UAW delegates were in Detroit last month to plot their strategy for a new labor contract later this year with General Motors, Ford and FCA. We heard a lot of anger and fist pounding and a lot about their demands. What we did not hear is what they’re willing to trade off.
A recent labor cost comparison from the Center for Automotive Research in Ann Arbor, MI, shows Detroit automakers still have higher U.S. labor costs than the transplants.
The Detroit Three’s labor costs still are about $7 an hour higher on average than the Asian transplants and $6 higher if you include the German transplants. Multiply that by every vehicle made and the cost disadvantage is measured in hundreds of millions of dollars.
Even so, the UAW is demanding raises, better benefits and the elimination of the entry-level wage.
The union is making a big deal over the fact that its legacy workers (old timers) have not had a raise in 10 years. But the UAW conveniently fails to mention that they’ve received lump-sum cash payments and profit sharing. Ford workers, for example, have earned $30,000 in profit sharing over the past four years. So they’re making a lot more money than they did a decade ago.
Nonetheless, there’s no question workers deserve to share in the prosperity they’ve helped to generate. The trick is to increase their compensation without growing the gap between Detroit and the transplants.
I’ve said for years that the union should push for more profit sharing. Sixty years ago that was a major goal of the union. It took decades of fighting to get that into the contracts. And now that they’ve got it, why not push for more?
The beauty of profit sharing is that when times are good everybody makes good money, and when times are bad everyone tightens their belts. That way you don’t lock a company into labor costs that become unsustainable when car sales drop, forcing massive layoffs.
This is a cyclical business and sales will drop again. The union argues it can’t let its workers suffer when times are bad. But we’re not talking about making anybody suffer. We’re talking about boosting compensation in a sustainable way.
Senior management puts most of its pay at risk. If executives don’t hit specific goals or profit levels, they don’t make the big bucks the UAW is so angry about. Union workers also should be willing to put more of their pay at risk, provided they make a lot more money on the upside. Why not demand that part of their compensation be paid in stock and options, just like top management? After all, if Wall Street is reaping most of the riches of America’s resurgence, why not give a little bit of Wall Street to blue-collar workers? I think that’s the fastest way to help bridge the gap in income inequality.
The union also is demanding that automakers give up their entry-level wage, commonly called Tier Two. This pays new workers less than the old timers, and has unquestionably made the Detroit Three far more cost-competitive. But to get the automakers to drop the entry-level wage, the union better be ready to do some serious horse trading. For example, the automakers would love to offload their pension obligation to hourly workers and replace it with a 401(k) savings plan. I think something could be worked out like the VEBA, which offloaded the automakers’ health care obligations.
Taking those pension obligations off the books would produce an instant boost in the stock price of each company. And if workers were getting some compensation in stock and options, then a part of their sacrifice would go right back into their pockets.
The point is, there are areas of mutual benefit that each party can reach, by being flexible and creative, and especially by keeping an eye on staying competitive.