposed bailout bill, there was palpable contempt for the UAW from Alabama Senator Richard Shelby, whose state is home to several transplant automakers. To him, the UAW seemed to consist of a bunch of overpaid featherbedders who couldn't match hubcaps with workers at transplants like Toyota and Mercedes Benz, who did not enjoy the Big Three's gold-plated benefits. (See the 50 worst cars of all time.)
That criticism has lost its bite with autoworkers, considering that Toyota and other foreign makers are taking it on the chin just as much as Detroit. "This attitude, targeting the UAW as the bad guy here or the reason the auto industry is in rough shape — they think that's unjustified, not warranted," says David Lipsky, professor of dispute resolution at Cornell's School of Industrial and Labor Relations. And with some reason, says Lipsky, "they were innovative and creative: they built a comfortable lifestyle for middle-class Americans. And now it's turned out to be a house of cards."
Faced with giving up benefits, the UAW will conciliate but not placate management, which strikes some Americans as uncooperative. But its so-called legacy costs, won fairly at the bargaining table, have big emotional value for the UAW. It's what behavioral economists call the endowment effect, says Lipsky: the UAW values what it fought for — even maligned work rules — much more so than workers who never had the benefits. So they are not going to give up anything without a fight. In mid-February, the union actually stormed out of negotiations with GM over reducing the company's retiree health-care costs, as GM seeks to restructure costs with bondholders, suppliers and, of course, labor.
The union has already made big concessions. The 2007 labor contract with GM transferred health-care costs from the company to a union-run plan and set up a lower wage structure for new hires. The company is asking for more because it has no other choice given the devastating drop in sales.
As Roger Lowenstein describes in his book While America Aged, it was the remarkable UAW president Walter Reuther (1907-70) who won womb-to-tomb health-care coverage and retirement benefits for the rank and file. Reuther was an early advocate of universal health-care coverage, which was not going to fly in Washington. So he willingly traded small pay raises for deferred compensation in the form of pensions and retirement health care. The Big Three gladly signed on because the trade-off held down cash wages — and because they were lushly profitable companies, controlling 90% of the U.S. car market. Executives never conceived of a day they might run out of money. One result, though, is that GM has paid out more than $100 billion in retiree and health-care costs over the past 15 years and is now facing $47 billion in future retiree health-care payments.
Reuther, who began to worry about rising health-care costs as far back as the 1950s, feared that the auto companies would one day not be able to meet their obligations. That that day is here is one reason the UAW made yet another concession. It reached an agreement with Ford to change the way the company contributes to the retiree health-care fund administered by the UAW. Instead of cash, Ford now has the option of issuing stock to fund up to 50% of the Voluntary Employee Beneficiary Association, or VEBA. It means that the health of UAW members is tied directly to the health of Ford. "Our bargaining team stepped up to confront numerous challenges," said UAW vice president Bob King, who heads the union's National Ford Department, in a statement. "They're to be commended for their hard work under difficult circumstances." Circumstances that only seem to get more difficult by the day.