The Multinational Monitor



Overlooking Outsourcing
Union Wage Vulnerability
and the UAW-Big Three Contracts

by Jane Slaughter

TAKING OFFICE LAST YEAR with a reputation as a militant yet pragmatic unionist, United Auto Workers (UAW) President Steve Yokich seemed ready to address the union's top problem with the Big Three U.S. automakers: General Motors, Ford and Chrysler.

That problem is outsourcing -- the subcontracting of parts production, usually to lower-wage and non-union manufacturers.

Last spring, Yokich authorized a well-publicized strike over outsourcing at two GM parts plants in Dayton, Ohio that shut most of the corporation down and cost GM $900 million. The company hung tough, however, and the outsourcing issue remained unresolved.

Now, the first UAW-Big Three collective bargaining agreements of the Yokich tenure -- contracts with Ford, Chrysler and GM -- have been ratified.

The pacts make no progress on curbing outsourcing -- and in one respect even encourage a new type of low-wage production.

The contracts in the United States contrast sharply with those won by the Canadian Auto Workers this fall at the Big Three's subsidiaries in Canada. Those contracts contain explicit restrictions on outsourcing as well as provisions that will add new jobs.

The UAW contracts are, in many ways, novel. The union points to a company pledge to maintain near-current employment levels as an unprecedented protection for union jobs. But critics say the "guarantee" is marred by loopholes, and argue that the real novelty is the union's acceptance of a two-tiered wage structure that will allow the auto companies to pay new employees far below the union norm.

Half price

Some union members are calling the language that allows the company to take on new workers at a much lower wage the "kids get in for half price" deal.

"It's a contract on our kids," says Tom Laney, former president of a Ford truck local in St. Paul and a member of the union's dissident New Directions caucus. The New Directions Movement was formed 10 years ago to oppose UAW leaders' embrace of "jointness" -- cooperation with Big Three management in a wide variety of bipartite programs. The caucus advocates a more aggressive policy to address job security and other concerns, including work overload and resultant injuries, excessive and forced overtime, favoritism by management and collusion and outright corruption of union representatives.

The new language applies to workers hired to produce parts that the company is not making now. These new-hires will become UAW members and earn the "prevailing average wage" among similar plants in their "industry segment or geographic area," with that wage determined by an independent consultant. This wage could be less than half of the Big Three rate, which is now $19 an hour for assemblers. For example, the Ford contract specifically encourages the company to set up a new plant in Detroit's "empowerment zone." New-hires at one non-union auto parts maker already located there, Mexican Industries, start in the $6-an-hour range.

UAW spokesperson Paul Krell says he "does not agree" that the prevailing wage provision represents a union concession. Prior to the new contract, if, say, Ford started or acquired a plant not covered by the national contract, then the national contract would not set wages there; there wouldn't even be a guarantee of a contract. If Ford bought a unionized facility, the workers would work under the contract they negotiated, not the national contract. "Wages vary a tremendous amount" among parts suppliers already, he says.

Under prior contracts, however, there was an expectation that newly started or acquired non-unionized plants, as well as those represented by the UAW, would eventually be brought up to the national contract standard. The new contracts turn the presumption on its head, explicitly permitting the auto companies to maintain sub-par wages in Big Three UAW shops.

The notion of a prevailing wage would seem to contradict the traditional union practice of trying to bargain higher wages for union members than non-union workers receive. "If the union accepts the concept that a UAW-organized plant should only make the prevailing wage, why would anyone join?" asks Elly Leary, a former GM worker who lost her job when the company moved her plant's product to Mexico. "Why pay union dues for the privilege of getting the same deal you could get without it?" Under certain conditions, the contract also gives the companies a further incentive to hire low-pay workers: they can eliminate by attrition two regular, full-pay positions for every three low-pay workers they hire.

Ironically, says analyst Daniel Luria of the Ann Arbor-based Industrial Technology Institute, "there is not a particularly strong incentive for Ford" to use the new language -- and even less for GM. Ford's drive to outsource as much work as possible to low-wage, usually non-union suppliers has been quite successful; the company maintains tight control over suppliers' quality and prices, and has little incentive to bring those low-wage supplier employees officially under the Ford umbrella. GM is now trying to follow the Ford example. Leary, who is co-chair of the New Directions group, speculates that the real effect of the language will be to give a precedent-setting union seal of approval to the principle of different wages within a company. "The companies can build on it in the next contract," she says.

More money now

Downplaying the two-tier wage structure, the UAW has trumpeted the Big Three's commitment to retain at least 95 percent of current workers who have more than a year's seniority. "The job security piece takes a significant step beyond what we had before," says Krell.

Several loopholes would seem to make this clause a dead letter, however. As in the previous contract, the language does not apply to situations where management feels the need to lay off because of slow sales. In addition, the contracts specify that management can adjust the employment guarantee to "reflect special situations." The Ford contract, for example, states that if employees "cannot be effectively utilized," job slots need not be filled.

Krell denies the loopholes are significant. "Even in case of recession and serious slowdown, the contract does not say [the company] can cut willy nilly. The union has a lot of input," he says. "When things pick up, people come back to the plant."

Even where loopholes do not grant automakers carte blanche, history suggests management may simply ignore contractual "guarantees." Previous contracts required the companies to hire or call back from layoff one new worker for every two lost by attrition. But General Motors routinely ignored this language, with the acquiescence of local and international union officials. According to the Detroit News, more than 30,000 workers retired from GM over the last three years, but only 5,000 were hired.

At a meeting of local union officials in Chicago, held to explain the settlement, one local rep asked, "At my location, we're 60 to 80 people below our SEL [Secure Employment Level] now. They owe us that many people. When they take the `snapshot' [of current employees, to establish a new SEL], will we get to count those people in?" The answer was no.

The real incentive for UAW members to approve the contracts were economic gains greater than auto workers have seen for a long time. Each will receive $2,000 cash up front, plus 3 percent raises in 1997 and 1998. The companies will even pay up to $1,000 a year tuition for workers' kids.

Cynics speculated that bargainers placed the $2,000 lump sum up front to ease ratification (although it is rare that auto workers have turned down a national agreement or even come close). Ford workers ratified the contract by 90 percent; Chrysler workers by 73 percent; and GM workers by 85 percent.

Nick Maddox, who works in the paint shop at Chrysler's Dodge Truck plant outside Detroit, says his co-workers' chief reaction to news of the Ford contract, which was bargained first, was, "Will we get the same bonus as them?" "They aren't thinking about the future," he says ruefully.

Looking ahead

But Big Three executives are looking ahead. They know that their blue-collar workforce is aging. Ford expects 30 percent of its workers to retire over the next five years; with an average age of 47, GM says half its workers will be eligible to take "30-and-out" retirement over the next four years. Parallel to the anticipated retirements will be a new round of hirings. Although the companies themselves will not release hiring projections, the University of Michigan estimates they will take on 170,000 new workers in the United States by 2003 -- new-hires equivalent to 40 percent of the current 425,000 hourly workforce.

The Big Three are positioning themselves to take advantage of the coming turnover. Winning union acceptance of the concept of lower wages for new parts plants workers is a key part of the Big Three's forward thinking on reducing wage levels, as was the two-tier wage structure negotiated for all new-hires in 1993. Although UAW leaders had listed "eliminate two-tier wage schedules" as one of their goals for this year's bargaining, the new contract continues the practice of starting new-hires at 70 percent of the going rate and taking three years to reach parity.

"Real unions don't divide their members this way -- by new-hire tiers and wage sectors," Laney says. "This contract might be the work of labor bureaucrats who have almost given up on the industry and feel the need to cheapen wages drastically."

What about GM?

When the Ford contract was first settled in September, industry analysts speculated about the effect on General Motors of accepting the same terms. Wall Street considers GM "bloated" at 220,000 UAW hourly employees, although the company had nearly 400,000 UAW workers 10 years ago. "Yokich's genius has been that he's managed to appear militant while permitting GM to undertake the largest downsizing of any company in U.S. history," says Dan Luria.

Nonetheless, industry analysts want more cuts, and they sputtered about the effect on GM of the contracts' 95 percent rule. "I think this is something GM would just adamantly not be able to live with," a Bear Stearns analyst told the Wall Street Journal.

As observers became more familiar with the exceptions to the rule, however, Wall Street calmed down. Ronald Glantz of Dean Witter Reynolds called the pattern a "dream contract" for GM. He told the Detroit Sunday Journal that, in light of the companies' record earnings, the union's cooperation had been remarkable.

The Canadian alternative

The Canadian Auto Workers (CAW), a separate union that broke away from the UAW in 1985, has taken a different approach to job retention. In a pattern agreement first reached with Chrysler in September, the CAW won two additional weeks of paid time off for each worker. The union estimates that Chrysler will have to hire 200 new workers to replace vacationing employees, and GM will have to hire 400. This builds on other time off the CAW had won earlier, so that even a worker with only two years' seniority now gets seven weeks off per year. The union estimates that this extra time off will mean a total of 2,000 more jobs at the Big Three in Canada. The CAW also won a ban on outsourcing of major operations, a list that includes everything from chassis and doors to janitorial and repair. If the company does outsource other work, it must replace any jobs lost. The CAW calls this "the concept of work ownership."

General Motors had to be nudged to accept the Chrysler pattern. On October 16, CAW members occupied the Oshawa, Ontario fabrication plant to prevent the company from removing dies used to stamp out metal parts. Strikers assumed GM was removing the dies in order to continue production.

"It looked just like a scene from Flint in 1937," says CAW Committeeman Bruce Allen. Allen said the tradesworkers welded doors shut behind them and dismantled dies "in such a way that only the tradesworkers who dismantled them would be able to reassemble them." "It was quite a sight, hundreds of strikers inside, some on the plant's roof waving the CAW flag while hundreds more ringed the plant on the outside to defend the occupiers," he says.

The Oshawa workers were joined by strikers from GM plants in other Ontario cities, as well as CAW President Buzz Hargrove.

GM agreed not to move the dies, and the two sides set a new deadline for settling the strike.

No labor dividends

In 1995, GM made record profits of $6.9 billion, Ford $4.14 billion, and Chrysler $2 billion. Detroit Chrysler worker Bill Parker, a member of New Directions, wrote in the monthly newsletter Labor Notes, "Considering the phenomenal profits of the Big Three ... many auto workers are wondering, `When do we get ours?' After years of concessionary agreements when the companies were in bad financial shape, this was the year to return to the pre-concession era."

Parker is equally concerned about how local unions will fare under the new agreements. Calling the UAW's record in the 1980s "a combination of contract concessions to the company while disarming the strength of the local unions," he warns that "if the Yokich era fails to correct both of these problems, it will be unsuccessful in correcting either of them."

With regard to the agreements' effect on union power, New Directions members note the continuity rather than novelty of the Yokich negotiating strategy. Continuing longstanding union policy, UAW leaders kept the rank and file in the dark about their goals until the agreements were reached. The union made no effort to mobilize the rank and file, failing even to set strike deadlines. According to the UAW's Paul Krell, "Yokich said, "You don't have to go around talking about your arsenal when you are having peace talks.'"

"The process is as important as the product," counters Leary. New Directions members say that the top-down mode of functioning is integrally related to the twin UAW policies of concessions -- begun in 1979 -- and jointness, which blossomed in the 1980s. With a chronically demobilized membership, the union's ability to hold back automaker demands for lower labor costs will continue to dwindle.

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