UAW Strike Deadlock Continues, Experts Fear Repercussions
UAW Strike Deadlock Continues, Experts Fear Repercussions

By Tom Ozimek

As the United Auto Workers (UAW) strike entered day five on Tuesday, both sides remained stuck at an impasse as failed weekend talks bled into the workweek, bringing analyst predictions for a long-lasting deadlock and expert warnings that the union’s demands would make Detroit’s Big Three automakers less productive and competitive compared to their non-union rivals.

Around 12,700 members of the United Auto Workers (UAW) union walked off the job last week after their four-year contracts with the Detroit Three expired with no agreement on a fresh round of labor deals that would last through 2027.

The union has boasted that its demands, which include 40-percent or so wage hikes, are the most ambitious in many years.

“As I go to the table this week, I’ll be giving the Big Three the most audacious and ambitious list of proposals that they’ve seen in decades,” UAW President Shawn Fain said in a video message before the talks were first launched several months ago.

The Big Three automakers have said they want to reach a deal that’s fair to workers, but that also gives the companies flexibility as the industry shifts to electric models that have fewer parts and require less labor.

GM, Ford, and Stellantis have proposed roughly 20 percent pay hikes over the four-year term of their proposed deals—or roughly half of what the UAW is demanding.Several experts told The Epoch Times in interviews that the UAW’s demands threaten to make Detroit’s Big Three less productive and less competitive compared to their non-union counterparts like Honda and Toyota.

“There are all kinds of productivity differences between unionized and non-unionized” carmakers in the United States, according to Diana Furchtgott-Roth, an economist affiliated with The Heritage Foundation, whose credentials include senior roles in the Reagan, Bush, and Trump administrations.

Ms. Furchtgott-Roth told The Epoch Times in an interview that productivity is higher among America’s non-union foreign transplants like BMW, Honda, and Nissan—and for good reason.

Under union systems, there are constraints on firing less-productive employees and companies are limited in giving merit-based awards as basically “everything has to go through the union,” she said.

“And that’s why only 6 percent of private sector workers in the United States belong to unions,” she continued, adding that, over the years, union demands have become too high, leading a number of unionized facilities in various sectors of industry to go bust.

“The most famous example is Pillowtex in North Carolina, where the union bargained for very high wages, and then it just wasn’t competitive,” she said, citing the example of the 2003 bankruptcy of Kannapolis-based Pillowtex Corp., which resulted in the single largest mass layoff in the state’s history.

“So they went out of business,” Ms. Furchtgott-Roth said.

She warned that the UAW’s demands—or union collective bargaining initiatives more generally—were driving a “wedge between the productivity of the worker and the salary” as they push for higher wages that would not normally be granted under market mechanisms, making unionized plans less productive and less competitive.

Ford CEO Jim Farley said that if the automaker were to meet all the UAW’s demands—including the roughly 40 percent pay hike—”there’s no way we can be sustainable as a company.”

‘Stand Up Strike’

The UAW, which represents 46,000 GM workers, 57,000 Ford employees, and 43,000 Stellantis workers, entered into negotiations with Detroit’s Big Three automakers in July.

But talks have stalled, with the automakers offering wage hikes of roughly 20 percent—or half of what the union is demanding.

As the union’s previous contract with the automakers—signed in 2019—expired on Sept. 14, union members staged a walkout.

“This fight is our generation’s defining moment,” Mr. Fain said in a statement, in which he announced that thousands of the union’s members had embarked on a so-called “Stand Up Strike” that involves select local unions going on strike rather than at all plants all at once.

So far, UAW members haven’t targeted the companies’ cash cows, which are full-size pickup trucks and big SUVs.

Instead, the strikes have targeted plants with lower profit margins, with production halted at facilities in Michigan, Ohio, and Missouri that produce the Ford Bronco, Jeep Wrangler, and Chevrolet Colorado.

But the strikes could expand.

Analysts expect plants that build more profitable pickup trucks like Ford’s F-150, GM’s Chevy Silverado, and Stellantis’s Ram to be the next targets if the two sides can’t find common ground and the job stoppage continues.

“As time goes on, more locals may be called on to ‘Stand Up’ and join the strike,” UAW said in a notice. “That give us maximum leverage and maximum flexibility in our fight to win a fair contract at each of the Big Three automakers.”

On Monday—the fourth day of the strike—the UAW announced it would expand its strikes if both sides don’t make “serious progress” in negotiations by noon on Friday.

A full strike—meaning a complete production stoppage—would hit earnings at each affected automaker by between $400–500 million per week, Deutsche Bank previously estimated.

“We’re not going to keep waiting around forever while they drag this out … and we’re not messing around,” Mr. Fain said in a video statement on Monday.

A 10-day strike by the UAW could cost manufacturers, workers, suppliers, and dealers more than $5 billion, according to an analysis by consulting firm Anderson Economic Group.

In interviews and statements to media outlets, Ford, GM, ND Stellantis said they continue to bargain in good faith and want to settle the strike without it escalating.

What Does the UAW Want?

The UAW opened negotiations with a demand for a 46 percent pay hike over the duration of a new four-year contract, contrasting it with the 6 percent raises autoworkers have received since their last contract in 2019.

The union has since lowered its demands—first to 40 percent and now the figure being thrown around is 36 percent.

Besides higher pay, the UAW is also pushing for a 32-hour work week with 40 hours of pay, elimination of compensation tiers, restoration of defined benefit pensions, cost-of-living adjustments, and stronger job security as automakers increasingly shift to electric vehicles.

“I know that our demands are ambitious, but I’ve told the companies repeatedly I’m not the reason that members’ expectations are so high,” Mr. Fain said earlier this month. “What’s driving members’ expectations are the Big Three’s profits.”

Since 2019, annual gross profits have risen by 34 percent at Ford and 50 percent at GM, while Stellantis saw its annual gross profit increase by 19 percent from 2021 to 2022.

Another reason the UAW is pushing hard for steep wage increases is to make up for historically high inflation since it signed the latest batch of labor deals in 2019.

Since mid-2019, hourly wages among motor vehicle and parts manufacturers (including union and nonunion workers) have grown by 12.7 percent—according to government data—from an average of $29.11 in July 2019 to $32.80 in July 2023.

But inflation has eroded those gains—and then some.

The Consumer Price Index (CPI) show costs rising by 17.4 percent between July 2019 and July 2023. This means that auto workers saw their earnings drop—in real terms—by roughly 4.7 percent.

Soaring inflation, which has outpaced wage gains and squeezed the spending power of households, has been mentioned repeatedly by the UAW as a factor in making its eye-popping wage demands.

Per the 2019 deal summary, all UAW permanent manufacturing employees would be at $32.32 by September 2023, which is roughly in line with the government data showing that, in July 2023, the average hourly earnings (for both union and non-union) was $32.80.

Separate government data from the Bureau of Labor Statistics (BLS) on union versus non-union earnings shows that union members had median weekly earnings roughly 16.7 percent higher than their non-unionized counterparts in 2022. Unionized workers earned $1,216 per week last year compared to their non-unionized counterparts, who were making $1,029.

What Do the Automakers Say?

The Big Three automakers have said they want to reach a deal that’s fair to workers, but that also gives the companies flexibility as the industry shifts to electric models that have fewer parts and require less labor.

Ford CEO Jim Farley said, however, that if the automaker were to meet all the union’s demands—including the roughly 40 percent pay hike—”there’s no way we can be sustainable as a company.”

A full strike—meaning a complete production stoppage—would hit earnings at each affected automaker by between $400-500 million per week, Deutsche Bank previously estimated.

A 10-day strike by the UAW could cost manufacturers, workers, suppliers, and dealers more than $5 billion, according to an analysis by the consulting firm Anderson Economic Group.

Representatives of the Big Three have all said they are “disappointed” in the lack of interest that union negotiators have expressed in what the CEO’s have called “a historic” wage increase offer—which would also mean a historic jump in labor costs.

Contract proposals made by UAW so far would add roughly $80 billion in labor costs over four years for the Big Three automakers, according to Kristin Dziczek, automotive policy advisor for the Detroit branch of the Federal Reserve Bank of Chicago.

Labor costs include wages, bonuses, paid time off, profit-sharing, and health insurance for employees.According to S&P Global Market Intelligence, labor costs are also just 5 percent of manufacturing expenses in the automotive industry, with the group a 46-percent wage hike would “only” increase overall costs by 2 percent over four years.

“That may be enough, though, to provide a price disadvantage for U.S.-made vehicles,” the group said.

The strike, if it continues for longer, would have a knock-on effect on auto parts suppliers. For some, it could mean bankruptcy.

“If this stretches out to five or six weeks, there’s going to be real problems in the supply chain,” Pat Green, CEO of Cascade Die Casting Group, a Michigan-based firm that makes die castings for the automotive industry, told the Detroit Free Press.

“And I could be wrong; it could be shorter than that,” he added, suggesting the impact of the strike could be felt sooner.

The broader economy could also take a hit from the strike. Analysts at Standard & Poor’s calculated that a 15-week strike could lower the gross domestic product (GDP) growth rate by a little over two percentage points in the fourth quarter.

“A lasting strike is looking highly probable. The current political and economic conditions increase the odds of a longer strike,” the analysts noted.

Labor Costs, Productivity, Competitiveness

Ford sources cited by Reuters estimate that the automaker’s U.S. labor costs are $64 an hour, compared with an estimated $55 for foreign automakers and $45–50 for Tesla.

New contract demands made by the UAW would add more than $80 billion to each of GM, Ford, and Stellantis, according to Ms. Dziczek’s estimates.

That big of an increase could push hourly labor costs to over $150 per hour at Ford and GM, according to a Bloomberg analysis, up from the roughly $64 an hour at the Big Three currently.

Ryan M. Yonk, Senior Research Faculty at the think-tank American Institute for Economic Research (AIER), told The Epoch Times in an interview that the basic point of collective bargaining talks is to boost wages—and raise labor costs.

“That’s the purpose of virtually every union,” Mr. Yonk said. “When we look at industries that have high levels of unionized labor, we do tend to see that labor costs are substantially higher.”

Mr. Yonk confirmed that the BLS estimate of non-union wages being roughly 16.7 percent higher than union wages is reflected in the broader literature on the subject, although various studies show different figures.

“The core fact is that it does raise labor costs,” Mr. Yonk continued, adding that higher labor costs dent profitability, although there are other factors that play into the size of the hit to the bottom line, such as raw material costs.

In statements obtained by The Epoch Times from the Big Three automakers, the companies suggested they’re all targeting a labor cost number that’s going to work with profitability in the long run.

While it’s clear that the UAW is looking for a big wage boost—and so an increase in labor costs—the impact on productivity is somewhat less clear.

Some studies looking at union versus non-union productivity differences have suggested there could be productivity boost from unionization.

For instance, a study from the late 1980s by Steven G. Allen, an economist affiliated with the National Bureau of Economic Research (NBER), said that managers respond to higher wages by cutting back on operations that are no longer profitable.

“Beyond this, they take steps to offset the cost of higher wages by substituting capital for labor and increasing the skill level of the work force through adjustments in training and hiring procedures,” Mr. Allen wrote.

“The result is greater observed productivity in union than nonunion establishments,” he added.

However, Mr. Allen conceded that despite the productivity gains on paper, many economists point out that “the cost of higher wages is never completely offset by additional productivity, resulting in greater unit costs and reduced output.”

“Unions further reduce output and productivity through strikes and restrictive work practices,” he added.

Mr. Allen said in the study that there were other mechanisms at play (which pro-union advocates have also raised) that can boost productivity at union facilities, such as reduced turnover, higher staff satisfaction, and better information sharing among staff.

Asked about the points raised by Mr. Allen in the study that link unionization to productivity gains, Ms. Furchtgott-Roth told The Epoch Times that it’s a case of something sounding good in theory—but less so in practice.

She said that when employers are stuck having to pay a higher wage then they cut back on staff and put in more capital, which in the productivity calculations yields a higher number—at least on paper.

“But that’s not total factor productivity,” she pointed out, which is a broader measure that also takes into account the cost of capital.

Ms. Furchtgott-Roth, who once served as the chief economist at the U.S. Department of Labor, said that Mr. Allen’s makes some fair points—in theory.

“But in practice, you can see since 1988, we have an observable experiment whith one set of auto companies in non-union states and another set of auto companies in union states—and we can see that the ones in non-union states are more productive,” she said.

A Bloomberg analysis of production data from over 70 auto manufacturing facilities in North America showed that the top three most productive were Tesla, Toyota, and BMW.

Asked about studies linking positive productivity gains to unions, Mr. Yonk said that it’s challenging to quantify union versus non-union productivity differences and that, on balance, the studies are inconclusive.

He suggested that the truth of the impact of unionization on productivity is most certainly not the “high benefit” that unions claim—but probably also not the “no net positive” view the some of the most ardent union detractors might argue.

Mr. Yonk added that, while the issue of whether there are productivity gains to unionization is “open to a fair bit of debate,” it seems clear that, at some point, wage demands can become so high as to make profitable operation impossible.

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