UAW faces painful transformation

Thursday, May 14, 2009

Today’s focus

UAW faces painful transformation

Bryce G. Hoffman and Louis Aguilar / The Detroit News

The United Auto Workers, like the automakers whose employees it represents, is struggling to survive the worst financial crisis to hit the auto industry since the Great Depression.

The UAW’s ranks have been decimated, dramatically reducing income from membership dues, and further losses are on the way as Detroit’s automakers close more factories. Its vaunted benefits, long the gold standard for America’s working class, have become the subject of national scorn.

Yet with Chrysler LLC in bankruptcy and General Motors Corp. on the brink, the union could amass more clout than ever before, and its role in the automakers’ survival is crucial. The UAW stands to gain major stakes in GM and Chrysler, as well as become the overseer of three major investment funds that will pay health care costs for the UAW’s Big Three retirees.

But the sizable ownership positions are just as likely to create a host of new problems for a union that once walked away from a board seat at one automaker because of the conflicts it created.

It is hardly surprising, then, that UAW President Ron Gettelfinger has called this "the most difficult and challenging situation that we’ve found ourselves in, probably in the history of our union."

David Cole, chairman of the Center for Automotive Research in Ann Arbor, said the union resisted for too long giving Detroit’s automakers the painful concessions they needed to compete with rivals from Japan and South Korea, which had established plants in the Southern United States.

"Their only chance of survival is to do everything they can to help the companies where they represent workers to be competitive," Cole said. "Otherwise, they just die. The unfortunate thing is it took them too long to realize that."

While Detroit’s share of the U.S. car market has been declining for a decade, it was not until 2007 that the UAW agreed to major concessions on wages, benefits and factory work rules to help close the cost gap with Japanese and South Korean automakers operating U.S. factories.

At the time, those painful givebacks were touted as game-changing. But before the ink on the new pacts was dry, car and truck sales were withering in the face of skyrocketing fuel prices. As 2008 dragged on, the collapse of global credit markets sent sales into a freefall. The cost savings Detroit’s automakers gained with the concessions were soon eclipsed by the companies’ mounting losses.

By November, they were in Washington, asking the federal government to save what was left of the U.S. auto industry. The UAW was there, too, being ridiculed for benefits like jobs banks that continued to pay idled workers.

GM and Chrysler were ordered to renegotiate their contracts with the UAW as a condition of the billions of dollars in federal loans they received from the Bush administration.

Proof of how much the UAW appreciated the significance of these events came in March, when the union granted new concessions to Ford Motor Co. that put its labor costs on par with foreign-owned car and truck factories in the United States. A month later, the UAW gave similar concessions to Chrysler in exchange for a 55 percent stake in the new company once it emerges from bankruptcy.

That agreement demonstrates the UAW’s grasp of how dire the situation facing Detroit’s Big Three has become, said Harley Shaiken, professor of labor studies at the University of California-Berkeley.

"The union has no power whatsoever if the companies cease to exist," Shaiken said. "The UAW and Chrysler find themselves in the same lifeboat. They have no choice but to be cohorts, and both realize that, despite some profound differences."

Straddling the fence

The union is almost certain to reach a similar deal with GM, although negotiations got off to a rocky start. Last week, UAW Vice President Bob King, the union’s chief Ford negotiator, blasted GM for using taxpayer dollars to ship American jobs overseas.

GM’s proposal would give the UAW 39 percent of the company’s stock, in exchange for eliminating half of its obligation to the retiree health care fund, known as a voluntary employees’ beneficiary association, or VEBA.

Combined with its 55 percent stake in a born-again Chrysler, the union could become a real power in the board rooms of at least two of Detroit’s Big Three.

Or not.

It is not the UAW itself, but rather the union-run trusts that are being set up to manage hourly retiree health care at GM, Ford and Chrysler that will control these investments. The union has downplayed its role in these funds by pointing out that each will be run by an independent board, albeit ones made up of members appointed by the UAW.

The establishment of the VEBAs, to be funded by the automakers, was the linchpin of the 2007 labor agreements and promised to free the companies from the crushing financial burden of retiree health care costs.

The arrangement also would restore some of the UAW’s influence, which had waned with its membership ranks, by putting it in control of investment funds worth tens of billions of dollars.

Chrysler and GM can no longer afford to do that, and both companies, at the urging of the government, offered the UAW equity in lieu of cash to cover significant portions of their VEBA obligations.

Ford reached a similar agreement with the union but decided not to exercise that option because the rising value of its stock allowed Ford to issue more shares and use the proceeds to pay the union. But Ford could still use stock to cover a portion of its VEBA obligations in the future.

Position is difficult

The VEBAs put the UAW in a difficult position. The union’s primary responsibility is to its active, voting members. The primary responsibility of the VEBAs will be to retirees, who have no voting rights in UAW affairs.

If a VEBA holds significant equity in one of the automakers, it is unlikely to favor moves that protect the benefits of active workers at the expense of the company’s overall profitability. Nor is it likely to support a strike that idles factories.

The situation is further complicated by the fact that the UAW could get seats on the GM and Chrysler boards of directors as part of the deals. The union had a seat on DaimlerChrysler AG’s board after Daimler-Benz AG combined with Chrysler Corp. in 1998, but gave it up because it created the perception that union leaders were too close to management.

"The UAW sees stock ownership as something that involves more risk than gain," said Gary Chaison, professor of industrial relations at Clark University. "It puts them in a conflict of interest."

Gettelfinger has said he intends to sell, as quickly as possible, the UAW’s stake in Chrysler and any shares it receives from GM. But that could be easier said than done in today’s recessionary market, underscoring what may be the biggest risk to the union: If Chrysler or GM fail, the UAW’s stakes would be worth nothing, threatening its ability to honor its commitment to retirees.

"They’re struggling mightily to create a sustainable union, and they’re losing," Cole said, adding that the next few months may well determine if the UAW remains relevant to an auto industry that is going through one of the most radical transformations in its century-long history.

"We’ll see. It’s kind of up to them."

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