One-Sided Class War: The UAW-GM 2007 Negotiations

In 1978, then United Auto Worker (UAW) President Douglas Fraser, frustrated with corporate America’s new aggressiveness, accused US business of waging a “one-sided class war against working people, the unemployed, the poor, the minorities, the very young and the very old, and even many in the middle class of our society.”  In response, he warned, “we in the UAW intend to reforge the links with those who believe in struggle: the kind of people who sat-down in the factories in the 1930’s and who marched in Selma in the 1960’s.”  The threat was, sadly, not serious and the promised identification with the movement gave way to a deeper identification with the companies.  Auto workers, and American workers more generally, have been paying the price since.

The UAW negotiations over the last few months might have been a chance to make up for that generation-long period of working-class defeat.  But once again, only one class was fighting.  As a result, the union which once pioneered new benefits for working people now contributed to dismembering them. The union whose great sit-down strikes demonstrated the power of solidarity is now shabbily negotiating lower wages for workers not-yet hired and not-yet voting.  With this agreement, it is — as the Wall Street Journal noted (September 27, 2007) — no longer the UAW that sets the bar in the industry, but Toyota.

The core elements in the agreement are discussed below: health care, the treatment of new hires, and the wage settlement.  These negotiations will have major implications for Canadian workers as well, especially the Canadian autoworkers who go into Big Three negotiations in September, 2008 that will have to be discussed and debated.

Health Care: If It’s Broken, Give It to the Union

The most-publicized part of the new agreement has been the change in the way that health care for retirees will be administered.  In the US, unlike any other developed country, there is no national health care plan and so health care is a matter of private purchase or negotiated benefits.  In the post-war period the UAW developed a “privatized welfare system” whereby the companies pay health care for both actives and retirees (including surviving spouses).  It’s that privatized system — once a symbol of autoworker strength — that is now in crisis.

Competition in the auto industry has increased and rising health care costs have become a major factor in that competition.  Non-US companies have the advantage of socialized health care costs, or if they have come to the US relatively recently, of having small numbers of retirees drawing health care.  GM, on the other hand, not only carries these costs itself but for every active worker drawing health care, it now also pays for almost five retirees and surviving spouses — 340,000 pensioners versus 73,000 active workers.

Some of these pensioners — those over 65 — do get health care under the Medicare program, so GM’s costs are just the supplemental care the UAW negotiates; but a good number of UAW retirees are well under 65 (partly because early retirement was encouraged as an alternative to layoffs) and their health care is fully paid for out of the UAW-GM negotiated plan.

The obvious solution to this dilemma is to follow the rest of the developed world into some version of a single-payer national health care plan, and the UAW is in a position to lead the way in such a campaign.  With health care the number one issue in American polls, an election in the air, and Wall Street and the media pressuring the UAW to get GM off the hook, the UAW could have declared that this problem can’t be solved in bargaining.  It could have fought against workers being stampeded into a false solution.  It would of course have been attacked as destroying the American auto industry.  But that attention would also have given it a platform to make its case and speak on behalf of the 47 million Americans without health care, the tens of millions with inadequate care, and the millions about to lose the plans they formerly assumed they had for life.

The union could, in other words, have placed the issue squarely on the national agenda and looked to convert a looming disaster into an opportunity.  This would undoubtedly have meant real risks, but in addition to defending its members, leading such an initiative might have also contributed to the long-awaited revival of the moribund American trade union movement.

That, of course, did not happen.  The top leadership, it’s clear, is too integrated into “jointness,” too cautious, too much a part of the history of defeats to contemplate such a response.  What happened instead was that GM shifted the responsibilities for administering the health care needs of retirees to the union.

The vehicle for doing this is the Voluntary Employees Beneficiary Association (VEBA), a new plan to be implemented in January 2010.  Earlier, GM had argued that what they owed the retirees for health care required an amount equivalent to $50 billion in the bank.  That sum was used to show how high GM’s overall labor costs were.  When it came time for GM to put up some cash to cover the future costs, its estimates suddenly fell dramatically: it now argued that at most only about 60% of this (under $30 billion) would be necessary.  The details are complex, but it seems that:

  • GM will transfer $24.1 billion in cash to the union and put up a “debenture” of $4.5 billion (which may be in the form of GM stock).
  • The above sums include not just GM money but an advance by GM on the monies diverted from the COLA and wages for VEBA.
  • If necessary, GM will transfer a maximum of up to $165 million per year over 20 years.  The union has agreed to not ask GM for any amounts beyond the above (“The UAW and the Covered Group may not negotiate to increase any of the funding obligations set out herein” [Memorandum of Understanding, Post-Retirement Medical Care, September 26, 2007, p.9, #13]).
  • Any further shortfalls — as might happen if returns on the fund are lower than expected or health and drug costs rise faster — will have to be met by either cuts in coverage or increased co-pays.  According to the language, this does not have to be taken back to the workers but can be decided by the plan’s administrators. 
  • Some funds will be transferred from the pension fund into VEBA.  This will be done by “giving” retirees a special lifetime monthly benefit of $66.70 but then charging them $51.67 per month for VEBA (the amounts are apparently equivalent after tax treatment).
  • Note that one rationale used by the union to justify this betrayal of both rights and principles is that now, if GM goes bankrupt after 2010, there will at least be a fund to keep paying benefits.  This will not be a problem in the short run.  But since the monies are phased in and also include GM stock (the “debenture”), some of the promised monies might not in fact be available if GM goes bankrupt.  Here again, the commonsense argument to defend retirees (and actives who will move into retirement) would have been to reject the new fund and demand that  GM should keep the money and use it to set up its own fund to guarantee the benefits until such time as a national health care plan is established.

New Hires: Inequality as Job One

A fundamental principle of the CIO — the industrial unionism that gave birth to the UAW — was the equality of workers across skills, gender, and race.  Equal pay for the same work and narrow differentials between workers in the workplace were a matter of principle as well as of building solidarity for coming struggles.

In the new agreement, however, workers hired into “non-core” jobs (e.g. sub-assembly, machining, material handling, and janitors where they are still in the union) will get wages approximately half that of workers already in the workplace ($14/hr in the case of material handlers).  It’s estimated that as many as 1/4 to 1/3 of assembly-plant jobs are “non-core” (Detroit Free Press, October 4, 2007).   New hires will have a distinct pension plan and will not be eligible for post-retirement health care — this applies to all new hires, not just those in the “non-core” jobs.  In lieu of the existing plan they will receive a $1/hr contribution to a 401(k) savings plan (which is tax-deductible for GM).

It’s not hard to see where this is going:

  • A weaker union.  The first thing new workers see and experience is the union-company collaboration in making them second-class workers.
  • A major threat to the auto parts industry.  Earlier, GM outsourced work to lower-wage components plants and used that threat to weaken assembly workers.  Now they can get revved up again to threaten the parts industry with sourcing the work back to GM plants if they don’t lower their wages further.
  • A precedent for spreading the new-hire principle to “core jobs.”  If the union acquiesced to the first steps, wouldn’t the companies be rather stupid not to keep pushing for more?
  • Forget organizing.  Why would anyone want to join a union proud of the fact that it may now have lower standards than non-union plants?

Note that the new-hire rate has special significance at GM because its workforce is so much older and closer to retirement than that at Chrysler and Ford, meaning that GM may have significant numbers of new hires.  As Bloomberg reports (October 5, 2007), the numbers eligible to retire over the next five years are 63.5% at GM, but only 30% and 31% at Chrysler and Ford.

Wage Gains: When More Is Less

The UAW brochure tries to sell this agreement to the actives based on the increased income they’ll get over the four-year life of the agreement (retirees don’t vote on the contract and future hires are only potential workers/voters).  These gains will, it’s asserted, be as much as $13,056 for a typical assembler.   The first $3,000 is a signing bonus; there are three annual lump sums of 3%, 4%, and 3% of income which amount to about $2,100, $2,800, and $2,100 respectively (based on steady work with 10% overtime); the rest comes from an estimated $.68 in cost-of-living (also assumed to accumulate through overtime).

Leaving aside what has been given up in health care, the new-hire rate, and other benefits and workplace rights to “win” these income gains, note that:

  • The agreement diverts $.10 quarterly from the cost-of-living plan to cover “health care costs.”  Over the life of the agreement and based on the same assumptions as above, this represents a take-away of $6,240 or close to half the above gain.  (If inflation is lower than the UAW assumption of 2.44%, the $.10 quarterly diversion may leave no COLA at all).
  • In September, 2006, the UAW agreed to “temporarily” postpone the 3% annual improvement factor (AIF) (it too went into health care costs).  In the present agreement that has been made permanent.  This wage loss ($.75 for an assembler) would have generated, with the overtime assumed above, about $7,200 over the life of the agreement.
  • Together, the lost COLA and lost AIF more than cancel out any of the “gains” cited in the brochure.  Moreover, since lump sum payments — the bulk of the income increase under the new agreement — do not increase the wage rate.  They also do not increase wage-related benefits like holiday and vacation pay, sickness and accident, life insurance.  But the losses cited above do affect wages and so also impact on benefits.
  • A GM assembler, currently earning $28.17/hr, would need to be earning $31.02 four years from now just to remain in the same place in terms of purchasing power (based on the UAW’s inflation assumption 2.44%/yr).  Since they will only be at an estimated $28.85 at year’s end, they will have lost $2.17/hr in terms of what money will buy over the life of the agreement.

Concessions and Job Security

The main promise of the GM-UAW agreement, as in all concessionary agreements, is job security.  It’s worth recalling the history of such promises.  At the end of the 1970s, the UAW membership stood at 450,000.  After a series of agreements, each solemnly promising job security, the GM membership is now at 73,000 — a stunning decline of 84%!  It is difficult to see why new job security promises would put any worker at ease.

One of the problems with making concessions is that it reinforces the view that workers were the cause of the performance problems and so if they take less, the companies’ problems can be fixed.  As such, concessions also divert attention from the real problems.  Another is that it never stops; having discovered that workers will accept less, it’s too tempting for companies, especially in the face of competition, to keep demanding more.

In the auto industry, health care has indeed been a problem for the US-based companies.  But as we noted above, the answer doesn’t lie in making health care protection even worse, but in fixing this particular American disaster.

Wage costs are not the problem.  Wages and benefits of assembly workers account for less than 10% of the cost of a car and differentials between companies are not, in this context, significant.  In any case, the union answer here is clear — especially now that GM’s competitors are primarily inside the US — and it’s not concessions: extend unionization across the sector and take wages and benefits out of competition.  This is easier said than done, but it is impossible to do while negotiating inferior agreements.

Moreover, productivity in the auto industry has been rising very fast: real output per worker has more than doubled since 1987.  If anything, workers have a strong claim to sharing in those gains — especially in terms of work-time, another benefit in which the US lags the rest of the world (historically, hours of work fell by about 1/3 in the first half of the century but have actually increased since then).  Note that even in comparisons across the industry, the Big Three compare favorably.  The Harbour-Felax Report — which analysts consider the industry bible on productivity — has stated that: “The Big Three largely have eliminated the productivity gap with the Japanese” (Ward’s Automotive Report, December 12, 2005).

A central problem for GM, one at least as important as the health costs, has been GM’s determination to stick with larger vehicles and their larger short-term profits.  This is not something the union is responsible for, but had the union itself criticized GM for sticking with gas guzzlers in the face of rising gas prices and environmental concerns — rather than being silent or supporting the companies — its members would be more secure today.

Conclusion: Towards Outrage and Struggle

There is nothing inevitable about what has happened to autoworkers and what has happened to their union, but if there is anything that the history over the past quarter century teaches, it is that without working-class resistance things will most likely continue to get worse.  The question that begs answering is whether this agreement can become a catalyst for expressing the collective outrage of autoworkers across the US and North America and, in so doing, spark the long-awaited response to the one-sided class war raging against them.

Sam Gindin teaches political economy at York University.  This essay was first published in the Socialist Project‘s e-bulletin The Bullet (No. 62, 6 October 2007).

Socialist Project

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