Editorial: The Truth About The UAW's Legacy Costs

One of the uncomfortable facts about the automobile industry: its pay rates have been exceptionally high almost from day one. That said, just how much of a factor worker wages (and the cost differences that go with them) have to do with Motown’s meltdown is debatable. One thing’s for sure: the United Auto Workers (UAW) refusal to re-negotiate their current contract– repeated within two hours of the President’s cramdown conditional bailout bonanza– puts it squarely in the firing line for both sides of the “debate.” When trying to understand their seemingly suicidal recalcitrance, history is our guide.

For all of its famous affect on “creating America’s middle class,” it’s important to remember that Henry Ford’s “five-dollar day” (actually a bonus program) was a solution to an intractable problem. Put simply, Crazy Henry had to hire 40k men a year to have 10k working.

There are two things that haven’t changed about auto assembly since those early days: assembly-line work is a grind (imagine doing the same thing, 500 times a day) and auto production requires a steady work force. The initial raise in pay was to give the worker a stake in sticking with a nasty job. Yes, the worker could be replaced. But replacing him slowed the whole process down.

While there have been epic debates, and not a little violence, over unionized automotive workers’ wages and conditions, they generally conform to a worldwide pattern. The type of union– “company” (tame), “trade” (often bribed into submission) or “Industry”– doesn’t have much effect on the outcome. Recent surveys revealed developed world hourly wages for assemblers as more-or-less equal. It’s the “other” stuff– health care and pensions– that makes the biggest difference.

In theory, the USA’s lower corporate taxes should compensate for the advantages enjoyed by automakers operating in countries where employees get their health care and pensions from their government. In practice, Detroit’s sunk by simple math. While The Big 3 have been reducing their total workers. their pool of retired ones has been growing. Ford, GM and Chrysler have more retirees than active workers. Which accounts for much of the “$75 an hour” numbers you hear quoted in the MSM.

Worse, The Big 3 have funded all these benefits on a pay-as-you go basis. Instead of setting aside funds to cover pension and health-care throughout a worker’s career, like a company-level 401K, Ford, Chrysler and GM have been paying their retirees out of current revenues.

This is the same “trick” the U.S. government uses for Social Security. But at least the tax base is growing (and not aging much). The Big Three have shrank and aged themselves into a huge problem.

In theory, the Mother of All Health Care pay-it-forward UAW VEBA fund should finally allow the 3 to put these “legacy” costs behind them (in another two years). Only they still have to fund the fund. Putting company stock in the fund in lieu of cash is going to be about as welcome a blanket smeared in smallpox.

Pay and pension issues can always be laid at the feet of the money-men, who never looked past the next quarter. Health care and pensions can be “finessed.” But union work rules are, apparently, forever. This could be Detroit’s Gordian knot.

Put simply, you can’t. The UAW work in accordance with a series of massive documents directly exactly what every employee is allowed to do, how they should do it and how it’s judged. Having to adhere to a book of rules that practically require a forklift (and designated “operator”) to carry makes anything resembling “management” a major undertaking.

But before we lay the blame completely at the UAW’s feet, let’s consider how management performed when the Union Slacker’s Guide to Life, the Universe and Everything didn’t apply. The California NUMI plant (Toyota Matrix/Pontiac Vibe) doesn’t count. Toyota runs the show there. Saturn is the exception that proves (i.e. tests) the rules.

For GM’s different kind of car company, The General hand-picked workers willing to dump the rules, and then had them build one vehicle for almost a decade. Later on, GM set up the Aztek/Rendezvous plant in Mexico (lower cost AND no restrictions). Bottom line: both ventures failed to sell enough vehicles to make their plants pay. As restrictive as the work-rules are, they seem to conform to standard Big Three thinking as much as management thinking conforms to them.

Perhaps the UAW’s greatest sin, then, is the fact that they’ve been “along for the ride.” More specifically, a seemingly endless supply of money has narcotized the union into suicidal apathy. Worse still, their public persona projects a sense of entitlement that’s toxic to all but their closest political allies.

The UAW’s protests that “we’ve done nothing wrong” is true as far as it goes. But not doing wrong is not the same as doing right. As we shall see.