Even in its diminished state, the UAW is still a leading indicator of middle class security. What does its latest deal tell us about what a 21st century middle-class manufacturing job looks like?
In the flurry of headlines about Netflix's stock price and Europe's debt crisis, it was easy to miss the news, but last week, the American auto-industry quietly embarked on an experiment that could help define the future of the middle class.
On Oct. 26, the United Auto Workers ratified a new, four-year labor contract with Chrysler, capping off the union's negotiations with Detroit's three big automakers. There were no huge surprises in the agreements, but in light of Detroit's long history of labor dysfunction, the new contracts are a thing of wonder. Here are the new rules of the road: The unions' fortunes are tied to the companies' fortunes. If the companies profit, the workers profit. If the companies stumble, they can break the promises they can't afford
In other words, the automakers and the UAW have done something shocking. They have embraced common sense.
This may sound like a middling achievement. But it's the kind of arrangement that once seemed like a pipe-dream in Detroit. And if it works, it just might point the way to what a middle-class manufacturing job looks like in a post-recession America.
THE ART OF (LABOR) WAR
To get a sense of how big a change the new contracts represent, it helps to review a little bit of history. The automakers and the UAW have a long and tortured relationship that almost sank them both.
From its origin in the 1930s to its peak at 1.5 million members in the 1970s, the UAW rose to prominence by approaching labor-management relations as trench warfare. It won recognition from GM with a grueling 94-day strike in 1936. In clash known in union lore as "The Battle of the Running Bulls," workers used spare auto parts to fend off club-wielding police officers who had come to chase them out of an occupied factory.
Over time, the violence waned. But labor-management relations didn't get any more cordial. As late as 1998, the UAW waged a possibly illegal strike against GM that, according to Paul Ingrassia's Crash Course, dropped overall U.S. industrial output by a full percentage point. The casus belli? GM had attempted to move some machinery out of a metal-processing plant.
By negotiating doggedly and striking ruthlessly, the UAW won increasingly generous contracts for its members in the heyday of the American middle class. The higher wages, health benefits, and guaranteed pensions it secured for autoworkers helped set the standard for the rest of the country. But some of the UAW's victories would also play a role in the auto industry's near downfall. The contracts saddled Detroit's auto companies with tens of billions in retiree health costs. They required base levels of employment that bore no relationship to the market. Perhaps most notoriously, they created a "jobs bank," which allowed some laid off workers to collect 95% of their wages while waiting for a new job on the factory floor.
All of that came to a head in 2007. As high gas prices ravaged sales of trucks and sport utility vehicles--Detroit's bread and butter--Ford, GM, and Chrysler began winning major concessions from their workers. Their biggest coup was an agreement to move retiree health costs off their own books and into a trust fund controlled by the UAW, which was funded by capped payments from the companies.
As we all now know, though, the changes came too late for GM and Chrysler, which both ended up in bankruptcy.
The UAW went into this year's contract talks with the deck largely stacked against it. On the one hand, the car companies were returning to profitability (even Chrysler, the perrenial sick man of Detroit, posted a $212 million profit in the third quarter). But the shaky economy gave the car companies leverage, because neither side wanted negotiations to end in the death of American Auto. As part of their bankruptcy deals in 2009, the UAW had also given up the right to strike against Chrysler or GM during this round of talks.
Still, the union didn't come away empty-handed. Its big prizes included pledges by the three automakers to create or retain a combined 20,000 jobs in the United States and to invest roughly $13 billion into upgrading and retooling their American manufacturing plants. In the process, companies agreed to bring work back to the states from Mexico and China. Hourly workers also won signing bonuses worth several thousand dollars and profit-sharing plans worth as much as $12,000 a head. The union did agree to keep in place a controversial two-tiered wage system, put in place in 2007, that pays new hires significantly less than older workers, but it also convinced the companies to increase their entry-level wage to nearly $20 an hour, up from around $15.
That's the simplified version. In reality, some of the headline-grabbing figures are a bit more complicated. Take the promises on jobs. As Kristin Dziczek, an analyst at the Ann Arbor, Michigan-based Center for Automotive Research, explained to me, the number 20,000 "is sort of a broad-brush, colloquial way of approaching it." If the companies do better than projected, there could be more hiring. If the economy stumbles into recession again and profits evaporate, it could be less. And even with the current projections, we might not be talking about a net of 20,000 brand new workers--rather, some of the "new" jobs may simply replace positions lost to attrition, or go to workers whose plants close.
That complexity is a pain for newspaper writers, but it's a great thing for the industry. A flexible, market-oriented contract is going to be big on if's. But in the big picture, the new contract means that if Detroit's automakers expand, they'll do it in the U.S. In the meantime, management gets to tell investors that labor costs stay stable. It's as close to a win-win as anybody could expect.
The question is whether it's sustainable.
THE FUTURE OF THE UNION
Right now, a large chunk of the UAW's rank and files aren't happy with their deal. Without the ability to strike, workers at GM and Chrysler had little choice but to swallow the contract. But experienced workers chafed at the lack of a base wage increase or cost-of-living hikes. Many still resented the two-tier wage structures. A full 45% of Chrysler's* workers voted against it. And during early voting at Ford, where the union did have the option of striking, it seemed possible that the rank and file would turn the contract down entirely, before it was eventually ratified 63% in favor to 37% against. Many workers expressed outrage that they weren't being offered more after CEO Alan Mulally took home $26.5 million in 2010, along with $56.6 million in stock.
Will those angry workers be mollified by profit-sharing and market-based job pledges? It's too early to know. But Gerald Meyers, a former auto industry executive and professor at The University of Michigan, told me that the next four years would be pivotal.
"I think this feel-good relationship is perishable," he said. "The next contract negotiation is going to determine whether the UAW goes back to fire eating labor management or if it continues on this track."
The UAW's leadership has its own incentive to make the arrangement work. As Reuters reported in September, the union is facing financial trouble, thanks in part to the hit its dues-paying membership has taken over the past decade. The union lost more than 300,000 from its ranks during the recession. Of its current 376,612 members, fewer than a third work for Ford, GM, and Chrysler.
To expand, the UAW is looking towards the Japanese manufacturers that operate car plants in the American South. Workers at those factories are traditionally hostile to unions. To try and overcome that aversion, union President Bob King has promoted the idea of a new "21st Century UAW" that knows how to protect workers while creating a healthier company. Making the new agreements with Detroit work out would be an important step in making that image stick.
But beyond the interests of the unions or the companies, the American public should be rooting for these contracts to work out, too. The economy doesn't run on cars anymore, but auto manufacturing is still a pillar of the country's industrial base, and auto-jobs are still the gold standard for middle-class manufacturing work. That means the UAW, even in its diminished state, can still play the role of pathbreaker in the American labor movement. The union fought for a vision of the middle class that collapsed, in part, under the weight of its own successes. But the vision in these new contracts is different. The new UAW worker is someone with better-than-average job security who shares in the profits when their employer succeeds. That's a sustainable vision for America middle-class that the union would do well to spread.
*An earlier version of this story incorrectly stated that 45% of GM's workers voted against their new contract.