The New King of Detroit

Authored with Ivan Osorio

Yesterday, the United Auto Workers union (UAW) named Bob King as its new president. Does this mean a change in direction for one of America’s most powerful unions? Not likely.

King, a UAW vice president before yesterday and a member of the union’s executive board, was described by Time magazine late last year as being “Picked – Not Elected – to Lead [the] UAW.” As Time writer Joseph Szczesny noted, “For more than 60 years, the UAW’s top leadership has blocked attempts to permit union members to vote directly for the union presidency.” Instead, the union’s executive board has picked the UAW president since the late 1940s through closed caucuses.

It’s not like the union doesn’t need change. For several decades, lavish compensation packages and restrictive work rules have helped make the Big Three Detroit automakers uncompetitive, especially in the face of increased foreign competition. Yet you wouldn’t know it from the parade of old faces at the UAW’s recent convention. Listening to their comments, it’ s no wonder why Michigan has the worst unemployment in the nation–14 percent compared to 9.7 percent average for the entire country.)

AFL-CIO President Trumka pushed the class-war rhetoric so common among labor bosses. He thundered, “We cannot ease off the fight against trade agreements that favor Wall Street over workers throughout the world.” He applauded the UAW for “fighting back” against corporate America and hostile politicians, and called on the automakers to give back concessions made by the UAW.

Outgoing UAW President Ron Gettelfinger blamed “right wing conservatives in Washington who thought [the auto] industry should just fade away” for the problems facing Ford, General Motors, and Chrysler. He claimed that, “the contempt for the UAW was so deep that some of them were willing to let the industry collapse in the hopes they could destroy us.” But for all of Gettelfinger’s cries of victimization, it was the UAW that seemed willing to take the automakers to the brink, until collapse stared them in the face.

Before recent concessions, which union leaders do not seek to reverse, the cost to employ a UAW worker averaged around $70.00 an hour, or $146,000 year, including salary, health care costs, and retirement benefits, much more than the $43.00 per hour Honda and Toyota spend on their American employees, who are mostly non-union.

Gettelfinger never took responsibility for the unsustainable wage and benefit costs and stringent work rules that his union has imposed on the Detroit Big Three, and King is no more likely to do so. Time described him as “one of Gettelfinger’s top lieutenants” and “a former 1960s-style activist who was once considered too radical to hold union office.” King has said that he would like the union to take back some of the concessions in the next collective bargaining agreement. He told the Associated Free Press, “I’m very upset with the situation (at Ford) where there were merit increases and (retirement savings plan contributions). That’s wrong.”

And what has this approach gotten rank-and-file union members? The costs imposed by the UAW helped push GM and Chrysler to declare bankruptcy in 2009. In Michigan, alone the auto industry has cut almost half its workforce, losing over 210,000 jobs in the last decade – 365,500 in 2000 to 158,800 in 2009, which has contributed to the state’s sky high unemployment rate.

The UAW is not the sole cause of the troubles besetting the Big Three, but it has been a major factor, and it can no longer shift the blame. The government-engineered bailouts of GM and Chrysler gave the UAW so much stock in those companies that it cannot credibly claim to be separate from their governance.

The $45 billion UAW Retiree Medical Benefits Trust is a Voluntary Employee Beneficiary Association which provides healthcare benefits to UAW retirees. The trust is managed by an 11-member board, with five members appointed by the UAW. The trust owns 68 percent of Chrysler common stock and 17.5 percent of GM common stock, allowing the fund a vote on the board of each company. In effect, the UAW can vote as a block and thus need to sway only one other trustee to give it control of the trust, which would give the UAW a direct say in running both GM and Chrysler.

The future of the UAW is a far from certain. GM and Chrysler have emerged from bankruptcy but still face huge labor-related legacy costs. GM’s first financial report after bankruptcy show $1 billion in positive cash flow, but that was offset by a $4.3-billion loss due to the retiree health care settlement with the UAW.

If the UAW carries on with business as usual, the Big Three may still be in real trouble. It is to be hoped that the union’s substantial ownership stakes in GM and Chrysler will force the union’s leadership to make the tough choices necessary to ensure the companies’ continued viability into the future. The union leadership’s new choice of president, though, gives reason to be skeptical.