The Unions and GM

I’m ambivalent about unions.  When they first arose as a real market force at the end of the 19th and beginning of the 20th centuries, I believe they were a necessary counterbalance to industries that (a) had unlimited power in the employment market place and (b) that abused that power something awful.

I started turning against unions in the 1970s, when I witnessed the unutterable garbage pouring out of the California’s teachers union (of which my dad was a member).  The union did little to improve teacher’s wages (believe me, very little), but got it’s sticky, uninformed, politicized fingers in every aspect of public education, to education’s great detriment.

Nowadays, we still have unions, but we don’t have the situation that prevailed in the 19th and early 20th centuries.  We have a fairly educated American workforce, we have vast bodies of legislation protecting the worker, we have the free flow of information, we have a mobility unimaginable a century ago (meaning workers have an easier time following jobs), and we’re struggling to compete in something equally unimaginable a century ago:  a world economy.

Also, unions, which used to protect blue collar workers from true abuse (dangerous working conditions, unsustainable wages, the abuses of factory towns, etc.), now exist at greatest strength in the government sector, a thought I find discomfiting, since both feed at the public trough, free of market forces.

With those thoughts in mind, I offer you an interesting press release that came in today’s email:

Center for Union Facts
For Immediate Release
November 11, 2008

Union Job Rules, Unreasonable Demands Big Factor in GM Downfall
GM’s Concessions to Unions Have Put the Company’s Long-Term Viability in Question

Washington D.C.- General Motors Corporation (GM) is driving its way toward bankruptcy or a government funded bailout, thanks in large part to restrictive work rules placed on the organization by the United Auto Workers (UAW). Last night, General Motors chief executive, Rick Wagoner said the company would need a federal aid package before Barack Obama takes office in mid-January.

GM has said that they will need an $11-14 billion cash injection in order to continue conducting business. Without that bailout, GM said Friday that it might halt production as soon as the middle of next year. Deutsche Bank Group, one of the world’s leading financial service providers, downgraded General Motors yesterday morning, targeting their stock value for $0.

Much of this turmoil stems from restrictive UAW job rules that prevent GM from having the flexibility to be competitive in the global marketplace, particularly during an economic downturn. One of the most egregious examples is the union job bank, which continues to pay workers whose jobs fell victim to technological progress or plant restructurings even though they aren’t actually working. The job bank, established in the mid-1980s, requires GM to pay displaced workers nearly their entire salary plus benefits and pension.

UAW also bullied GM into gold-plated health care benefits that are unsustainable. For each car GM makes, more money is spent for health insurance than on steel for its construction. Workers gained the right to smoke while on the assembly line, and some pay $0 deductable on doctor’s visits.

“The United Auto Workers have bled General Motors dry, leaving the company in a tattered state, and the union members extremely vulnerable,” said Richard Berman, Executive Director for the Center for Union Facts. “Job banks that pay workers to do nothing and other harmful union rules are at the heart of GM’s imminent bankruptcy. It will be truly unfortunate if union demands over many years result in another bankruptcy or bailout.”

“This should come as a lesson to government officials considering passing the Employee Free Choice Act, which would put more power and control into the hands of union chiefs who bankrupted one of America’s signature corporations.”

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Comments

  1. gpc31 says

    I’m a little slow on the uptake, but I just had the horrifying realization that Obama may not recognize ANY constraints on actually governing. I.e., he might not curb his ideology in the face of market realities. He might actually follow through with his counter-productive and potentially disasterous promises: planned tax hikes, bans on offshore drilling, bailouts to Detroit labor unions, etc.

    Why? Why would he do something so counterproductive?

    Because the worse it gets, the better for him. The bigger the emergency, the more power he can grab. By the time he’s done, more than half the population will be on the dole (via tax credits, make work, or welfare) and he’ll have a majority coalition of dependents.

    And he can count on worshipful media support to blame the current mess entirely on Bush and the Republicans. No matter how much worse it gets, it will be spun as Bush’s fault. He will feed the short attention span of the American public with a recreation of FDR’s first hundred days. Dissent will be stigmatized as unpatriotic (and racist, to boot) in a time of national emergency.

    Lenin: “the worse it gets, the better it is.”

  2. suek says

    GM would do well to negotiate a transfer of the ownership of the company to the workers, with some rights to the present stockholders.

    Bet those union problems would disappear.

    Because you’re right on, gpc31.

  3. Charles Martel says

    gpc31:

    It was getting to be time for a quote from Lenin, and thank you for providing it.

    I hate to say that I think your prediction may prove true. I believe that Obama is thoroughly bemused. As somebody surmised a few months ago, he was taking a practice run for 2012, knowing that he was in no way qualified for the Oval Office.

    Flash forward to where a combination of messianism, political correctness, disgust with the Republicans and a compliant press have made him the next president.

    If all the speculation that the man is a narcissist is true — and I have no doubts that he is — then he is walking around with a belief that History, or Providence, or God himself (if Obama believes in God) has appointed him.

    Yes, the worse things get, the more his powers will be needed.

    This is all beginning to remind me of that Twilight Zone episode, “It’s a Good Life,” where Billy Mumy plays a 5 year old who has created his own world and has the powers of creation, life and death. The brat can read minds and will disassemble any dissenters, so everybody walks around muttering, “It’s a good life!” to keep their minds clear of naughty thoughts.

    The bellwether here will be Michelle. If she acts grown-up, we’ll have a chance. If she starts acting out, we’ll know that The One is gettin’ ready.

  4. sevesteen says

    I work in a non-union job at a GM plant. I don’t begrudge the workers the money all that much, but the work rules are maddening. To troubleshoot a particular computer-based machine, we needed a toolmaker to run the front panel, a WEMR (guys in charge of maintaining the welders) to open the cabinet, then eventually a datacom to put a new plug on the network cable. It takes a skilled trades electrician or datacom to carry a computer.

    I would also say that 95% or more of the union workers want to do a decent job and are willing to work and not obstruct progress. The problem is that the 5% who do have rules and procedures that mean they can get paid extra for obstructionism.

    I don’t know what the solution is. GM is so dependent on so many different unions. A strike at one parts plant can mean the shutdown of dozens of assembly plants. When the plant that makes axles supplying 10 assembly plants goes on strike, do you stand firm, or do you minimize the short-term damage, while emboldening your other parts plants? Relying on single sources of parts means that a union dispute is often more like blackmail than negotiations.

  5. Allen says

    In general, I’m pro-union; I think they are a valuable part of a free market. Yes, they cause the price of the products they produce to go up due to their demands, but so what? If the market will bear the cost then fine. What I do have a problem with the unions is when they think they should be immune from that very same marketplace.

    GM, Ford, and the UAW are going to have to adjust their approaches sooner or later. A government bailout will only extend the inevitable.

  6. Charles Martel says

    GM has burned its way through tens of billions of dollars in cash in just two years. A $14 billion federal “cash injection” will be gone in a couple of months.

    What then?

    sevesteen’s description of current reality at GM says everything we need to know. I grew up in a union household, so it pains me to say that what sevesteen is describing is like a series of cancers afflicting the company. Each one is a runaway cost center that has no concept of contributing to the rest of the company.

    Years ago when my mother had cancer, it was obvious that her body finally could not find a way around the interference. Her normal tissues struggled to keep up their functions, but the obstructions became too much. The “cure” for her cancer was death.

    It may be that GM’s cure will be death, too. I’m certain there are floor managers and workers somewhere outside of Michigan who know how to run a company without treating it like a Mafia protection racket. Perhaps they’ll step in and help recycle the corpse.

  7. BrianE says

    It is estimated that for every GM employee there are 7 or 8 jobs in support industries. The ripple effect will be huge.
    Managment always thought they could kick the problem down the road when settling strikes. Investors are getting what they deserve since they kept management in power (shares that are worth nothing), unions get what they deserve (pensions that will disappear). It appears the end of the road is here.
    The government will bail them out I’m afraid, since Obama owes the unions for their support, but this will only delay the inevitable.
    United Air Lines staved off bankruptcy in the 90’s by becoming the largest Employee Owned Corporation in the world. They filed for Chapter 11 bankruptcy in the aftermath of 9/11, SARS and rising fuel prices and survived after the largest pension default in US corporate history.
    They may fall to second place in both those categories.

  8. gpc31 says

    Sevesteen, Charles, BrianE:

    You guys are dead on. Sevesteen, thanks for injecting some very cogent facts into the discussion. I grew up in Michigan and have memories of working as a temp in a union shop. You put it much better than I could have. Brian, you are absolutely correct on the ripple effect. I know lots of tool & die makers, machine shops, etc. that have already had to cut costs to the bone in supplying auto industry. They don’t have the margins to survive absent the big three let alone increases in taxes or onerous regulations. (BTW, the real danger in my opinion is the outsourcing of precision machine tool technology — there is so much know-how embodied in the practice, that once it goes, it’s hard to reverse engineer and harder to get back.)

    Finally, Charles, very astute points.

  9. rockdalian says

    This is surely a conflicting issue.

    On the one side, if the company fails what happens to the pensions of the retirees?
    I believe the government, in the form of the taxpayers, will end up paying the pensions. This, of course, would encourage other business to do the same thing.

    On the other side, propping GM up now will cost huge sums of money. And certainly, the other auto makers will join the line.

    On the third hand, if these companies go bankrupt and the ripple takes down the associated suppliers, would we have the capacity to produce, on a large scale, the machinery of war?

    I am no fan of unions, belonging to one for about a year. I watched inept people get promoted due to seniority. That cured my unionism.

  10. Oldflyer says

    The auto industry is a classic case of trying to bribe the devil. Or in the words of another cliche, “kicking the can down the road”.

    They caved time after time to union demands in the interest of labor peace. No worry, pass the cost along; kick the can a bit farther down the road. It was all pretty cozy when the U.S. auto industry ruled the world. Once serious competition developed it began to hurt them. Now it is killing them. The union leadership is not stupid; they can see what the grotesque benefits, pay, and work rules packages are doing to the industry, but they will not, or dare not, compromise.

    A bailout of the auto industry would be useless. We have a thing called chapter 11. This provision gives companies the chance to re-organize and change their ways. Yep, contracts are voided and new deals have to be negotiated; it is painful (I have been through that too) but it is the normal process for companies that have failed. Let it work. Otherwise we are just throwing more billions down the rat-hole. Worse, we are truly on the slippery slope.. (Note the Dimmocrats are now talking about ownership stake in the rescued companies. There is a name for the situation in which government owns enterprises–three guesses what it is.)

  11. Danny Lemieux says

    So…if the U.S. government becomes a stakeholder in the Big-3, doesn’t that make the U.S. government a competitor to all those environmentally correct Toyota Priuses? Maybe I’d better stock-up on my Japanese vehicles’ spare parts.

  12. BrianE says

    “• Put 1 million Plug‐In Hybrid cars – cars that can get up to 150 miles per gallon – on the road by 2015, cars that we will work to make sure are built here in America”- Obama’s energy plan

    Here’s why Obama would want to own a car company. He’s going to build a car that gets 150 miles per gallon– you know, the car the evil oil companies didn’t want built. The Prius gets 45 mpg, so we only need to come up with a car that gets three times the mileage.
    Let’s see, we have seven years to imagine, design and build that car. Yeah, that’s a job for the One. Mere mortals don’t need apply.

  13. suek says

    >>The Prius gets 45 mpg, so we only need to come up with a car that gets three times the mileage.>>

    Sure. Then put your three wheeler on the highways with 16 wheeler trucks. Guess what comes next? a separate highway system for the trucks and the cars…

  14. Charles Martel says

    Ich haff ein guten idea. Das Obama kann gekallen fur die auto mit den hei mileage. Ve kann it gekallen der “Volkswagen,” das karr von der pipple!

  15. Danny Lemieux says

    Ja, ich smoochie das idea uff da wunderbar Obamacar. Und ich kan gebuyen ein Obamacar fur frei? Zehr funny, Charles und Brian! Der “Uno” wundermensch hast getaken alles mein geld. Ich bin kaput, gebroken!

  16. suek says

    >>I hate to do this, but they are 18 wheelers.>>

    I meant the smaller ones…you know…the fuel efficient ones…!!!

    .
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    Ok…I goofed. 16-18 … if you get hit by one, it wouldn’t make much difference!

    And Danny…

    If it’s “fur frei” then you can’t “gebuyen” it…it’s a geschenk!

  17. Danny Lemieux says

    I think that BrianE (#7) has the right solution: Chapter 11 reorganization would allow them to reorganize their Union (but not pension) obligations.

    However…this really is about preserving Union power and having us taxpayers foot the bill. If this goes through for the Big-3, I will NEVER, NEVER buy an American car again.

  18. Ymarsakar says

    It’s another example of why the Democrats are the fat cat rich corrupt oligarchs of this nation, Danny.

    They talk about fighting Big Business but all they do is to make promises to Big Business that if you support Democrats, Democrats will make laws that will break your competition for you in the form of taxes and harsh regulations.

  19. Tiresias says

    Yeah, Danny: we might as well not be democrats, be honest, and face facts here.

    This bail-out isn’t about saving GM and Ford. What we’re doing is paying to bail out the UAW.

  20. BW Smith says

    The labor cost to assemble a vehicle, including all the labor benefits was less than $1,100 per vehicle. That is GM figures, I know, because I am one of the job bank workers. GM wants to cry about labor cost rather than address their true manufacturing problems. I would rather be building cars than be at home, but GM does not want to build cars. My plant once had over 6,000 employees, now it is closed. GM keeps closing plants while foreign car makers are opening them herein the USA. You want to look at cost problems, why does a CEO who looses money year after year make Millions in bonuses???? There are no true manufacturing, engineering, or even consumer conscious people in GM’s upper management, they are all bean counters. There main talents are shuffling numbers to make them say what they want them to say.

  21. Ymarsakar says

    The labor cost to assemble a vehicle, including all the labor benefits was less than $1,100 per vehicle.

    That’s 1.1k higher than in Japan, at the minimum.

    It would be interesting to see how Japanese companies like Toyata pay in terms of corporate taxes vis a vis GM.

  22. Ymarsakar says

    You want to look at cost problems, why does a CEO who looses money year after year make Millions in bonuses????

    Cause the government made them a deal they couldn’t refuse.

    Big corporations can’t be “allowed” to fail, so Fannie Mae and all those other companies can look at government bailouts and never have to worry about the future. How much money did Fannie Mae’s CEO make off of this economic crisis, given his buddies in Congress took care of things?

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