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ISR Issue 56, November–December 2007


A historic surrender

The UAW’s deal at GM gives up equal pay for equal work—and dumps health- care costs on the union


THE AGREEMENTS signed by the United Auto Workers (UAW) with the Big Three automakers will create lower-tier wages and absolve the companies of paying health-care costs of retirees by creating a multibillion dollar union-controlled fund.

How best to describe the historic surrender? The St. Louis Post-Dispatch put it this way: “In 46 hours over the last two months, labor relations in the U.S. automobile industry underwent more change than they have since Henry Ford swore in 1936 that the new United Automobile Workers union ‘would organize Ford over my dead body,’” the newspaper declared in an editorial headlined, “‘Victory,’ redefined.”

“The first forty hours of the transformation were devoted to the strike last month [September] by the UAW against General Motors. The second six hours were all it took to settle a UAW strike against Chrysler on Wednesday [October 10]. Next on the target list: Ford’s badly ailing company, which needs a quick settlement even more than GM and Chrysler did.”

Thus the GM and Chrysler walkouts—described in the New York Times as “Hollywood strikes,” as in just for show—appeared intended to give political cover to union leaders trying to sell unprecedented givebacks to rank-and-file members. Indeed, the UAW’s deal with GM and the proposed deal with Chrysler do in fact break with seventy years of tradition of equal pay for equal work, a foundational principle of the industrial unionism that the UAW helped establish in the 1930s.

Under terms of the deal at GM, ratified by 66 percent of UAW GM workers the same day of the Chrysler mini-strike, the company agreed to provide job security by announcing new products at most of the company’s assembly plants. (That provision was missing in the proposed Chrysler deal, and was one of the issues prompting the chair of the UAW’s bargaining committee, Bill Parker, to oppose the deal. An estimated one-third of UAW local presidents from Chrysler plants voted against the deal in a meeting with UAW leaders, raising questions over whether the deal would pass.)But it was the creation of the retiree health-care fund—a Voluntary Employee Beneficiary Association, or VEBA—that rightly dominated the headlines. Paid for by GM stock, workers’ “overfunded” pension plan, and a special bond known as a convertible note, the agreement will allow GM to pay $35 billion in assets for retiree health-care liabilities estimated much higher, at $50 billion. When the fund is formally launched in 2010, the UAW will head one of the largest investment funds in the U.S.—although the fund managers will have to make up the $15 billion shortfall and compensate for annual health-care inflation of 10 percent in order to maintain benefits at their current levels. UAW retirees at Caterpillar, Case, and Detroit Diesel are already familiar with the risks of a VEBA: funds at those companies ran out of money, leaving retirees with no health care other than Medicare.

But that hasn’t deterred UAW officials, who, according to UAW president Ron Gettelfinger, first proposed the creation of a giant VEBA in 2005. The company was more cautious than the union, and agreed then to create a far smaller fund that has served as a kind of pilot project. Now, however, the prospect of a huge VEBA “presents an opportunity for investment advisers and money managers totaling upward of $66 billion,” the Wall Street Journal noted in an article headlined, “Street salivates over VEBA cash pile.”

That pile of cash from the three companies, if managed as one fund, would rank among the 40 largest pension funds in the country...bringing in tens of millions of dollars in fees to its managers. It would be nearly twice as large as the Harvard University endowment, the nation’s largest college endowment.

The scope of this concession prompted public opposition from three retired members of the UAW’s International Executive Board. “We believe it irresponsible by the parties to this negotiation to shift the burden of risk to the retired workers and their families and release General Motors from its commitment to the full and perpetual coverage of health care for the workers who built the wealth of the corporation in the first place,” wrote Paul Schrade, Warren Davis, and Jerry Tucker in an open letter to UAW members.

Even without the VEBA, however, the UAW contract with GM represents an epochal shift for the union, which set the standards for all of organized labor for three decades following the Second World War. The union has agreed for the first time to allow permanent two-tier wages into the automaker’s assembly plants. New hires for supposed “non-core” jobs off the assembly line will be paid only $14 to $16 per hour, or about half the pay of current workers.

According to the UAW, there are about 16,000 non-core jobs held by union members at GM. Until now, they’ve typically been held by high seniority workers in order to get off the assembly line. Now these jobs will be lower-paid, but at least they’ll be secure, according to UAW president Ron Gettelfinger. In fact, every GM contract since the early 1980s has had some sort of job security clause, but that hasn’t prevented the company from downsizing from 350,000 UAW members in 1980 to 246,000 in 1994 and to just 73,000 today.

Lower pay is the biggest union concession for non-core new hires at GM. But all new hires will be affected. Instead of traditional retiree health-care plans or pensions, they’ll receive a 401(k) retirement account. They’ll also pay much more out of pocket for health care, and won’t get dental coverage for three years or full vision coverage for five years. The first workers hired on these terms will be 3,000 formerly temporary employees. But thousands of more temps are in GM’s future, as the new contract will allow them to remain on the job for a year. Ironically, Toyota’s use of such “perma-temps” has been a key issue in the UAW’s organizing drive at the company’s biggest U.S. plant, in Kentucky.

Higher-tier workers will be squeezed under the contract as well. Base pay will be frozen, with a $3,000 signing bonus and similar annual lump-sum payments worth 3 to 4 percent of annual pay over the life of the four-year contract. Almost all of the annual cost of living adjustment (COLA) raises will now pay for health care, which will increase hourly pay by just 68 cents by the time the contract expires in 2011.

Why did GM workers vote to accept the deal? Since 1979, UAW officials have collaborated closely with the Big Three automakers in order to make them competitive—which entailed concessions in terms of wages, working conditions, and, above all, the elimination of jobs. Members periodically pushed back, most notably in a rash of local strikes in assembly plants in the 1990s to force local managers to hire more workers and reduce overtime. The biggest battle of that period was a fifty-four-day strike at two GM parts plants in Flint, Michigan, in 1998, that shut down the company across North America and forced management to bring back equipment that had been pulled from the factories. Coming a year after the Teamsters’ victorious strike at UPS and around the same time as a union strike victory at Bell Atlantic (now part of Verizon), the Flint strike highlighted a new combativeness in organized labor and showed the possibility of a revival of struggle in the UAW.

Instead, the union acquiesced months later as GM sold off its entire parts division, Delphi, and Ford did likewise. The recession of 2001 and the declining popularity of gas-guzzling big cars and SUVs that made Detroit profitable in the 1990s hit automakers’ profits even as foreign auto companies expanded production in the United States. The 2005 bankruptcy at Delphi and the subsequent two-tier pay agreement at that company created a model for Big Three negotiations. The UAW and management then offered early retirement packages at Delphi and the Big Three to tens of thousands of workers in the aging workforce.

Such individual solutions seemed to be the only option for those who despaired of a union fightback. For example, many of the workers who founded the Soldiers of Solidarity dissident network in anticipation of the Delphi bankruptcy opted to take early retirement. Adding to the pressure to get out are “competitive operating agreements” negotiated at local GM and Ford plants since 2005, which threw out decades of work rules in the name of “lean production”—that is, fewer workers doing more work at a faster pace. Now the UAW and the automakers are expected to announce further early retirement packages at the Big Three to hasten the company’s shift to a lower-tier workforce, and the UAW’s transition into a Wall Street player. The UAW contract with Ford, still under negotiation at press time, is expected to contain greater concessions.

The GM contract shows just how far the UAW’s logic of partnership with the employers has gone. In the 1950s and 1960s, this approach, advanced by the longtime UAW leader Walter Reuther, yielded steady gains in wages and benefits for workers in exchange for management control on the shop floor. Since the 1970s, however, the decline of U.S. automakers relative to their international rivals has led union officials to push concessions on workers and accept job losses in the name of keeping the industry competitive—givebacks that were never fully restored even when the Big Three enjoyed big profits. The weaker the UAW became, the greater the push for concessions and job cuts, so much so that the union was in danger of becoming a hollow organization. To stabilize the UAW bureaucracy, the employers, particularly GM, created “jointness” programs to pay for many UAW staff positions out of both company and union funds. Now, thanks to the VEBA, the agreement will allow the UAW bureaucracy to sustain itself despite the loss of two-thirds of the 1.5 million members the UAW claimed in the 1970s.

But the new contracts will greatly undermine, if not kill, the union’s long-term, failed efforts to organize a single one of the thirty-three foreign-owned auto, engine, and transmission plants. It is notable that Honda has already set the starting wages for its new assembly plant in Greensville, Indiana, at under $15 per hour, topping off at $18 after two years. In the past, these so-called transplants nearly matched union level wages, though not benefits. Now the UAW has given Honda, Toyota, Nissan, BMW, and others the leverage to cut wages rather than raise them.

Indeed, the UAW contracts have implications far beyond the auto industry. In the private sector, where unions represent just 7.5 percent of workers, a UAW agreement to cut wages from about $28 per hour to $14 is a dead weight on workers trying to organize and lift hourly wages from $7 or $8 to $10 or $12. The UAW is saying, in effect: We can no longer defend the “American Dream” standard of living for workers, so we’ll lower pay and conditions and try to rebuild from there.

Given the auto industry’s role in setting standards for manufacturing workers, the UAW’s capitulation to management is damaging enough. But the UAW’s approach dovetails with that of other major unions, including those in the Change to Win coalition that split from the AFL-CIO unions in 2005. For example, Service Employees International Union (SEIU) President Andrew Stern is himself a vocal advocate of labor-management partnership. Since the SEIU doesn’t have contracts with a few big employers like the UAW, Stern has taken his case for partnership directly to nonunion major employers. For example, in 2003, Stern got a California nursing home chain to allow the SEIU to organize nursing home workers without resistance from management in exchange for the union’s support in winning funding from the state. However, the resulting union contract left management in effective control of benefits, pay, hiring, and firing.

The partnership strategy, whether of the UAW or SEIU variety, will never revive labor’s fortunes. Organized labor in the U.S. historically has made gains when workers mobilized to fight for their own interests in direct conflict with management, even when they had to push aside their own union leaders to do so. This class struggle unionism was the case in labor’s upsurge of the 1930s, when, communists, socialists, and radicals played a leading role in the UAW’s audacious sit-down strikes at GM and dramatic struggles elsewhere. The gains of those years meant that the percentage of workers in the unions peaked at about 33 percent in the 1950s, when the militant CIO merged with the conservative AFL. Over the past half-century since, however, the figure has declined to just 12 percent.

No one in organized labor believes that a revival of the unions will come quickly or easily, given the employers’ efforts to grind them down and keep them out. But the UAW’s turn highlights that the fight to revive the unions will require an internal struggle as well. In the UAW, the challenge will fall to those lower-tier workers of the future. Whether or not they succeed will depend on whether they can revive the militant traditions of the early UAW that the union’s current leaders are trying to bury.

Lee Sustar is labor editor of Socialist Worker and a frequent contributor to the ISR.

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