By on September 22, 2011

A bloated management, run-away costs, declining market share, imploding volume, a sell-off of assets and investments, headquartered in Detroit – what is it? No, it’s none of the Detroit automakers. It is their former nemesis and current co-owner, the United Auto Workers.

“Two years after the wrenching restructuring of the U.S. auto industry and the bankruptcies that remade General Motors and Chrysler, the UAW is facing its own financial reckoning. America’s richest union has been living beyond its means and running down its savings, an analysis of its financial records shows. Unless King and other officials succeed with a turnaround plan still taking shape, the next financial crisis in Detroit may not be at one of the automakers but at the UAW itself.”

This is the beginning of a special report written by the best in the reporting business, by Deepa Seetharaman and her boss, Kevin Krolicki, Chief of the Detroit Bureau of Reuters, with the help of their team of combat reporters from the Detroit front-lines.

What they wrote may not have been known in public. The Detroit automakers are well aware of the perilous state of the UAW. In the run-up of the contract negotiations with the UAW this summer, one automaker did what one should do before going into battle: Assess the strength or weakness of the adversary. In-house economists of a Detroit company came back with a surprising piece of intelligence: The UAW is hollowed-out and heading for disaster.

“The UAW might have three to five years before its budget difficulties forced a financial crunch, absent changes. The “hand-grenade” math of the projection gave the union less than a five-year window of opportunity to turn things around by winning new membership at foreign-run auto plants, said the person who saw the internal forecast and asked not to be named because of its sensitivity.”

In many ways, the UAW resembles the companies it opposed for so long. The UAW is America’s richest union. One of its biggest assets is its strike fund, which stood at $763 million at the end of 2010. If push comes to shove, a union is as strong as its strike fund. The trouble is: The UAW spends more than it takes in. Increasingly, the union has to dip into the strike fund, the Reuters report says. According to government filings, the UAW liquidated $222 million of investments from 2007 to 2009 to cover the shortfall between expenses and revenue.

Mirroring the U.S. auto industry, the union has seen better days. UAW membership dropped from its peak of 1.5 million in 1979 by 75 percent to under 377,000 workers. Less than a third of the membership works at the Detroit Three.

Membership fees dropped even more. Union workers still pay dues equivalent to two hours of work a month. The two-tier pay deal, negotiated in 2007, may have helped to stop an even larger membership erosion. But the membership fee is only $30 a month now.

Mirroring the U.S. auto industry, the UAW is spending heavily to get sagging volume back up. The union needs new members even more desperately that the Detroit Three need new customers. Says Reuters:

“In 2006, UAW delegates voted to move about $110 million from the strike fund to pay for organizing. In 2010, King went back for an unprecedented double-dip in the fund and won clearance to spend up to another $160 million over four years. “

If that bet goes bust, the union squandered the bargaining power of its members. The odds are not good. “The only luck we’ve had has been bad luck,” UAW boss Bob King said last year. The UAW wants to get members at the transplants in the south. A risky gamble.  Says Reuters:

“Volkswagen AG is paying newly hired workers at its Chattanooga, Tennessee plant $14.50 per hour. That is almost exactly what a second-tier UAW worker would make in Detroit. In a sign of demand for jobs at that pay level, the Chattanooga plant had 85,000 applications for more than 2,000 jobs. VW workers have been promised $19.50 after three years on the job. That is just above the $19.28 per hour maximum that entry-level workers at GM would make over the term of the four-year contract now before workers for ratification.”

Why pay dues if they don’t buy you more?

Gary Chaison, a labor relations professor at Clark University in Worcester, Massachusetts, figures that organizing Chattanooga could cost the UAW up to $3 million, or some $1,500 per worker. It would take the union over four years to recoup its investment – if they win.

If that bet is not successful, then at some point, someone will have to bail out the UAW – again.  No thanks, no UAW deathwatch.

(A PDF version of the special report, with pictures and graphs, suitable for framing, is here.)



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55 Comments on “Carpocalypse, Now At The UAW...”

  • avatar
    Educator(of teachers)Dan

    How bout: “CARPOCALYPSE NOW!” (at the UAW)? Don’t mind me.

    Hmmmmm we’re in a rough situation, let’s spend like drunken sailors, that will work!

  • avatar

    Great report. I am surprised that dues fell from close to $500 million to just $100 million even though membership “only” fell from 550,000 to 400,000 – I would have assumed it was proportionate. Unless new hires and retirees pay a lot less in as dues.

  • avatar

    “Why pay dues if they don’t buy you more?”


    • 0 avatar

      The UAW’s biggest mistake was not going after the transplants aggressively when they first appeared. Mark my words, if the UAW really does disintegrate we will see the utter collapse of wages and benefits at auto plants across the spectrum. It was the umbrella effect of the UAW that forced the transplants to pay living wages, not some kind of charity.

      • 0 avatar

        Can you explain further how the UAW is keeping wages high at transplant facilities far away from large D3 plants?

        For example; if VW offered minimum wage at their Chattanooga plant would those 2,000 workers quit VW, move to Michigan, and start working for GM? The fact that they couldn’t/didn’t do that before the plant was built indicates that they probably won’t – so there must be something else driving the VW pay scale.

        I work at a union-free manufacturing facility in the South that is completely unrelated to the auto industry and hundreds of miles away from any UAW facilities. We also start manufacturing operators at $14 an hour, rising to $19-20 with experience and additional skills. Coincidence?

        I’m inclined to say that these all align because $14/19 per hour is about the market rate for good semi-skilled manufacturing labor in the US right now.

      • 0 avatar

        The transplants – in particular, Toyota and Honda – empower workers, giving them responsibility for quality and relying on their suggestions to improve production processes. Companies don’t get the kind of people who will make serious contributions under that system by offering the minimum wage.

        The idea that the transplants only pay their workers at the current level to keep out the union shows a lack of understanding of their production system and the philosophy driving it. The transplants hire good people and pay them accordingly.

        There is no more likelihood that the transplants are going to cut wages drastically, or never give anyone another raise, because the UAW disappears than there is that Toyota will start selling Camrys as junky as Citations because GM goes out of business.

  • avatar

    I will say this for the UAW, it’s the only big union in the US that doesn’t pay anyone $200K/yr or more. Still, it has a huge bureaucracy that eats up dollars. Not all of those UAW guys sitting around are on the companies’ payrolls. Some are full time UAW employees. Bob King’s been working for the UAW since only a few years after his dad, a Ford executive, got him a job in a Ford parts depot.

    • 0 avatar

      Since the membership has dropped, has the administration been pared down as well? I would assume that the administration should be proportionate to the size of the membership, but perhaps that hasn’t happened here?

  • avatar

    I find it funny that so many people foam at the mouth about the UAW, when the union’s next stop is to hit the proverbial wall. Hopefully, information like this helps to clue them in.

  • avatar
    Mark MacInnis

    I think the next crisis they will face is….”Do we spend like drunken sailors again to try and get Obama elected?”

    If they DO and he wins, take it to the bank…they’ll get a bailout.

    If they DO and he LOSES, and the Republicans sweep the tri-fecta… House, Senate and Presidency…they’re done….money wasted, accelerating their demise…and NO BAILOUT.

    If they DON’T and Obama wins….well, I guess it’ll depend on how much they can do for him in the future. I’d expect they’d get a bailiut but not as big as they would have had they forked over cash with 2 hands to support the O…

    If they DON’T and Obama loses….still no bailout….

    Not in an enviable position, are my former union brothers these days….

    • 0 avatar

      Well, not exactly.
      It’s not as if they control the House of Reps these days.
      In fact, it will be odd if they lose even more representation in the House.
      No…don’t think a bailout of the union comes even close to that of the indtrustry.

    • 0 avatar

      I don`t agree with them getting a bailout and none would even happen if Obama (or anyone else) got elected. Just because some companies got a bailout doesn`t mean unions will – no precedent and never will happen. Also if you complain about unions legally donating money to candidates (presidential and other levels) then I assume you are against companies legally donating to candidates. If your concern is that unions by donating will get some payback then the same concern is there with companies. They don`t do it out of civic kindness!

      • 0 avatar
        Dr. Kenneth Noisewater

        Well actually, the auto bailout _was_ a de facto bailout of the UAW.. Chapter 11 would have broken all the contracts and retirement requirements, which would have been good for the companies but catastrophic for the unions..

      • 0 avatar

        @ Noisewater….Check PCH 101 comment at 9:32 and find us a flaw in his arguement.

      • 0 avatar

        Mike, your point that, companies are just as likely to receive paybacks for their political contributions, is well taken. And when we identify a Company (or Union) that:

        1) Exists because the Company (or Union) accepted a bailout from the Government (aka The American Taxpayer.)
        2) Has yet to make good on that investment made by the American Taxpayer
        3) Uses that bailout money, via political contributions, to secure another bailout for the Company (or Union) from the Government (aka an elected official that accepts contributions from Companies (or Unions) ).

        Then we should belittle and demonize that Company (or Union), mercilessly. Do you agree? Of course in this case the Union is the Company. But we can just ignore that since it doesn’t really fit the narrative.

  • avatar

    RIP American middle class, 1935-2011. It was good while it lasted. I’m not looking forward to the new feudal age.

    • 0 avatar

      The UAW may disappear (and that isn’t a given – some aggressive measures regarding cost containment can certainly save it), not the domestic auto industry. Those are two entirely different entities.

    • 0 avatar

      More like RIP wealth borrowed from thin air by a private central bank, 1935-2011.

    • 0 avatar
      Dr. Kenneth Noisewater

      You do know the only reason for the American ‘golden age’ of labor in the 1950s and 60s was due to the fact that the rest of the world’s industrial capacity was bombed flat, right? So if we want those overpaid jobs back all we have to do is nuke China, India, Brazil, Germany, Japan, Korea and every other industrial center.

      • 0 avatar

        We also would have to sell the stuff we make to the rest of the world, and especially given the global economic slowdown, that means pricing our wares at a point they can afford. That means the jobs can’t be “overpaid.” Fair, liveable, yes–but doubtful to be cushy.

  • avatar

    But unions, unlike a business, are never too small to fail.

    • 0 avatar

      Name any instance a union has been bailed out. I don’t support them being bailed out, I just wanted any discussion to be factually based.

      • 0 avatar

        The UAW came out of the GM and Chrysler bailouts pretty well off. The Evil George Bush gave the steel makers a big gift with steel tariffs, Big O did the same for tires,

        And the best one of all is the Boeing fiasco in SC that will justify companies moving overseas as fast as possible.

        Bailout takes many forms, but all are paid for with our tax dollars.

      • 0 avatar

        GS650G – I understand and accept your point about bailouts taking many forms. The steel tariffs helped American steel companies, Bush didn`t do it for the union primarily, although that was a beneficial side-effect.

        What I find contradictory are those who say we should let the market rule and buy in a globalized economy. But then for defense contracts (which is a very large market >$100 billion a year) they say buy American only. An example of this was the airforce tanker contract. Airbus won the contract (with Boeing having been found guilty of corruption) and yet since Airbus is European a lot of “free marketers” on the right complained and said for military contracts only US companies (and workers) should be employed. I like consistency.

      • 0 avatar

        The UAW came out of the GM and Chrysler bailouts pretty well off.

        You really don’t get it.

        Maybe you’ll believe this guy:

        The PBGC reported a gap of $23 billion between assets on hand and its long-term obligations to pension recipients for the federal fiscal year 2010. The agency has plenty of money to meet its near-term obligations, but worries about PBGC arise whenever very large plans run into trouble. For example, if the federal government hadn’t bailed out General Motors and Chrysler, PBGC’s assumption of the companies’ pension obligations would have roughly doubled the agency’s funding gap.

        Do that math on that. Just the pension costs alone from Chapter 7 filings would have cost the taxpayer over $20 billion, with no chance of recovering a penny of it.

        And that wouldn’t include all of the other costs, including the failure of a variety of suppliers, the unemployment benefits and the rest of it.

        No responsible government, of either party, would have allowed that sort of nuclear bomb to detonate. Why would anyone support losing over $20 billion on pensions when it wasn’t necessary?

      • 0 avatar
        Dr. Kenneth Noisewater

        @pch: the UAW retirees would have just taken a massive haircut like the unionized retirees of any number of bankrupt airlines. You don’t actually think PBGC actually guarantees 100 cents on the dollar?

      • 0 avatar

        @ Dr. Kenneth,
        High dollars workers would get a hair cut, but most would get 100%. It would still have been a huge problem for the PBGC and by tax payer association, the taxpayers. Even if it was 10 billion, that is still 10 billion gone that would never be coming back.

        Honestly, it might be interesting to see how this goes in the future. If the UAW fails because its benefits are too high, the PBGC still might end up picking up the bill.

      • 0 avatar

        the UAW retirees would have just taken a massive haircut like the unionized retirees of any number of bankrupt airlines.

        Even if you assume a 50% haircut, the underfunding of the pensions would have still cost $10 billion.

        And unlike the bailouts, funding the pension liabilities produces zero return on investment, since there would be no loan to collect or equity to sell off.

        There are a lot of folks who post here who are laboring under the delusion that the non-bailout alternative would have cost nothing. But the opposite is true — allowing both of the automakers to fail would have cost the taxpayer more.

        I would have been happy to let one of them or both fail if it was the better alternative. But letting them fail at that point in time would have been a costly disaster for the greater economy. Fortunately, there are a few people in government who bothered to do the math and figure that out.

      • 0 avatar

        Steven02: If the UAW fails because its benefits are too high, the PBGC still might end up picking up the bill.

        Do union employees receive a pension through the union, or are they still considered employees of GM, Ford or Chrysler? If it is the latter, the failure of the union isn’t going to affect their pensions. If it is the former, does the UAW participate in PBGC? If not, then their pensions aren’t covered, as I understand it.

      • 0 avatar

        The PBGC is not funded by general tax revenues. Its funds come from four sources:

        Insurance premiums paid by sponsors of defined benefit pension plans;

        Assets held by the pension plans it takes over;

        Recoveries of unfunded pension liabilities from plan sponsors’ bankruptcy estates; and

        Investment income.

      • 0 avatar

        The maximum pension benefit guaranteed by PBGC is set by law and adjusted yearly. For plans that end in 2011, workers who retire at age 65 can receive up to $4,500 per month (or $54,000 per year) under PBGC’s insurance program for single-employer plans.

        Benefit payments starting at ages other than 65 are adjusted actuarially, which means the maximum guaranteed benefit is lower for those who retire early or when there is a benefit for a survivor. Likewise, the maximum guaranteed benefit is higher for those who retire after age 65. Additionally, the PBGC will not fully guarantee benefit improvements that were adopted within the five-year period prior to a plan’s termination or benefits that are not payable over a retiree’s lifetime.

        For the multiemployer plans, the amount guaranteed is based on years of service. For plans that terminate after December 21, 2000, the PBGC insures 100 percent of the first $11 monthly payment per year of service and 75 percent of the next $33 monthly payment per year of service. For example, if a participant works 20 years in a plan that promises $19 per month per year of service, the PBGC guarantee would be $340 per month.

        Multiemployer plans that terminated after 1980 but before December 21, 2000, had a maximum guarantee limit of 100 percent of the first $5 of the monthly benefit accrual rate and 75 percent of the next $15.

  • avatar

    It’s somehow fitting that this union is spending more money than it is taking in, just like our federal government it has become so entwined with. Priceless.

    • 0 avatar

      Nevertheless, look for a lot of activity between now and election day 2012 in support to save the UAW and other unions in America by those in Congress having large union-constituencies.

      But what actually happens in the future is most assuredly depended on the politics of elections and who will run Congress after 2012 and who is in the White House then.

      I am FOR giving the employees of the transplants a secret to vote to see if they want to unionize or not in America. A secret vote is something the UAW opposes because it fears that if given that secret vote the employees of the transplants will overwhelmingly vote against unionization because they will remember what the UAW has done for and to Detroit.

      • 0 avatar

        Not sure how much you follow what the UAW has done already at the transplants at many if not all of those plants, they all have voted a overwhelming NO to having the union come in. Its been heavily documented that millions were spent trying to unionize those transplants. So the question becomes, are they willing to try again and spend that kind of money when their track record has been nil in organizing those transplants? Given the poor financial situation that the UAW is currently in, it would be a unfavorable financial risk, and netting zero would just further accelerate their demise.

        Then again, can the UAW not afford to?

      • 0 avatar

        Zas, exactly my point! The UAW cannot afford to do nothing and has vowed to renew its efforts to organize the transplants under the UAW.

        I have heard that the UAW has taken out a lot of money out of its kitty to fund lobbyists to lobby Congress. A figure of $60M was bandied about but I don’t know how much really. In any case it is a tidy sum of money specifically focused to lobby Congress on behalf of the UAW.

        What we do know is that elected officials who have a large constituency of UAW and union members will be trying to advance legislation that will make it easier for the UAW to unionize the transplants, in spite of the opposition to unionizing efforts by the majority of the rank and file employees.

        Hence, the outcome of this effort is heavily dependent on the outcome of the 2012 elections and who will run Congress and who will be in the White House. All politics, all of the time!

        Another tactic currently employed by Big Labor is to have the NLRB rule by decree and force employers to unionize. Boeing is currently under assault by the NLRB for opening a plant in SC, a right-to-work state. If Boeing had been smart they would have opened the plant outside of the US and avoided this costly battle.

        The only unpredictable factor that could throw all this into disarray is the state of the US economy and that of the global economy. I do not believe for a moment that most Americans and UAW-members have grasped the gravity of the US and global economy.

        I was reasonably sure that the SAAR in the US would be around 12.1M for 2011. But now I think I may have been too optimistic.

        And the name of the game is to sell enough product to cover all your operating expenses and make a reasonable profit to be a viable, on-going concern. That is, without taxpayer bail-out money.

        Now I’m thinking that because of disappointing sales there may even be more lay-offs and buy-outs in the US auto industry, with the exception of Ford.

        Consumer confidence is pretty low right now and although this is the best time to actually buy and finance a new car or truck, fewer people than hoped for are actually doing it.

        With Bank APRs in my area advertised at 1.99% with 20% down, and manufacturers offering 0% rates for 60 months with no down, I can’t remember a more lucrative time to buy a new vehicle and gamble with someone else’s money. But I’m not doing it either.

      • 0 avatar

        HighDesertCat, the federal government has no constitutional right to tell a business where they can or cannot conduct business. Whether it is Boeing, or Joe Blow’s corner cafe, it is not a priviledge granted to them. If you feel differently, please cite which article and section you found it.

        Had Boeing been closing their plant in Washington and moving to South Carolina, this discussion might change a bit, but that is not the case. Boeing’s proposed plant is an additional facility-not a replacement.

        If the NLRB succeeds with their ridiculous pursuit of Boeing, it will set a very sad precedent for millions of small business owners who may be looking to expand their business outside their domicile of influence.

      • 0 avatar

        Big_Mack1, I’m with you on this. But the part that worries me is the backhanded way the current Administration is advancing its agenda by using non-elected officials of the NLRB to enact change by suing Boeing. Look for more lawsuits against employers to follow when they are successful in punishing Boeing.

        Boeing has plenty of smart lawyers and can drag this out, but that isn’t exactly going to be without cost either. And that is what the NLRB is going to do: financially punish Boeing for opening a plant in SC against union demands.

        Scary part is I think the NLRB may just win this one because of some comments made to the union my Boeing management members. That’s why I wrote that Boeing could have avoided this mess (that will cost them dearly in the end) by opening the plant elsewhere (like Mexico or China).

        Hey, if we can build a California bridge in China and ship it across the pond to the San Francisco area, building airplane sections is a breeze compared to that.

  • avatar

    Going “all in” with a transplant organize drive at this time would be suicide.

    “Zas” is right it didn’t work before and it won’t work now.

    The UAW needs to do what every city,state,country big and small company, and every individual needs to do.

    CUT your spending to match your income !

  • avatar

    When Honda came to the U.S. , they considered being unionized as part of the deal. They had contacted the U.A.W. and the vice president, ( I forget his name) went in with a total in charge , tell Honda how it’s going to be, total asshole attitude. Honda decided then and there that this would not be the way to do business. This has been written about and documented in the automotive press, if anyone can shed more light on this interaction, I would be interested.

  • avatar

    If it only takes 24 man hours to build a car, and the hourly rate is $15 there would be $360 in labor charges. If the hourly rate doubled, labor costs would still be only $720. So where is the beef, Detroit would like us to think the cost advantage of transplants is a couple thousand dollars, can someone clarify this for me please.

    • 0 avatar

      Detroit’s labor problem isn’t pay for workers on the line today. It’s benefits for people who used to work for them.

      GM is paying benefits to 4.6 retirees and surviving spouses for every current union employee.

    • 0 avatar

      Don’t forget the cost of the benefits package attached to that $15/hr. All told, labor expense in the US is a lot more than $15/hr.

      Better to move that production to Mexico and increase quality at the same time. Oh, wait! Ford, GM and Fiatsler are already doing that, and Mazda is soon to follow. Maybe Toyota and Honda will also see the light.

      • 0 avatar

        @HDC: You do realize that Honda produces cars in Mexico, has for about 15 years, and will open more capacity in the next 3-4 years, right? And that Toyota has been building in Mexico for a number of years, too? And, Yota will be expanding their capacity in Mexico, too? As are all of the other major producers, too?

        You constantly post about this kind of thing when it already happened 15 years ago. Mazda is about the only one who didn’t have facilities in Mexico.

      • 0 avatar

        geozinger, my comment about Toyota and Honda seeing the light was in relation to the UAW desperately trying to unionize their plants in the US. The UAW would rather that the people employed by Toyota and Honda in the US be unemployed if they cannot be unionized.

        I had expressed the hope several times in the past that in order to accommodate the UAW, Toyota and Honda should pack up their plants in the US and move ALL of their production to Mexico, and then import under NAFTA.

        I could have been more clear. It looks out of context without further explanation. Thanks.

  • avatar
    DC Bruce

    I rather doubt that there’s going to be any “bailout” for the unions, other than the government-managed bankruptcies of GM and Chrysler . . . which left the unions, their workers and their retirees in far better shape than they would have been had the government stayed out of it.

    I think the union will need to totally re-think the “value proposition” they offer the workers and re-orient their efforts to align with that proposition and with the financial resources they have. I have no idea how much money they spend on what functions, but I would suggest that a great reduction in lobbying expenditures would be a place to start.

    The two-tier wage structure that the UAW has agreed to is the best argument that I could think of to use in resisting a union organizing campaign at a non-union plant: “Why on earth would you bring these guys in who screwed new workers like you, at the expense of the old guys who are still living large?” “Are you really willing to work two hours a month to support that?”

    I doubt that too many targets of a union organizing campaign would give an affirmative answer to that second question.

    “Solidarity” is not usually understood to mean “you sacrifice for me.” And when the UAW chose to define it that way, it sealed its death knell.

    Put a fork in them . . . (etc.)

  • avatar

    The UAW’s last “Hail Mary” hope was the first year of the Obama admin when the donks had the white house and supermajorities in both houses. The Prez never got serious about the disasterous card-check legislation during the most favorable political conditions that the unions could expect in a lifetime. That was enought to tell me that he was willing to let those knuckleheads drain their treasury for his election, but he had no intention of staying “bought and paid for”.

  • avatar

    So, not only does the UAW suck at making cars, they suck at being a union. Why am I not surprised.

  • avatar

    When the Democrat controlled House and Senate failed to pass “card check” in 2009/2010 (before the 2010 elections) the death knell for the UAW was pretty much sounded.

    Their whole plan was to use card check to organize the transplants and non-union tier 1s. There’s zero chance they can win secret ballot elections at those plants.

  • avatar

    As UAW goes so goes US. Obama is not any smarter than Bob King and US is not financially any healthier than UAW. In 5 years BOTH US and UAW will go bankrupt.

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