[A-List] Is the auto industry dead ?

Charles Brown charlesb at cncl.ci.detroit.mi.us
Tue Nov 25 09:53:42 MST 2008

End of the Road: Is the Auto Industry Dead?

By Mark Brenner and Jane Slaughter, Labor Notes

Posted on November 19, 2008, Printed on November 19, 2008

In the 1980s Chevrolet proclaimed itself the "Heartbeat of America." 
Today many would say that the American auto industry qualifies for life 
support. Last November, General Motors (owner of the Chevy brand) 
announced that it was cutting 25,000 jobs and closing up to 12 factories 
by 2008.

The news came one month after auto parts giant Delphi declared 
bankruptcy, promising to shutter at least a dozen plants and cut as many 
as 24,000 jobs in three years time. Ford completed the grim hat trick in 
January, revealing a plan to cut 30,000 jobs by 2012.

Just months before, GM and Ford had convinced Solidarity House, 
headquarters of the once-mighty United Auto Workers, to make $1 billion 
in concessions to help pay for retired auto workers' health benefits. 
Detroit is abuzz over the additional give-backs the Big Three auto 
makers (GM, Ford, and DaimlerChrysler) are likely to wrest from the 
union in next year's contract talks, and the rank-and-file hear no tough 
talk -- let alone action -- from their leaders.

On the face of it, the industry's problems seem almost insurmountable. 
Collectively, U.S. car makers are billions of dollars in the red and 
foreign competitors continue to gobble up the Big Three's market share. 
America's auto giants boost their bottom line only by selling 
gas-guzzling trucks and SUVs, and cars would be moving off the lots even 
slower were it not for thousands of dollars in incentives used to 
sweeten each sale.

In the face of these pressures, it's no surprise that analysts from the 
Motor City to Wall Street are convinced that this is the end of an era 
in the auto industry. There is no alternative, these experts lament. 
Today's auto workers will have to make do with less or kiss their jobs 

For over a century the auto industry has been an anchor for the U.S. 
economy and a trendsetter for corporate America. What does the current 
upheaval mean for workers? Announcing the company's bankruptcy, Delphi's 
CEO Steve Miller signaled what was at stake: "I want you to view what is 
happening at Delphi as a flash point, a test case, for all the economic 
and social trends that are on a collision course in our country and 
around the globe."

The auto industry paid out a living wage for millions of working-class 
people. Is Detroit about to call an end to that life?

What's Good for GM ...

Times weren't always so tough in the Motor City. On the heels of World 
War II America's auto manufacturers were the undisputed titans of 
industry. Although UAW President Walter Reuther began his tenure with 
visions of government-provided pensions and health care for all 
Americans, that drive was blunted when the union achieved, at the 
bargaining table, a private welfare state for its members at the Big Three.

In addition to private insurance and 30-years-and-out retirement 
benefits, they also received "supplemental unemployment benefits" to 
cushion the blow when the cyclical nature of the industry brought about 
layoffs -- a step toward Reuther's social democratic dream of a 
guaranteed annual wage. Besides their 3 percent annual raises to 
compensate for productivity improvements, auto workers also received 
cost-of-living increases, and, as the decades rolled on, tuition and 
legal services were added as well.

Unions in steel and rubber followed suit with similar contracts and, to 
a lesser extent, other blue-collar workers such as miners, telephone 
workers, truckers, and electrical workers all attempted to follow the 
UAW's lead. The pattern of steady wage increases together with health 
and retirement benefits stretched well beyond heavily unionized 
industries, setting a higher standard for all the nation's employers, 
union and non-union alike.

Gold-Plated Sweatshops

The ratcheting productivity that allowed for these benefits was good for 
the bottom line but it meant that the factories continued to be, in 
Reuther's words, "gold-plated sweatshops." The foundry and the assembly 
line remained an inhuman way to make a living. The common pattern was 
for workers to sign on, thinking to stay just a few years, but to be 
seduced by the benefits -- and then say to themselves "it's only 30 years."

The mind-numbing drudgery, the high injury rates, the heat and smoke and 
oil in the air led many workers to hit the bottle -- and, in one famous 
case, led black Detroit Chrysler worker James Johnson to pick up a gun 
and shoot two supervisors and a co-worker. A jury, after a plant tour, 
found that brutal working conditions and Chrysler's shop-floor racism 
had literally driven Johnson insane.

Removed from the daily grind of factory life, however, UAW officials 
became far more attuned to the gold-plating in the shops than to the 
sweat. They sought gains they could measure in dollars, and Reuther's 
belief in the benefits of technology and productivity kept him from 
protesting either automation or speedup. Officials came to see 
themselves as partners with management, truly convinced that "what's 
good for GM is good for America," and for UAW members.

This outlook ensured that a host of management initiatives -- and 
stupidities -- went unchallenged. Early on, the UAW abandoned Reuther's 
fight for low car prices; later, it joined auto manufacturers in 
lobbying against higher fuel economy standards. The UAW also embraced 
its role as guarantor of orderly industrial relations, repudiating the 
tactics that gave birth to the union in the 1930s.

The Path Downwards

These years of collaboration and quiescence left the union ill prepared 
for the crisis that shook the auto industry in 1979. The UAW once again 
blazed a trail the rest of the labor movement would soon follow-only 
this time it was the path of concessions and explicit labor-management 

Through postwar recessions and expansions, it had not occurred to 
American employers that signed contracts could be breached. But when Lee 
Iacocca's Chrysler Corp. threatened bankruptcy in the fall of 1979, the 
UAW stepped up to the plate. Chrysler workers and retirees broke the 
once-sacrosanct pattern contract, taking concessions estimated at $203 
million, $2,000 per worker, nonrecoverable.

More cuts soon followed; by January 1981 Chrysler workers were 
collectively a billion dollars behind. The next year, with the economy 
and the industry in full-blown recession, the union opened pacts at Ford 
and GM to make cuts there.

Describing the new bargaining climate, a steel industry official told 
the Wall Street Journal, "The whole posture of negotiating is changed. 
Basically we're asking for something that we're not entitled to." A 
staffer for the United Food and Commercial Workers noted, "After 
Chrysler, everything changed."

Employers from meatpacking to airlines to education demanded and got 
wage cuts. In Michigan, the hospital workers union reported that every 
hospital it bargained with in 1982 used the argument "GM took a wage 
freeze." Companies used economic hard times to force a redistribution of 
power in their own favor.

Accepting Competition

As important as the monetary concessions was an explicit change in union 
philosophy: acceptance of the notion that it is the union's job to make 
the employer more "competitive."

Workers were to contribute their ideas for boosting productivity, 
including speedup and job cuts. This "team concept" quickly spread from 
auto throughout manufacturing and beyond. The flagship team concept 
plant jointly run by GM and Toyota in Fremont, California, became the 
most famous factory in America and the site of manager-pilgrims from 
every walk of life, seeking the secrets of productivity.

In essence, the UAW's deal with the auto makers was this: do whatever 
you need to do to boost profits, as long as you maintain the wages and 
benefits of (a steadily shrinking number of) workers at the Big Three. 
That "whatever" included lean production, outsourcing to nonunion parts 
plants at home and abroad, the sale of GM's and Ford's parts divisions 
in 1999 and 2000 (lopping off 52,000 workers) and, today, buyouts. There 
were 466,000 GM hourly workers in 1978 and in 2006, 112,000.

Buoyed by the Bubble

After a decade-long downturn, the 1990s was like winning the lottery for 
Detroit's auto makers. Mini-vans, one of the Big Three's only bright 
spots in the 1980s, continued to register solid sales, hovering at about 
8 percent of the total domestic car and truck market.

And because their Japanese rivals were slow to introduce their own 
models, Detroit maintained its dominance, with market share never 
dipping below 75 percent.

But the Big Three's real gold mine was the phenomenal growth of sports 
utility vehicles (SUVs) during the 1990s, rising from 7 percent of the 
total car and truck market at the beginning of the decade to roughly 20 
percent by the end. And sales really took off in the latter half of the 
1990s, when most Americans saw their real wages inch up for the first 
time in 15 years.

Concerns over fuel efficiency also seemed to melt away, with gas prices 
averaging a little over a dollar a gallon for most of the decade. As 
with mini-vans, Detroit's foreign rivals lagged behind, leaving the Big 
Three to dominate the SUV market.

Bolstered by strong sales in these new niches, together with 
skyrocketing stock prices, Detroit's auto giants hoped to reclaim the 
global dominance that had seemed to slip through their fingers a decade 

In addition to expanding their existing global operations, the Big Three 
also engineered some very high- profile mergers and strategic 
investments, acquiring the Saab, Fiat, Suzuki, Daewoo, Jaguar, Volvo, 
and Land Rover brands. Investments, of course, can flow in both 
directions, and in 1998 Chrysler was acquired by Daimler-Benz.

Spin-offs and Restructuring

Detroit auto makers were also busy reshaping their domestic operations. 
They spun off their parts divisions into stand-alone companies and then 
negotiated steep wage cuts for new-hires there. GM hived off American 
Axle and Delphi, while Ford created Visteon.

Chrysler took outsourcing to a new level by pioneering "modular 
production" in the U.S. At its Jeep plant in Toledo, body work, chassis 
and paint -- considered the core of auto assembly--will soon be 
performed on-site by non-Chrysler workers at lower pay.

GM and Ford also paid less and less attention to producing cars, 
focusing instead on their financial services arms, with General Motors 
Acceptance Corporation (GMAC) and Ford Credit adding more and more heft 
to each company's bottom line. Indeed, by 2000 both GMAC and Ford Credit 
accounted for a third of net revenue for their respective companies.

Mixed Bag for Workers

For America's auto workers, the 1990s were decidedly more mixed. On the 
one hand, after a decade of bruising concessions and plant closings, 
everyone was relieved to see the return of both jobs and steady wage 

On the other hand, much of the new investment coming into the industry 
was from foreign companies -- Toyota, Mazda, BMW, Nissan, Honda, 
Mercedes -- who sprinkled factories first on the outer edges of the 
Midwest auto corridor and then across the right-to-work South. These 
"transplants" kept their factories non-union, as did the auto parts 
industry that mushroomed in the 1990s, as the Big Three replaced 
vertical integration with outsourcing.

Union density in auto, which in the dog days of the 1980s declined from 
62 percent to 50, fell even faster in the prosperous 1990s, dropping to 
37 percent by the year 2000. The UAW proved unwilling or unable to 
organize these newcomers, and one can only wonder whether things might 
be different today had the union summoned up some of the spirit, energy, 
and vision that drew hundreds of thousands of unorganized auto workers 
into the union in the 1930s.

Instead the UAW concentrated on the state of its existing members, 
securing promises of new investment and job security from the Big Three 
both in contract talks and through job actions. For example, a 54- day 
strike at two strategic GM parts plants in 1998 idled most of General 
Motors' North American operations, and resulted in $200 million in new 
investment in the two plants.

Unfortunately for the UAW, its fight to protect its shrinking store of 
good jobs was swimming against a much stronger national tide. The 1990s 
witnessed an explosion in income inequality, in no small part due to 
skyrocketing CEO pay (71 times workers' average wages in 1989, rising to 
300 times by 2000) and a stock market run-up of historic proportions. 
The longest economic expansion since World War II did surprisingly 
little for those in the lower rungs of the income distribution, in part 
because of the declining share of the workforce represented by unions.

Adding to the insecurity were large-scale retrenchments by the bulwarks 
of corporate America, including Xerox, IBM, and ATT.

Underappreciated at the time, perhaps the biggest development of the 
1990s was the move from defined-benefit pension plans to 401(k)-style 
defined-contribution plans. This seemed of little consequence when the 
stock market was posting double-digit gains year-in and year-out, but 
when the turn of the century recession hit, baby-boomers across the 
nation saw their retirements vaporize. UAW members at the Big Three were 
some of the few to retain their original pensions.


These trends collided with a deflating stock market in 2000 to create a 
squeeze play for the auto industry and its hourly workforce. The 
recession hit Detroit particularly hard, as rising gas prices turned 
consumers off the low-mileage SUVs and minivans that had saved Detroit's 
bacon a decade earlier. In the last five years the Big Three's market 
share has fallen from 66 percent to 58 percent, and sales would have 
been even worse without the deep discounts auto makers felt forced to offer.

At the same time that the domestic picture soured, many of the Big 
Three's global acquisitions also unraveled. General Motors, for example, 
paid a cool $2.4 billion to acquire a 20 percent stake in Fiat in 2000, 
then ponied up another $2 billion to get itself out of the deal five 
years later.

Ford has injected more than $5 billion into Jaguar and to this day the 
luxury brand remains stubbornly in the red. Meanwhile the marriage of 
DaimlerChrysler has hardly been a match made in heaven--the merged 
company is worth less today in stock market terms than Daimler was on 
its own before they united.

Hemorrhaging money and with no end in sight, last year Detroit's 
automakers took desperate measures to become smaller but more profitable 
companies, with Delphi declaring bankruptcy and GM and Ford putting 
55,000 jobs on the chopping block. Since that time, they have all been 
singing the same tune, blaming their troubles on the generous wages, 
pensions, and healthcare of their unionized workforce.

In a move whose irony cannot be lost on executives, Detroit has 
redirected decades of consumer frustration with American automakers for 
their lackluster designs and poor quality into widespread resentment of 
rank-and-file auto workers for their company-paid health care and 
pensions. The auto makers have tapped into middle America's deep-seated 
anxiety and insecurity with a not-so-subtle message: "If you don't have 
a pension or any hint of job security, why should they?"

The scale and speed of these changes has left the UAW flat-footed, 
struggling to get a hearing-much less formulate a strategy-in its fight 
to save some of the last good manufacturing jobs in America.

So Who Cares?

Cynics might argue, who cares? The UAW represents fewer than 400,000 
auto workers in an industry of more than a million, and the concessions 
the companies are clamoring for will simply bring their wages and 
benefits closer to what the market will bear for less-skilled workers 
anyway. Besides, manufacturing is so 20th century. Aren't we a 
post-industrial economy with a future in services and high-tech jobs? 
America can design and engineer stuff and let the rest of the world 
build it (think X-Boxes and Ipods).

This mindset misses most of what's important about the crisis in auto. 
Downsizing isn't accountants shuffling numbers around on a spreadsheet; 
the lost jobs are concentrated in specific communities, such as the 
already devastated Flint, Michigan made famous by Michael Moore in his 
first film, Roger and Me.

Cuts of this magnitude will reverberate throughout the Midwest, leaving 
a lasting economic and social hangover. And they will not be confined to 
auto, as other companies follow the Big Three's lead.

High tech companies can't fill the void. Google, for example, has just 
announced plans to open up shop in Michigan. But Google employs less 
than 6,000 people worldwide, a drop in the bucket compared to the 70,000 
jobs this round of auto restructuring will destroy.

How could the auto industry right itself without devastating workers and 
communities? Execs have shown themselves curiously unwilling to campaign 
for one measure that would save them billions of dollars per year: 
single-payer health insurance.

GM is the largest private purchaser of healthcare in the country, 
providing coverage to 1.1 million people. Last year the price tag was 
$5.3 billion, which, as CEO Rick Wagoner is fond of pointing out, is 
more than GM pays for steel. Half of those covered are retirees, and the 
company claims to provide healthcare to 1 percent of America's seniors.

Legacy Myths

The Big Three say that such "legacy costs," which also include pension 
benefits, are choking their business, obscuring the fact that all three 
auto makers have pension and retiree health funds flush with 
cash--healthy for the foreseeable future. If health care is such a heavy 
burden, why not join the movement for a far cheaper national health care 
plan? Canada's single-payer system makes it much less expensive to do 
business there and has spared most Ford and GM plants north of the 
border from the ax.

But despite promises to the UAW to pursue "universal coverage" in 
exchange for the union's $1 billion in concessions on retiree health 
care last fall, GM's CEO didn't even mention national health care in 
testimony before a June Congressional special hearing on the nation's 
healthcare crisis. Either free-market ideology is trumping good business 
sense, or paying for benefits is not such a burden after all -- or the 
employers don't mind having a propaganda hammer to use against the union.

When Henry Ford introduced the five-dollar day in 1914 he famously 
quipped that he wanted to pay his workers enough so that they could 
afford to buy his cars. Today, a new-hire at Delphi or Visteon now makes 
$14.50 an hour, a bit more than half his or her counterparts at the Big 
Three. In 2007, when new agreements are negotiated, the Big Three's 
new-hires are sure to take a hit.

What will America look like if most workers earn Wal-Mart, instead of 
General Motors, wages? For those without a four year college degree - 
i.e., about 70 percent of the labor force - average wages (adjusted for 
inflation) have stagnated or fallen for the last 30 years, hovering 
under $15 today. Manufacturing jobs paid wages no better than the 
economy-wide average when Henry Ford was perfecting the assembly line, 
but by the end of the 20th century they were about 25 percent above 
average, in no small part due to unions like the UAW.

A New Playbook

To solve the industry's problems, many analysts have urged Detroit 
executives to go back to the drawing board and start fresh. This advice 
applies with even more force to the UAW.

Forged in the 1930s' social upheaval, the UAW's pioneers originally saw 
the union as just one piece of a large-scale social movement to solve 
the problems of the Great Depression.

Today the stakes are higher than they have been in 60 years, but the UAW 
is still fumbling through its golden-age playbook. The rank-and-file 
revolt after the Delphi bankruptcy demonstrates that members are willing 
to fight, but they can't do it alone.

Now, more than ever, the UAW needs the audacity and the guts of its 
founders, who set their sights on more than the survival of their union 
headquarters. Their fight to build a better world inspired millions.

With health care becoming less and less attainable for more and more 
working people, the fight for national single-payer health care has the 
potential to galvanize a new workers' movement. Rekindling such a 
movement may be the only way to ensure that the UAW founders' legacy 
doesn't evaporate before our eyes.

Mark Brenner is the Director of Labor Notes.

Jane Slaughter is a Detroit freelance writer and frequent contributor to 
the Metro Times.

This message has been scanned for malware by SurfControl plc. www.surfcontrol.com

More information about the A-List mailing list