Sidney Hill, Jr.: Globalization wins out in GM-UAW accord

Although it lasted less than two full days, the impact of the strike the United Auto Workers (UAW) launched against General Motors in September will be felt for many years.

In fact, it will likely be remembered as the event that finally brought the U.S. auto industry into the age of globalization.

GM's primary goal in the negotiations leading up to the strike—and subsequent contract agreement—was bringing its labor costs in line with its Asian competitors. Currently, GM spends $70 to $75 per hour on wages and benefits for each of its workers. For Asian auto makers, that number is $45 to $50 per hour.

The UAW argued that it has helped GM manage labor costs with multiple wage concessions over the past several years, and by agreeing in these negotiations to the establishment of an independent trust fund to manage health care for GM retirees.

Shedding the responsibility for retiree health care—an obligation the company took on during the auto industry's heyday—should cut $12 to $14 per hour from GM's labor costs.

But management said that wasn't enough. It wanted the right to offer newly hired workers lower wages and lighter benefits packages—such as 401(k) plans rather than pensions—than current workers receive. It also wanted the flexibility to move jobs around—even outsource them to other countries—when it feels economic conditions warrant.

That drove the UAW to the picket line. The union wanted GM to guarantee that a certain number of future vehicles will be designed and built by union workers in U.S. cities.

“Globalization is killing us,” Jerry Gillespie, president of a UAW local in Warren, Mich., whose members work on engineering and design of future products, told The Wall Street Journal shortly after workers walked off the job. “They want to build engineering centers in the rest of the world and take that work away from us. That's our fight.”

Unfortunately, for Gillespie and his union brethren, it may be a losing fight. As regular readers of this magazine are well aware, the concept of global product design teams is ingrained across most manufacturing verticals. And there are few companies—in manufacturing or other industries—that offer their employees full pensions; nearly everyone with a retirement plan these days has a 401(k).

Here are some more bleak facts for striking GM workers:

• In the four years since GM and the UAW last negotiated a contract, UAW membership at the traditional Big Three auto companies declined by nearly 40 percent, from 310,000 to roughly 180,000 in raw numbers.
• UAW members now make fewer than half of the cars sold in the U.S. Many of those cars are made in nonunion plants owned and operated by Japanese and German car companies.

The September strike ended when GM pledged to continue investing in factories staffed by UAW members, although its initial statements on the matter were vague about any actual job guarantees.

It was clear, however, that GM gained the right to buy out thousands of veteran workers in that $70-per-hour labor range and replace them with new workers earning much less.

When the agreement was announced, GM CEO Richard Wagoner issued a statement saying it would “help us close the fundamental competitiveness gap in our business.”

With the UAW now expected to sign similar agreements with Ford and Chrysler, it's clear that we're witnessing fundamental change in the U.S. auto industry.