What significant concessions did UAW members really make in 2009 and why?
GM – UAW Negotiations Update
I read a story in the Detroit Free Press this morning and I finally decided that I should probably set the record straight on a number of fronts. The article is titled UAW: “Pay hasn’t caught up with inflation” after “bankruptcy sacrifices” and the link is
In previous blogs, I have already talked at length about the fact that UAW non-skilled labor at $30 per hour plus profit sharing is significantly higher than market rates. It is a well-known fact that thousands of job seekers routinely apply for Detroit 3 automaker jobs that pay in the teens per hour. The fact that UAW “pay hasn’t kept up with inflation” should be considered irrelevant if current wage rates still significantly exceed market rates – it just emphasizes the fact that perhaps autoworkers have been grossly overpaid for over a decade. This may have been the result of a culmination of lucrative contracts that were negotiated in the past such as the 1999 deal where UAW workers were granted annual 3% wage increases PLUS cost of living allowances. It was different back then – the Detroit 3 automakers, for the most part, dominated the high-margin truck and SUV market, so the automakers simply paid whatever they needed to (within reason) as they did not want a strike and risk having to turn off the assembly line. During that era, higher labor costs were simply passed on to the consumer through higher vehicle prices – that option is no longer viable, especially when the competition enjoys a $13 per hour labor cost advantage. In addition, the comparison of UAW worker pay to CEO compensation is absolutely ridiculous. In 2018, if Ms. Barra’s base salary was $2.1M and her total compensation was $21.87M, then over 90% of her pay was performance-based – do you think that the UAW would want that ratio? Besides, I do not know Ms. Barra personally but I will go out on a limb and say that I am pretty confident that she can perform virtually any of the non-skilled tasks in the plant. In contrast, after you read the Detroit Free Press article, do you think that you could find 281 UAW members who are collectively capable of performing her job as CEO? Ok enough about that.
Now, let’s talk about the “bankruptcy sacrifices”. Before getting into the details, let’s set the stage back in 2009. In order to bailout GM and Chrysler, the U.S. federal government mandated that the two companies negotiate new contracts with the UAW, requiring key contractual elements, namely all-in labor costs, work practices and layoff benefits to be competitive. It is my understanding that the intent of the U.S. federal government’s bailout conditions was to effectively “reset” the labor provisions in the UAW contracts to competitive levels in order to survive. It certainly was not intended to be a short-term fix – it was meant to be a long-term solution to enable the automakers to compete well into the future and to ensure that a bailout like this would never be required again. Here are the “notable concessions in 2009” that are highlighted in the article – I will do my best to shed some light on each one of them and also attempt to highlight why they occurred.
Elimination of cost-of-living allowances and performance bonuses
According to the UAW’s 2009 settlement highlights, cost-of-living allowances and two one-time performance bonuses scheduled for 2009 and 2010 were suspended to offset health care costs. Cost of Living Allowance (COLA) is one of those contractual provisions that many companies have eliminated over the past decade or so. It really doesn’t make sense to have both annual wage increases and COLA unless employees are somehow responsible for initiating significant productivity gains. The elimination of COLA was required as it was considered to be an automatic inflator on labor costs (remember what happened in the 1990’s). Besides, subject to market conditions, most companies negotiate wage improvements and/or lump sums each contract and the magnitude of these improvements typically take inflation into consideration.
Less Break Time
According to the UAW’s 2009 settlement highlights, “Break time has been reduced to 40 minutes of relief time per 8 hour shift and 50 minutes per 10 hour shift”. Presumably, this was required by the U.S. federal government to bring work practices in line with the competition.
Less Paid Time Off
It appears that the UAW forfeited a week of vacation pay (Independence Week Shutdown Period) along with the Monday after Easter holiday. This holiday was restored in the 2015 contract. Again, the elimination of a week of vacation was intended to bring the UAW contract in line with the competition. Today, it is my understanding that UAW in-progression employees will enjoy an average of 16 paid holidays and up to 4 weeks of paid vacation per year.
Fewer Protections During Layoffs
The most significant change here was the elimination of the Jobs Bank, a provision that effectively guaranteed employees on layoff full pay for life. The Jobs Bank concept was simply just unheard of anywhere. In addition, layoff protection for new employees was modified to levels that were deemed to be more customary and appropriate, as mandated by the federal government.
Expanded Use of Temporary Employees
The expanded use of temporary employees was intended to provide GM with more flexibility to staff excessive absenteeism and uncertainty surrounding product demand. In addition, this was one of the key elements that would allow GM to mitigate its composite labor costs, similar to the approach utilized by their international producer competition. One of the alternatives to this approach was to cut the base wage rates of existing UAW members and that was not seen as a popular choice.
Agreeing Not to Strike Until 2015
This is likely the most interesting “concession”. As I mentioned earlier, the U.S. federal government’s intention was to mandate labor contract modifications in order to facilitate a long-term solution not a short-term fix – therefore they insisted on a clause that prevented the UAW from striking until the expiration of the 2011 contract (i.e., September 2015). Thankfully, the federal government had the foresight to predict exactly what is happening now – as we will see, luckily this move helped to defer the inevitable. The feds were concerned that they would require the Detroit 3 automakers and the UAW to become cost competitive in 2009, only to have the UAW go back after GM for everything that they had given up in 2009 during the next round of bargaining (2011) once the bailout checks had been cashed, the economy had improved and the automakers were on the road to recovery. The feds were right - look where we stand today, the UAW has already forgotten the past and we can’t afford to let history repeat itself (look at my August 28, 2019 blog post). GM’s competitive labor cost gap has once again ballooned to $13 per hour, which by the way translates into around a $5 billion cost penalty for GM over the four-year contract and we are still talking about the concessions from 2009. Are we going to continue to talk about the 2009 concessions during 2023 contract negotiations?
No Company Medical Benefits for Retirees Hired after 2015
I apologize but I have no idea what this means….
Hourly workers hired after 2008 have a 401(k) rather than a defined benefit pension
This is true but everyone knows that in the private sector, for more than a decade, employers have been shifting away from defined benefit pension plans in favor of defined contribution plans. It is important to note that GM implemented these same modifications for any new salary workforce hires years in advance of this.
As you can see, the contract amendments in 2009 were in line with the federal government’s mandate to make the company’s labor costs, work practices and layoff benefits competitive. The modifications were designed on purpose to minimize the intrusiveness on existing UAW members. GM’s employees have enjoyed numerous $10,000 plus profit-sharing checks over the past few years. This should have helped take the sting out of the concessions that were made 10 years ago.
In summary, I think that UAW members need to stop focusing on items like CEO pay and what they gave up in 2009. They should reflect more on what they were able to retain – great paying UAW jobs. The purpose of the contract amendments in 2009 was to make GM’s labor costs competitive for the long-term not the short-term. The UAW leadership must understand that this $13 per hour labor cost gap is real and that they need to negotiate a responsible agreement in order to secure the future of their members. As I have said before, the parties absolutely cannot afford to let history repeat itself.If you are interested in learning more about bargaining preparations, development of negotiations costing models, bargaining strategy formulation or labor cost reduction strategies, visit our website at www.hrandlaborguru.com.