The Death Of The UAW

The UAW under Walter Reuther was arguably the most powerful union in the United States negotiating contracts with all of The Big Three on what became a pre-set cycle. Reuther got union members the employer-funded pensions, medical insurance, and supplementary unemployment benefits that are the antecedents of the benefits that the UAW members and retirees enjoyed until the new deals with Chrysler and GM occurred within the last few weeks.

Most of the press coverage about the bankruptcies of GM and Chrysler has focused on the plight of creditors and the events that have caused the value of their positions to be virtually wiped out. Less well-documented is the fact that the decisions of the current union management have killed the effective bargaining power of the UAW and made certain that it will never be a force in the decision-making process of the American auto companies again.

The UAW and its retirement fund’s 55% ownership in Chrysler give it very little practical control over the company. The union will get a board seat which means next to nothing. The UAW will not stage a strike at the companies in which its own financial stake is so large. The UAW retiree healthcare fund will also own 17.5% of GM. The notes and warrants the union and pension fund have been given will only have significant value if the companies do well. The UAW’s ownership in Chrysler and GM may never have any practical value at all.

The union has given up the one tool that has offered it leverage for decades—its ability to strike.  The UAW allowed the American auto companies to move into bankruptcy with the blessing of a workforce that could have done much better, because they chose not to make a serious threat to strike GM and Chrysler. The threat of a strike, or a strike itself, would probably have gotten UAW members much better benefits and would have saved jobs.

The argument against going out on strike is simple but flawed. A strike might have driven the federal government away from funding the companies. A strike would have caused a liquidation of the assets of GM and Chrysler. A strike would have risked all of the UAW jobs and benefits and not just some portion of them.

The federal government was never in a position to let the two car companies be liquidated. It would have caused a chaotic economic event beyond imagination. Parts suppliers and other companies dependent on the American car industry would have gone through serial failures. Job losses would have been in the hundreds of thousands. The primary goal of the Administration’s stimulus package, which is to save or create 3.5 million jobs, would have been destroyed in its earliest stages.

The idea that the UAW would have lost all of its members’ jobs if a strike set off a liquidation of the car companies is also false. Fiat has been a willing “buyer” of a 35% controlling interest in Chrysler. The two car companies would almost certainly have been stripped of their debt as part of the process of auctioning off their assets. Foreign car companies would have ended up owning pieces of the two car firms and they would require factories and workers to keep the businesses operating. No one would buy Detroit assets without the capacity to keep the assembly process working. The UAW passed on its strike option for reasons that will probably never be understood. The union took what it viewed as a sure thing instead of gambling it could get a better deal by going to the mat.

The auto workers union is dead now. It has gone from being a union to being a shell that holds equity in car companies, car companies which are probably worthless. Its pension operations have agreements for funding which may never have significant value at all. The current generation of union management has bargained away what it took decades to accumulate. Walter Reuther must be turning over in his grave.

Douglas A. McIntyre