Why Chrysler Needs Its Unions on Board
April 25, 2007
"Who cares about the union?!” “Screw the union.”
I constantly get those kinds of remarks, particularly of late in regard to the sale of Chrysler -- in emails, in feedback to AutoObserver entries and by folks on the street.
Bottom line: Unions can make automakers miserable. And the proof is in this history lesson:
In summer 1998, two UAW locals at parts plants in Flint, Michigan, went on strike. Those plants produced simple but critical components for General Motors vehicles; things like spark plugs, fuel filters, instrument clusters. And, due to new sourcing trends, they were the only plants to make them.
Because of low inventories in the assembly plants due to lean, just-in-time delivery processes, 13 GM vehicle assembly plants were forced to close within four days. Two weeks later, that number doubled. Eventually, all of the then 29 GM assembly plants in North America were forced to stop production as were more than 100 other parts plants.
The strike could not have come at a worse time. GM was just beginning to regain a bit of momentum. It was on the eve of launching all-new versions of its high-profit pickup trucks. The $6-billion program, five years in the making, called for production of 1.2 million vehicles a year, involving nearly a dozen assembly and parts plants.
Instead, GM plants shut down for eight weeks, with a devastating effect on GM sales, market share and profits. It can be argued that GM never fully recovered from its effects.
The union didn’t fare all that well either. A year later, the striking plants and GM's other parts-making operations were spun off to create Delphi Corp., now in bankruptcy and battling with its unions -– again. Outsourcing parts to Mexico gained momentum.
Chrysler's Balancing Act
That’s why Chrysler’s potential sale –- and maybe its very survival -– depends on convincing the automaker’s unions –- the UAW in the U.S. and the Canadian Auto Workers in Canada, where Chrysler has critical operations -– to give concessions on health care and pensions benefits, and flexibility on work rules.
Chrysler is socked with an estimated $18 billion in unfunded health care and other benefit costs that no potential buyer wants to assume entirely. It’s questionable if Chrysler, even if it is not sold, could survive without concessions.
"Unless the [union] is willing to modernize the workplace and abandon its class-warfare labor negotiations, it's impossible to run the company," Peter Morici, a University of Maryland business professor and longtime critic of the auto unions, said in an interview in today’s Wall Street Journal.
Nevertheless, that doesn’t mean Chrysler will get concessions from the unions.
"If people buying [Chrysler] think they're going to get concessions out of us, it's not going to happen," Buzz Hargrove, head of the Canadian Auto Workers union, told the Wall Street Journal. As for trading equity in the Chrysler, under new ownership, for concessions as some of the potential suitors have proposed, Hargrove responded: "We're not interested in equity. We've met the test in terms of quality productivity and are not about to give. It ain't going to happen with our union."
Indeed, negotiating concessions will prove tricky. Chrysler couldn’t get any break from the union last year, when GM and Ford did, because it was earning a decent profit. Now, though Chrysler is ailing, DaimlerChrysler is far from it. But DaimlerChrysler management and stockholders are fed up with other divisions subsidizing Chrysler, so they want to dump Chrysler.
And look at some of the potential buyers of Chrysler. They’re rich. For instance, private equity firm Blackstone is one of Chrysler’s suitors. Its founder and CEO, Stephen A. Schwarzman, was recently featured on the cover of Fortune magazine as “the Man of the Hour” for his record-breaking equity deals and lavish, multimillion-dollar party to celebrate his 60th birthday. And Blackstone is planning an estimated $20-billion initial public offering.
The question is what will happen if the unions don’t give concessions? It seems doubtful Chrysler will be able to sell it as is. And what will happen to Chrysler if DaimlerChrysler can’t sell it? What will strife with DaimlerChrysler’s North American unions do to its relations with its important and powerful unions in Europe, which have representatives on the DCX board?
The story will unfold over the next few months. The Detroit Free Press reports today that DaimlerChrysler, after meeting with potential suitors for more detailed descriptions of their offers, will soon narrow the field to a leading contender.
Then we’ll really see the sparks fly.
Posted by Michelle Krebs at 7:55 AM under Chrysler , Commentary | Comments (4) | digg this | Seed Newsvine
Pro-labor types will defend unions' ability to strike as a means to defend workers' rights.
But lets face it: it's little more than legalized extortion in some instances.
Pro-labor types will say that it is management that extorts workers, but in the auto industry, this is no longer the case. UAW workers are no longer victims. They still rail against executives' high pay which they say comes at the expense of the "rank and file". But increasingly, I suspect that the reason they rail against the million dollar executives is simply because those corporate executives (and perhaps major-league baseball players) are just about the only people in America that are moren over-paid than UAW members.
Gold-plated health benefits (which until recently had little or no co-pays or paycheck deductions), lifetime pensions and $60K + per year? The UAW's pay and benefits don't just make blue-collar workers envious; White collar workers (including those at Ford, GM and Chrysler) and many a PhD would be envious of UAW pay and benefits.
Of course Ford, GM, and Chrysler suffer from many problems and the results of many mistakes, but the UAW and their overpaid ranks were and are a big part of the problem.
Posted by: ThriftyTechie | April 25, 2007 at 4:24 PM
I laugh at UAW workers complaining about executives. They have options...many have advanced college degrees and, if they lose their jobs, can find well-paying work outside the automotive industry.
Whereas most UAW jobs can be replaced with a trained monkey after about an hour of instruction.
What an upside down world we've lived in where people with high school (or less) educations made, with overtime, over 100K a year with corporate CEO benefits. The stupidity of this is finally being resolved in the escalating and painful death throes of the American auto industry.
The greed and entitlement mentality of the union and it's members is sickening to anyone looking at it. They've long forgotten they are the workers and not the owners. Hopefully the union will be gone and forgotten in the near future so that Michigan can get a shot at some of these manufacturing plants that go to the southern states.
The UAW has held Michigan hostage and our young people have dim job prospects due to how toxic this state is because of the greedy UAW.
Posted by: UAW Basher | April 27, 2007 at 6:54 AM
mr. uaw basher, why not enlighten us as to how those executives with advanced college degrees have managed the big 3 into the ground over the last 30 years ( this is not an all of a sudden thing).
try leaving the union out of it and see what you can come up with. i'm not saying the uaw is without some guilt, but not as much as is given to it.
Posted by: Naif | April 27, 2007 at 3:05 PM
Naif,
Let me take a stab at this.
First of all, the Big 3's management is not innocent of perpetrating numerous tactical and strategic mistakes (the Aztek and lack of entry-level compact car development come to mind).
But many management decisions that were ostensibly are due to bad executive decisions or "bean counting" can be attributed being in a situation where a company is held hostage by the UAW.
A person in handcuffs has limited options. A company constrained by the UAW similarly has limited options.
Broadly speaking, companies like Ford and GM did not hire workers to make cars througout the 70s, 80s, and 90s; they manufactured and sold cars to support their workers.
Strategically speaking, they didn't have the luxury of planning and executing superior vehicles at a relatively high price point because their labor structure necessitated the manufacture and sale of a large, large number of cars. As such, the general strategy of all three of the big-3 during the 80s and 90s (and this is no coincidence that all three were UAW companies) was to "bean-count" and build cars to match certain low price-points to ensure that X,000 cars would be sold.
Toyota and Honda, meanwhile were able to take an approach that made sense. Build solid cars, sell a few. Sell a few more, hire more workers, and then repeat.
Another general problem was that since the number and the cost of workers was fixed, it deincentivized developing cutting-ege manufacturing techniques and exacerbated manufacturing inefficiency. In other words, if GM had hypothetically come up with some hi-tech manufacturing process to halve the number of workers needed to make model X, GM would have had to pay workers to go home and watch TV. Broadly speaking, this could explain why it is generally accepted that Toyota and Honda have better and more efficient manufacturing facilities.
I could go on, but that's enough for now.
Posted by: ThriftyTechie | April 28, 2007 at 12:55 PM