The Price of the Union at GM: The UAW made itself look relevant but workers get little.
Remind us again why the United Auto Workers went on strike for five weeks against General Motors? The terms of the tentative deal struck this week show that the union made itself look relevant at the cost of lost wages and perhaps future profit-sharing for workers.
UAW leaders this week agreed to a new four-year labor contract with GM, though 46,000 workers won’t return to work unless they ratify the deal by next Friday. Most will have lost more in pay during the strike than they appear to have gained in the new contract.
The strike caused more than 75,000 workers at GM suppliers across North America to be laid off or lose pay, which underlines how auto supply chains are globally interconnected. The union also forced GM to idle production at plants in Canada and Mexico where it manufactures trucks that are highly profitable.
By some estimates the strike has cost GM $2.5 billion in profit, which will reduce the annual profit-sharing bonuses that go to workers. While the labor deal includes an $11,000 per worker ratification bonus—$3,000 more than what GM originally offered—we calculate that workers lost between roughly $5,100 to $8,200 in pay during the strike, based on their hourly wage rate.
The UAW says it won a faster wage progression for newer hires and a path to permanent status for temporary employees. Workers with fewer than 10 years of employment will make $32 an hour after four years instead of eight years under the old contract. It also obtained two 4% annual lump sum bonuses and 3% annual wage increases, but it’s not clear whether this is better than GM’s earlier offers.
GM plans to offset these higher labor costs by offering buyouts and incentives for early retirement to thousands of higher-paid workers. This will allow GM to become leaner amid a global slowdown in auto sales, as well as invest more in electric and self-driving cars. But the contract is still likely to make GM less globally competitive. The company’s labor costs average $63 per hour, compared with an average of $50 for non-unionized foreign auto makers that operate in America’s southern states. Higher labor costs haven’t hurt GM much in recent years, since Ford and Fiat Chrysler have similar deals with the UAW. Foreign auto makers also make mostly small cars, which account for a tiny share of GM profits.
But foreign companies are trying to become more competitive in SUVs and trucks. So are Tesla and electric-truck startups such as Rivian and Workhorse. GM has committed under the new deal to build an electric truck at a plant slated to close in Detroit, though the UAW had pushed for commitments to produce more internal combustion vehicles that require more parts and labor.
The deal includes a moratorium on plant closings and a new labor-management committee that will review new technologies. The union will also be able to veto the use of temporary or part-time workers. None of this will help GM to adapt to changes in technology and consumer preferences or to future economic slowdowns. GM will have to keep running factories even if the cars they make don’t sell, though perhaps it is betting government electric-car mandates will ensure steady production.
The UAW’s leaders wanted to make the show of a strike to reestablish some credibility with workers amid a federal probe into union corruption. GM is betting that labor peace for four years is worth the price, but then that’s what it said about the deals that helped drive it into bankruptcy a decade ago. Don’t think it can’t happen again.