This column was written by Stephen Spruiell.
The United Auto Workers union called an emergency meeting for December 3 to decide what it is prepared to concede to help the Big Three U.S. automakers stay solvent.
Up until now, the UAW has argued that it shouldn't have to make additional concessions. After all, the union agreed in 2007 to new contracts that brought wages and benefits down to more realistic levels. Once the health-care provisions of these contracts take effect in 2010, union officials say, the Big Three will be out from underneath the crushing labor liabilities that have saddled them with so much debt.
While it's true that the new contracts took steps toward closing the compensation gap between the Big Three and their foreign competitors, the contracts left in place the job-security guarantees and work rules that have rendered the Big Three sclerotic and unable to adjust to shifts in demand. Imagine the U.S. auto industry as an emergency-room patient with a severed artery and cholera. The 2007 contracts stopped the bleeding, but the Big Three are still very sick.
Any successful business must be able to respond to fluctuations in demand for its products, but the Big Three's job-security agreements with its unions make that process burdensome and costly. Earlier this year, I visited a General Motors assembly plant in Moraine, Ohio, that is scheduled to close on December 23. The Moraine assembly plant made SUVs, and since demand for SUVs has fallen sharply, GM decided to shut down the Moraine plant.
Of course, it's not that simple. The workers at the Moraine plant belonged to IUE-CWA, an electrical workers' union with contracts similar to those the UAW has negotiated. As a result of those agreements, IUE-CWA members in Moraine were offered buyouts of $70,000 to $140,000 for any worker who voluntarily quits. Other workers were made eligible for early retirement.
GM employees who don't opt for a buyout or early-retirement package will qualify for GM's supplemental unemployment benefits, meaning that GM will make up the difference between their former wages and their state unemployment checks. When the unemployment checks run out, GM will pay these workers 95 percent of their former wages for up to two years, depending on seniority. Workers with at least ten years of seniority are eligible for the Job Opportunity Bank Security program. This is the notorious jobs bank that allows laid-off workers to receive their regular hourly pay while sitting around doing crossword puzzles or reading the paper. If GM offers these employees an opportunity to transfer to another plant, they have the right to turn down a limited number of such offers. And if no offer is made, they can stay in the jobs bank until they retire. GM currently has around 1,400 workers nationwide in the jobs bank.
Peter Morici is a professor of international business at the University of Maryland. In late November, he testified before the Senate Banking Committee, alongside the CEOs of the Big Three automakers and United Auto Workers president Ron Gettelfinger. "The real problem here is that [Banking Committee chairman Chris] Dodd doesn't understand the scope of the severance payments that the UAW gets," Morici tells me. "They go in the jobs bank and they stay there forever. My feeling is that [the Big Three] are at fault for letting the jobs bank continue after these last labor negotiations and agreeing to $105,000 buyouts. The whole situation is absurd."
John Heitmann, an automotive historian at the University of Dayton, agrees. "We can't really compete when we have those kinds of contracts," he says. "It's the health care, it's the seniority, and it's the work rules. In flush times, when life was good and you could sell many different vehicles and particularly trucks at very high profits, GM could survive like that. But it was just a matter of time before things caught up with them."
Whatever sacrifices the UAW agrees to make at Wednesday's meeting, it will probably be too little, too late. GM and Chrysler are rumored to be weeks away from running out of cash. Unless a federal bailout is forthcoming, the Big Three's labor pains will be settled in bankruptcy court. Even if Congress does give them the cash to keep operating, they are going to have to reduce capacity in the face of shrinking demand. They cannot do so unless their labor unions give up their unrealistic demands for job security.
By Stephen Spruiell
Reprinted with permission from National Review Online