Labor vs. Big Three Auto: Let the Games Begin Again
Policy + Politics

Labor vs. Big Three Auto: Let the Games Begin Again

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The fact that labor negotiations between the “Big Three” U.S. automakers and the United Auto Workers are scheduled to get underway on Monday is the most newsworthy aspect of that fading ritual in American life. Remarkably, there still is a Big Three after the worst economic crisis in modern times. And there still are an estimated 120,000 hourly employees who work for them.

The Treasury made that possible by investing an estimated $70 billion in struggling automakers two years ago, including $12.5 billion  in Chrysler Group LLC. Late last week, the Treasury sold back the last of its stake in Chrysler owner Fiat SpA for $560 million, which leaves the government with a potential $1.3 billion loss.

While many investments by the government’s Troubled Asset Relief Program have turned out profitably for taxpayers, the Treasury could end up losing $1.3 billion in the Chrysler deal when all is finally tallied. Overall, the Obama administration estimates that it could lose a total of $14 billion on its financial assistance to Chrysler, Ford and General Motors.  But proponents insist that will prove to be money well spent.

“The industry really was too big to fail,” said David Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, Mich. “The industry could have withstood Chrysler going down, but it couldn’t withstand GM going down.”

While the $700 billion worth of bank bailouts passed in the waning days of the Bush administration were never popular, the auto bailout component – about $70 billion – drew a mixed reaction. It largely depended on where you lived.

While Democrats and some Republicans  from Michigan, Ohio, Indiana and other industrial states with automobile plants and parts facilities eagerly supported the bailout, Southern senators including Richard Shelby, R. Ala., and Jim DeMint, R-S.C., whose states became havens for foreign auto makers looking to escape the higher wages of unionized workers in the Midwest, were opposed. Midwestern Republicans like Michigan’s Dave Camp, now chairman of the House Ways and Means Committee, and then Ohio Sen. George Voinovich, on the other hand, supported the bill.

In recent weeks, the auto industry bailout has come under assault by Republican presidential hopefuls and has drawn renewed ire on Capitol Hill, where Republicans have accused White House auto czar Ron Bloom, now tasked with bolstering U.S. manufacturing, with playing favorites when negotiating terms with failing companies. Rep. Darrell Issa’s Oversight and Government Reform committee is investigating events surrounding the decision to protect the pensions of hourly workers at Delphi, a car parts manufacturer, while white collar workers lost most of their pensions’ value.

But that’s a relatively good problem to have, given the alternative, said Cole, of the Center for Automotive Research. As evidence, he cited the poor performance of the U.S. economy in the second quarter of this year due, in part, to supply disruptions from the Japanese earthquake and tsunami. “GM going down would have dragged key suppliers down with it and it would have had a huge impact on the entire industry,” he said. “It could have driven the entire economy into a depression.”

Administration officials echoed that claim in last Thursday’s announcement of the Chrysler stock sale. “With today's closing, the US government has exited its investment in Chrysler at least six years earlier than expected,” said Assistant Treasury Secretary for Financial Stability Tim Massad. “This is a major accomplishment and further evidence of the success of the administration’s actions to assist the U.S. auto industry, which helped save a million jobs during the worst economic crisis since the Great Depression.”

While the bailouts may have prevented catastrophe, the continuing woes of the U.S. auto market are undermining hopes for a more rapid jobs recovery in the industry. Sales of cars and light trucks in the first half of this year totaled 6.3 million units, barely ahead of last year’s pace when 11.6 million vehicles were sold. While that’s better than the 10.4 million unit trough hit in 2009, it’s still a long way from the 16-million-vehicle years that marked the industry during its heyday.

As a result, employment by automakers – including the local operations of foreign manufacturers – is a pale shadow of its pre-recession peak. The industry has added back 20,000 jobs in the past year to reach nearly 700,000 total manufacturing jobs. But before the Great Recession, the industry employed over one million workers making cars and light trucks.

The retail component of the industry has been hit hard, too. There are now 1.67 million jobs at auto dealers and parts suppliers across the country, down from 1.9 million before the downturn.

Industry experts say things would have been a lot worse had the government not rode to the rescue of domestically-headquartered manufacturers. In addition to the Chrysler bailout, GM received a $50 billion debt and equity infusion while Ford benefited from about $7 billion in low-interest loans.

All of Ford and GM loans have been paid back, while the government still holds 32 percent of its GM investment after recovering $23 billion from previous sales. It also owns $6 billion in preferred stock and three-fourths of GM’s financing arm, now called Ally Financial.

Workers in the industry took a major hit to their incomes to help the industry through hard times. That could affect this year’s negotiations. Hourly wages at Chrysler, for instance, are down to $49 an hour including benefits from $73 before the recession. GM wages are down to $56.

The average UAW member in the wake of the Great Recession is now paid wages much closer to the average for all workers in the U.S. compared to the halcyon days of the 1960s and 70s. The average employee compensation in the first quarter of this year for all U.S. workers – from the lowliest restaurant workers to high-flying airlines pilots – was $30.07 an hour, with $9.15 of that coming in the form of benefits. In its own industry, UAW hourly compensation is no different than the average for the entire industry.

Moreover, the domestic industry’s entry-level workforce is paid at rates comparable to those paid at foreign transplants in the U.S. For instance, Chrysler offers non-skilled assembly line workers $14.89 an hour in wages to start compared to the $28.31 an hour offered workers who started before 2007.

The UAW estimates workers gave up anywhere from $7,000 to $30,000 per employee in pay and benefits to help the automakers through hard times. They’ll be looking to make up some of that, especially from Ford, which is the most profitable domestic manufacturer and never needed a government bailout. But even there, the UAW is signaling that it is open to more creative financial arrangements like profit sharing so the companies will have more flexibility should the economy turn sour again.

In a speech to the Detroit Chamber of Commerce in early June, UAW president Bob King said the union had been transformed by the crisis just as much as the companies had changed in order to survive. “The 20th century UAW tried to find ways to achieve job security, such as job banks, that in the end did not achieve the result we were seeking,” he said. “The 21st century UAW knows that the only true path to job security is by producing the best quality product, the safest product and the longest lasting product, at the best price.”