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

Photo: Jim West.

In 1978, then United Auto Workers (UAW) President Douglas Fraser, frustrated with corporate America's new aggressiveness, accused employers 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 1930s and who marched in Selma in the 1960s." The threat was, sadly, not serious and the promised identification with social movements 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 of working-class defeat. But once again, only one class was fighting. As a result, the union that 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—no longer the UAW that sets the bar in the industry, but Toyota.

The core elements in the agreement are 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 enter Big Three negotiations in September 2008.

A MISSED OPPORTUNITY

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 U.S., unlike every other developed country, there is no national health care plan, making health care a matter of private purchase or negotiated benefits. In the period after World War II, the UAW developed a "privatized welfare system" that had companies pay health care costs for both active workers and retirees, including surviving spouses. It's that privatized system—once a symbol of autoworker strength—that is now in crisis.

With increasing competition in the auto industry, rising health care costs have become a major factor in that competition. Non-U.S. companies have the advantage of socialized health care costs, or if they are recent arrivals to the US, of having small numbers of retirees drawing health care. GM, on the other hand, carries these costs itself, and for every active worker provided health care, it now also pays for almost five retirees and surviving spouses—73,000 active workers versus 340,000 pensioners.

Some of these pensioners—those over 65—receive health care under the Medicare program. But a good number of UAW retirees are well under 65, partly because early retirement was encouraged as an alternative to layoffs. 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. The UAW is in a position to lead the way in such a campaign. With health care the No. 1 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 cannot 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 with that attention would have come 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 assumed they had for life.

The union could have 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. GM instead 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. GM had argued previously that they owed the equivalent of $50 billion for retirees’ health care, a sum used to demonstrate GM's high overall labor costs.

But when GM had to put up cash to cover future health care costs, its estimates suddenly fell dramatically. Now it argued that only about 60 percent—less than $30 billion—of its much-trumpeted estimate 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 money will include an advance by GM on the funds diverted to VEBA from cost-of-living (COLA) increases and wages.

* 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 additional amount.

* 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 agreement, benefit cuts and increased costs do not have to be taken back to 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.

One rationale used by the union to justify this betrayal of both rights and principles is that now, if GM goes bankrupt after 2010, at least there will be a fund to keep paying benefits. But since funds are phased in and probably will include GM stock, some of the promised money might not in fact be available if GM goes bankrupt.

The commonsense argument to defend retirees—present and future—would have been to reject the new fund and demand that GM should keep the money, using it to set up its own fund guaranteeing benefits until a national health care plan is established. The answer doesn't lie in making health care protection even worse, but in fixing this particularly American disaster.

INEQUALITY AS JOB ONE

A fundamental principle of the CIO—the foundry of industrial unionism that gave birth to the UAW—was equality of workers across skills, gender, and race. Equal pay for the same work and narrow pay 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—including sub-assembly, machining, material handling, and unionized janitors—will get wages approximately half that of current workers. In the case of material handlers, pay will be $14 an hour. According to the Detroit Free Press, as many as one-quarter to one-third of assembly plant jobs are "non-core".

New hires will also have a distinct pension plan and will not be eligible for post-retirement health care—a rule that applies to all new hires, not just those in the "non-core" jobs. In lieu of the existing pension they will receive a $1-an-hour contribution to a 401(k) savings plan, which is tax-deductible for GM.

It's not hard to see where this is going, namely:

* A weaker union. The first thing new workers see and experience is union-company collaboration in making them second-class workers.

* A major threat to the auto parts industry. GM has outsourced work to lower-wage components plants and used that threat to weaken assembly workers. Now they can threaten the parts industry by moving the work back to GM plants if they don't lower their wages further.

* A precedent for spreading the two-tier wage scheme to "core jobs." If the union unlocked the door, wouldn't the companies be stupid not to keep pushing it open?

* 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?

The new-hire rate has special significance at GM because its workforce is so much older and closer to retirement than at Chrysler and Ford. GM may soon have significant numbers of new hires. As Bloomberg reported, 63.5 percent at GM workers are eligible to retire over the next five years, but only 30 percent and 31 percent at Chrysler and Ford.

MORE IS LESS

The UAW brochure tries to sell this agreement to active workers 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 and voters. It's asserted these gains will be as much as $13,056 for a typical assembler.

The first $3,000 is a signing bonus. Then there are three annual lump sums, which amount to about $2,100, $2,800, and $2,100—based on steady work with 10 percent overtime. The rest comes from an estimated 68 cents in COLA increases, 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 cents quarterly from the COLA to cover "health care costs." Over the life of the agreement and based on the same assumptions of steady work and overtime, this represents a take-away of $6,240, or close to half of the supposed gain. And if inflation is higher than the UAW assumption of 2.44 percent, the 10 cents quarterly diversion may leave no COLA increase at all.

* Last September, the UAW agreed to "temporarily" postpone the 3 percent annual improvement factor (AIF), which went into health-care costs as well. In the present agreement temporary has become permanent. This wage loss, 75 cents for an assembler, would have generated with overtime about $7,200 over the life of the agreement.

* Together, the lost COLA and AIF more than cancel out any of the "gains" cited in the brochure. Moreover, 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, such as holiday and vacation pay, sickness and accident, and life insurance. But the losses cited above do affect wages and benefits.

* GM assemblers, currently earning $28.17 an hour, would need to be earning $31.02 four years from now just to maintain current purchasing power. Since they will only earn an estimated $28.85 at the contract’s end, they will have lost $2.17 an hour in terms of what money will buy over the life of the agreement.

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 84 percent decline! 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 performance problems. So if they take less, the companies' problems can be fixed. But concessions divert attention from the real problems—and they never stop. Discovering that workers will accept less, companies are constantly tempted to keep demanding more while blaming it on competition.

Wage costs are not the problem. Wages and benefits of assembly workers account for less than 10 percent of the cost of a car. Pay differentials between companies are not, in this context, significant.

The union answer here is clear, especially now that GM's competitors are primarily inside the U.S: Not concessions, but extending unionization across the sector, taking wages and benefits out of competition. It’s a difficult path, of course, but also an impossible one to follow while negotiating inferior agreements.

Productivity in the auto industry has been rising quickly, with real output per worker more than doubling since 1987. Across the industry, the Big Three compare favorably. The Harbour-Felax Report—which analysts consider the industry bible on productivity—writes, "the Big Three largely have eliminated the productivity gap with the Japanese.” Workers have a strong claim to sharing in those gains, especially because the number of hours they work has been steadily rising in the post-war period, unlike the rest of the industrialized world.

A central problem for GM, one at least as important as health costs, has been its product choices. GM's determination to stick with larger vehicles and their larger short-term profits is not something for which the union is responsible. But had the union 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.

NOTHING INEVITABLE

There is nothing inevitable about what has happened to autoworkers and what has happened to their union, but if there is anything that the past quarter-century of history teaches, it is that without working-class resistance things will continue to get worse.

The question that begs asking is whether this agreement can become a catalyst for expressing the collective outrage of autoworkers across North America, and spark the long-awaited revolt against the one-sided class war raging against them.