As of this morning, the United Auto Workers has launched a nationwide strike for its GM workers for the first time since 1970. In an event that is sure to place even more pressure on the struggling automotive company, even fewer vehicles will be produced until an agreement is reached.
An Example of How Unions Have Gone Too Far
Labor unions certainly have their place, and have done a great deal to improve working conditions throughout the country, but this strike is addressing issues that are far removed from the original purpose of what the unions were meant to protect. This strike isn’t about unsafe working conditions, it isn’t about racial bias, or even environmental issues. This comes down to an organization that is simply demanding too much from a company that is already bleeding money.
This particular strike is focusing on a few key issues:
- Job Security/Protection
- Executive Compensation
- Retiree Health Care (update: not directly related to this strike)
In regards to job security, clearly that is an admirable goal, but in this global economy, it is simply unrealistic. It has been a standing tradition to “buy American” and keep jobs local, but is that really the issue any more? Even an American car is largely built with foreign parts and/or assembled in places such as Canada or Mexico, just as many Asian vehicles are actually assembled in the U.S. Clearly, it is in our economy’s best interest to employ domestic workers and keep the money local, but it is extremely hard for the company to remain competitive.
What I’m more interested in is the lost notion of market demand. Do you have any idea how hard it is to get into GM as a new employee? Even when a new plant is built, unless you know someone or have family already employed, your chances of getting in are slim to none. There are people who would kill to have a job there that pays a fraction of what the same person with some seniority may be earning, yet GM is required to continue to pay someone who’s been there for 20 years double what someone else would gladly do for much less. Loyalty is great, but when it forces your company to continue to lose money, it isn’t that great.
Executive compensation is an area that the union may have a legitimate beef. It is no surprise that corporate executives across the board are paid a good deal of money, and GM is no different. Certainly, high executive compensation can have an effect on the company’s bottom line, but the disparity that the UAW is claiming is far from accurate.
General Motors pays their employees extremely well, and I know, because a large percentage of my family is employed by either GM or another automaker. Many of these employees can earn upwards of six-figures for doing completely unskilled labor. The people I know that work for GM have no college education, yet are making more money than most people I know with a post-graduate degree. So, while I do agree that the executives may be earning more than their fair share in some cases, their claim on how the union employees are having to decrease their lifestyle or cut back on their standard of living is laughable, considering they are being paid significantly for the type of work that is being done.
Finally, when it comes to health care benefits for retired employees, this is an issue that isn’t just seen in the automotive industry. Health care costs have skyrocketed for decades, and with an inadequate national system in place, this has put extreme pressure on employers to keep up. Again, this is one of the fundamental reasons that more companies are outsourcing, which is again at the root of why this strike is taking place. A company that is already losing billions of dollars each year is expected to continue to increase health care they provide to retired employees. UPDATED: A statement issued earlier today noted that this was not a stumbling block in current negotiations, although the retiree health care trust has been an issue since 2005.
It is a Vicious Cycle
This whole process is a vicious cycle that doesn’t have an easy solution. First, you have a company that is losing a ton of money, and in efforts to remain competitive, some jobs have had to be cut or moved out of the country. But, the union wants to demand workers have job security and keep jobs local. Well, doing this will further reduce profitability and in turn, make the products less competitive.
Since the company can’t maintain profitability, they suggest executives take a pay cut, while allowing their non-skilled workforce to make well above the median income that is in many cases, higher than college graduates and professionals in other industries.
Finally, we already know that the company is in financial crisis, yet the demand is there for increased health care. If you demand that a company create a non-competitive product, pay their employees more than the market dictates, and increase health care for retirees, how is that going to help the company that is already struggling? In my opinion, it is a battle that really has no positive outcome regardless of what happens.
I realize that discussion about unions can be a topic that is polarized as politics, and this isn’t meant to start a war of comments. But, since this strike does directly affect me, my family, and some clients, it is something that I felt compelled to bring up. Unions have, and continue to provide great benefits to the working people, but at this time I think this strike is doing more harm than good, and doesn’t have the employee’s best long-term interests at heart.
This strike will undoubtedly hurt GM regardless of the outcome, which will in turn hurt the very employees they are trying to protect. If the strike is prolonged, it will reduce production dramatically, while there are still substantial costs. For a struggling company, this will do nothing but hurt the bottom line. The same holds true if GM comes to concession with the UAW. While production may quickly resume, the increased costs will continue to force GM to produce a less-competitive product, lower sales, and ultimately bigger losses. Both of these outcomes will lead to the possibility of bankruptcy, merger, or cutting the workforce, which is bad news for those very employees.
Finally, according to the New York Times, the UAW has secured a strike fund of over $900 million. Think about that — they are able to raise over $900 million just for the event of a strike? That is a lot of money that I would think could be better used elsewhere in order to further the union’s goals. Instead, this money will be used to pay those who strike and take shifts at the picket line a measly $200 per week. This is going to even further strain the already shaky economies in areas with a high concentration of GM workers.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
But, why do you think that GM (and Ford and DCX for that matter) make lower quality vehicles? It is because they have to cut corners to save money so that their vehicles can be even remotely priced close to Toyota/Honda/etc. due to the extremely high cost per employee.
The domestic makers are stuck paying wages that far exceed the average, they have a huge pension to pay into, and then health care (which is at least trying to get changed for retirees). Even most of the Toyota/Honda type plants here in the U.S. don't use union employees, don't have ridiculous pension plans to fund, so they can focus on creating a high-quality product at an affordable price.
What I found interesting in this Bloomberg article earlier today:
"Striking workers receive about $200 a week from the union while serving on the picket line, less than one fifth of a traditional weekly paycheck for a UAW assembly worker."
If $200 a week is less than 1/5th of a normal assembly line worker's check, that means on average, a line worker is making over $1,000/week, or over $50,000/year. It doesn't say if that is gross or net, but it doesn't matter. That is absurd for unskilled labor, I don't care how much seniority you have with a company.
Of course that is only part of the problem, because as you mentioned, their bread and butter has been in SUVs and trucks, which is rapidly declining, and their innovation and profitability on the competing car market just isn't there. But in the end, I believe that the lack in quality stems from being unable to keep costs down, which stems from having to pay your employees (executives included) far more than they should be.
I agree with you that job security is a useless thing to fight for, but pay disparities are a real concern (as you noted).
But I don't think that the union is the source of GM's troubles, the problem is that GM makes low quality vehicles for cheap. They've chosen a market segment that is being eroded by foreign car companies who can produce the same cheap car for even less.
Corporate profits on average are up over 10%, while wages have only increased slightly. I don't have a lot of sympathy for the companies in this case.
I was surprised and dismayed when I saw the headline on boston.com yesterday. It doesn't make any sense. Job security would be nice, but not at the expense of destroying your employer.
I think I saw a quotation in the boston.com article of a GM employee questioning the union leadership... I'll have to see if I can find it.
This does remind me of my youth in England with British Leyland being in a similar position, where the Unions just made the company uncompetitive. British Leyland became Austin Rover and the same happened eventually the company dissapeared. Where is the UK car industry now? Virtually non-existant.
I can understand the unions wanting the best for workers, they made the company after all, but the reality is that we are in a global ecomnomy.
There is a very good book by the raider Sir James Goldsmith called 'The Trap'. It was written in the early nineties and discussed the affect of globalisation on domestic jobs in the US and UK.
The basic premise was that if a company can make their product cheaper elsewhere they will, if they are unable to becuase of unions or labor laws, the company will die. He was in favour of limiting globalisation.
Goldsmith said the only result from globalisation would be that we (the the western economies) would be manufacturing nothing and selling each other 'pensions and pizzas'.
This may be going to far...but you can see his point.
Wow.. I can't believe it. Just yesterday night I was reading a TIME magazine report on this issue and there was a *happy* portrayal of both parties shaking hands on an agreement. And I was thinking, wow this will turn out to be a groundbreaking arrangement and an example that other automakers could follow. Now things don't look happy anymore.
This strike doesn't make sense. There may be something behind such a strike against a company that is so obviously in danger even without a strike. In such days unions are usually forced to give back gains in order to save the company, not demand further gains. Not knowing anything internal, I would look to see what the union leadership has to gain from this strike.