The UAW's Mad, Mad World

Since the late 30's, the UAW and America's home-grown automakers have been locked in a balance of terror. The arrangement has kept the peace- at a price. Which was pretty much anything the UAW wanted. No-cost life-long health care? A "jobs bank" for superfluous workers? Sure! The Mutually Assured Destruction principle worked as long as the automakers could afford it. But now they can't, and the question is no longer who will blink first, but how much the UAW is willing to surrender to survive.

Going into this year's contract negotiations, GM, Ford and Chrysler have all made it abundantly clear that they expect the UAW to make concessions on health care, wages and working conditions. Of course, the UAW's leadership bared their teeth and growled; workers at several plants voted to strike if necessary. The saber-rattling worked in previous years, so why not try it again?

For one thing, the UAW is a pale shadow of its former self. In 1969, the organization counted 1.53m members. Today, the union can claim no more than 180k dues-paying autoworkers. The days when union bosses could summon powerful politicians with a single Vito Corleone-esque phone call are over. Less contentiously, Dana Johnson, chief economist of Comerica Inc., says the unions are no longer "the pacesetters of the overall economy."

Equally important, the union's employers are not what they once were, either. Setting aside the fact that all of them are mortgaged up to their eyeballs, staring down the barrel of bankruptcy, The Big 2.8 are no longer land-locked enterprises with distant relatives.

Ford and GM have established production facilities in China, India, Thailand, Brazil, Mexico and other low-labor-cost countries. What's more, U.S. car brands have "gone native," mixing their DNA with foreign-made vehicles. GM sells German Opels as Saturns, Korean Daewoos as Chevrolets, and Australian Holdens as Pontiacs. It's only a matter of time before Chinese Buicks hit the scene.

Chrysler also sells "hecho en Mexico" vehicles, and recently signed up with a Chinese partner. Ford's moving as quickly as it can towards "globalization." In short, while The Big 2.8 still need their UAW-staffed U.S. production facilities, they don't rely on them to the extent that they did merely a decade ago. The threat of out-sourcing looms large over many a UAW factory, tipping the balance of power in the automakers' direction.

At the same time, the UAW must now deal with the end of pattern bargaining, where all three domestics signed identical union contracts. While the union itself signaled this change by refusing to offer DaimlerChrysler the same "health care giveback" afforded GM, Chrysler's transfer to private equity group Cerberus guaranteed the end of Detroit's "all for one and one for all" arrangement.

For example, Ford and GM will most likely offer to establish a multi-billion dollar union-controlled health care fund to ditch their endlessly escalating health care costs once and for all- eventually. As befits an equity fund, Cerberus is more interested in a short term solution. And no wonder: they had enough trouble raising the funds to buy Chrysler in the first place, and the credit markets have contracted since. A gigantic lump sum payment is simply out of the question.

For the UAW, two- (or even three-) track negotiations are an enormous headache. If the union tries to hang onto pattern bargaining, one or more of the automakers could choose the nuclear option. If the UAW allows different contract terms for different companies, they're bound to piss off part (or all) of their membership.

In the face of this diminution of their bargaining power, the UAW has tried to open a fourth front: Toyota. This morning, members of [a UAW invention called] the Kentucky Workers' Rights Board submitted a list of "recommendations" for improving working conditions at ToMoCo's KY factory. Needless to say, company executives refused to meet with them. Toyota spokesman Rick Hesterberg stated, "If they have recommendations or proposals for us, they can leave them here for us to review."

The UAW doesn't stand a chance. If the union looks set to organize their plants, Toyota's bound to retaliate by closing their only UAW facility: the NUMMI plant in California. If it escalates from there, Toyota's top dogs could pull part of their U.S. production back to Japan. And last but not least, Toyota builds Camrys in China; if anyone can export vehicles to the American market from China, it's got to be Toyota.

The UAW's effort to glom onto Toyota is a quixotic campaign that only serves to remind industry observers how the mighty have fallen. In truth, the UAW's hold over domestic automakers is weak, and getting weaker. While none of The Big 2.8 are bound to do anything that looks like union-busting, they're methodically positioning themselves to operate without any UAW members. But even that may not be enough to guarantee their survival. Mutually assured extinction?