Very few businesses that are inflexible survive. And, the UAW may be called a union, but it is a business. And, for years it did well. The Reuther years. The UAW got its members pay packages, healthcare, and retirement deals that were the envy of the balance of organized labor.
The first writing on the wall that the Big Three could not support huge labor costs indefinitely came in 1973 during the Arab oil embargo. Fuel efficient cars became important, and from that point on were a permanent part of the US auto sales landscape. The Japanese manufacturers had their foothold.
Gas guzzlers got a reprieve as fuel prices dropped and stayed down through much of the 1980s and 1990s, but it was clear to the oil and car companies that cheap gas had seen its day. The demand for oil was too high and the supply of easy-to-drill oil was dropping.
As circumstances continued to benefit the maker of smaller cars, Toyota’s revenue rose from $114.1 billion in 2002 to $186.7 billion in 2006. Over the same period, GM’s revenue went from $186.7 billion to $192.6 billion.
The UAW did not let up in its demands for better wages and benefits. By 2003, the retirement and healthcare burden per vehicle sold in North America was $1,360 for GM and $180 for Toyota.
And, expensive gas returned with a vengeance. As the Japanese gained market share because their cars were viewed as better built, high fuel prices hit the US car makers with a second punch. Between 2000 and mid-2005, 100,000 hourly workers were dropped from the Big Three work force. The job cuts continued into 2006, as Ford (F) and GM (GM) bought out ten of thousands of workers.
Could all of the jobs have been saved? Perhaps not. But, labor cost disadvantages dropped GM and Ford to the brink of insolvency and the UAW has allowed tens of thousand of jobs to be eliminated or moved overseas.
Some level of flexibility on the part of the union would have helped the car companies. The union argument is that concessions would drive up profits, but, if there are no profits, the logic is academic. Making better cars and introducing new models might also have been a by-product of lower labor costs. It is harder to spend money on quality control when there is little money to spend.
The UAW made a huge amount of money for its members for several decades, but it is currently in the process of putting most of them out of jobs.
Blame the management of the car companies for not being better prepared for the environment that helped Toyota? Yes. Blame the UAW as well.
Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.
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