As Car Industry Fails, Detroit Class Warfare Loses It Power

October 19, 2008 by Douglas A. McIntyre

Batmobile512Founded during The Great Depression, the UAW is now more than seventy years old. Henry Ford once supposedly said that the union would organize Ford (F) workers over his dead body. Ford is gone now. The company he founded may not be an independent enterprise much longer. Other players in the car company/union wars are also long gone. Walter Reuther, who became the head of the UAW in 1946 died in 1970. Jimmy Hoffa, the longtime head of the Teamsters, disappeared from the parking lot of a Detroit-area restaurant in 1975. Both were willing to press the case of their workers, even to the point of violence.

The war between the unions and The Big Three has lasted since Ford made his comment. There was some rapprochement when the Arab Oil Embargo crippled the industry in the early 1970s. But, unemployment in southeastern Michigan moved up to nearly 15% at the depth of the recessions in the mid-1970s and early 1980s. The union was anxious to claw back what it could for its members once the industry began to recover

Through much of the period from WWII into the 1960s areas close to downtown Detroit where almost entirely populated by auto workers whose hourly wages and benefits made them middle class by most standards. The labor force in and around Detroit become so large that ethnic communities of people working at The Big Three developed in places like Hamtramck, where the population was almost entirely Polish. Detroit ended up with several “cities within the city” which became large cultural and ethnic towns on their own. By 1950, within the cities limits there were nearly two million people. Including the suburbs and satellite cities like Pontiac and Flint that number was well over five million.

The tension that created a modestly comfortable living for hundreds of thousands of people grew from the prosperity of an industry which had a US market share of over 90% forty years ago. Management for the large car companies fought the unions to drive greater profits for shareholders and tremendous wealth for the top 1% of their executives. Organized labor pulled as hard as it could for benefits covering both current workers and those who had retired. Between occasionally savage strikes, the system worked unusually well. Almost every year, all the participants in the system were better off than they had been the year before. But, neither side trusted the other. Management believed that workers did too well. Union members drove by the mansions of the executives and thought company profits were being wasted on fools. Each group was kept at bay by a desire to prevent strikes which could last for months and cripple the financial prosperity of everyone in the system.

The earliest permanent disruption of the balance between labor and the auto companies began after the 1970s as VW and some of the Japanese companies used oil prices to get a foothold in the US market. Despite the tremendous financial success of the auto firms during most of the 1990s and 2000 to 2004, Japanese brands picked up a larger piece of the vehicles sold in the American market. GM’s (GM) profits peaked in 1999 and 2000 at over nearly $17 billion each year.

One of the effects of rising sales for firms like Toyota (TM) is the strikes against US companies tended to do greater and greater damage as consumers could buy good cars from a pool beyond those made by The Big Three. Labor unrest actually had the potential of pushing customer out of the circle of “buying American” if the strikes were long enough to significantly vehicle cut supply.

The American car companies have been overrun by two savage events, both of which largely happened after their latest contracts with the UAW in 2007. The first was the sharp rise in gasoline costs which, coupled with a collapse in the housing market, undercut car sales for The Big Three to a large extent because of their dependence on pick-ups and SUVs . The problem of fuel-efficiency threw huge numbers of sales to Japanese manufacturers who tended to build smaller cars. Just as gas prices began to come down, the credit crisis made getting auto loans much more difficult

The last round of negotiations between the car companies and UAW were tense because auto executives wanted payroll cuts to offset rising employee benefit costs, especially those for retired workers. The car companies were prepared to put tens of billions of dollars into accounts run by the unions to pay future labor benefits. The union agreed to sacrifice jobs. It was an admission on the part of the UAW that its leverage was limited by the damage the US auto industry had sustained from 2005 on.

The UAW made a bad deal. But, it would be hard to imagine how iy could have made a better one. Fuel costs and a recession turned both labor and management into losers. The fury between the two sides, which even showed itself in last year’s negotiations as the UAW threatened several strikes, has lost all of its power. The union will be lucky to get what the car companies owe it for its new benefits fund.

The years of tension between labor and management in Detroit may be permanently over. Both realize that the American car industry may not survive. The last battle between the two parties may be about how many jobs are lost if GM and Chrysler merge. The leverage the workers have is modest. If Chrysler fails, the UAW will lose more than they would as the result of a merger. With thousands of white collar staff also being fired, the union has lost whatever moral high ground it had

With the future of the entire US car industry in the balance, there is hardly anything left to get heated about. What is left now is that the dead get to bury the dead.

Douglas A. McIntyre