Companies & Industries

The UAW’s Bargaining Dilemma: Wages or Jobs?


Preston Bunce, an assembly-line worker at a GM (GM) sport-utility vehicle plant in Lansing, Mich., is at the center of the upcoming contract talks between the United Auto Workers and U.S. automakers. The 29-year-old father of two started in 2008 at $14 an hour and today makes less than $16, a wage that he says is too low to buy a home or purchase the SUV he builds, a Chevrolet Traverse that sells for more than $30,000. His mother, who like Bunce’s grandparents is a GM lifer, makes double his wage for similar work at a GM plant across town. “It is tough to make ends meet,” says Bunce, who also works part-time installing windows and siding when he can find extra work.

As the UAW bargains for a new labor deal with GM, Ford Motor (F), and Chrysler Group, a key question is how much of a raise the union will demand for workers such as Bunce. UAW President Bob King has a tough choice: He can push for higher wages to secure new workers a better standard of living—as the union has for decades while watching its membership shrink by almost 80 percent since 1979, to barely 360,000 members—or he can keep pay low and use the cheap wages as a carrot to get carmakers to increase the number of unionized U.S. jobs.

King says that raising the second-tier wage is his top priority in this year’s negotiations, now under way with the Big Three. That runs head-on against automakers who are negotiating buyouts for tenured workers making $28 to $33 an hour with an eye toward replacing them with cheaper new hires to compete with more-nimble foreign rivals, say two people familiar with the matter who were not authorized to comment. With GM, Ford, and Chrysler all logging profits, the union argues they should pay even new workers enough for a middle-class lifestyle. “There will be tough bargaining on this issue,” says Harley Shaiken, a labor professor at the University of California at Berkeley. “The debate is: Can we have a highly competitive auto industry and middle-class wages?”

Including benefits, senior UAW workers cost GM $52 an hour and $58 an hour at Ford, says Kristin Dziczek, director of the labor and industry group at the Center for Automotive Research (CAR) in Ann Arbor, Mich. New hires cost $30 to $33 an hour. Despite lower pay, workers line up for the $14-an-hour jobs. Ford, for instance, had 17,000 applicants for 600 entry-wage jobs at its SUV plant in Louisville last month.

The UAW agreed to a $14 wage for new workers (it hits $16 after three years) in 2007, when U.S. car companies were losing money and the union was trying to keep assembly jobs in the U.S. It was a profound shift, since the union had traditionally sacrificed jobs to preserve wages of its members on the factory floor, says Diane Swonk, chief economist at Mesirow Financial. But as the industry slid into crisis, it became clear the union had to give in on wages just to get new people hired. “The idea of having middle- to upper-middle-class wages in manufacturing has been over for a long time,” she says. “The automakers are not going to be paying what they once did.” All three car companies declined comment.

For workers supporting a family of six, the starting wage at GM assembly plants is at the federal poverty level. Bunce started at $14.12 an hour, or about $29,370 a year. A married couple with four children living on $29,990 is considered to be living in poverty, according to the Health and Human Services Dept. A family of six living on $28,665 could qualify for the federal food stamps program.

UAW workers in Big Three car plants last made a wage this low in 1985, according to CAR. Back then, a gallon of gas cost $1.17 and a six-pack of beer was $3.16. A Chevy Celebrity family sedan sold for $8,702, according to industry publication Ward’s Automotive Reports. Today, the Malibu family car starts at $22,735. To get to equivalent inflation-adjusted wages, you would have to go back to 1950, when union workers made $1.58 an hour, says Dziczek. Since 1960, union auto workers have received average raises of 5.2 percent a year, providing a solid middle-class lifestyle. In 1915, Henry Ford doubled assembly wages to $5 a day, or 63¢ an hour, says Berkeley’s Shaiken. That’s about $14 an hour in today’s wages, so the two-tiered wage has reversed much of those gains, he says. “This wage is near federal assistance levels. That’s not the role the auto industry has traditionally played.”

The lower wages have helped the union secure jobs, however. About 40 percent of the 1,550 UAW workers at GM’s assembly plant in Lake Orion, Mich., are paid $14 an hour. Accepting the lower wage was key to securing production in the U.S. of the Chevy Sonic, a subcompact engineered in Korea. Small cars have thin profit margins and are often made in low-wage countries.

“I’ve got to have a very competitive and unique labor deal in the Lake Orion plant,” GM Vice-Chairman Stephen J. Girsky told analysts on Sept. 7. “We are the only ones building a small car in the U.S.” Even with the lower wage-contract, profits on the $14,495 Sonic will be low.

Currently, fewer than 3 percent of GM’s workers make the entry-level wage. Chrysler has hired as many as 14 percent of its workers under those terms, and Ford has fewer than 100 second-tier workers. That could change depending on the new contract.

For senior workers, King is seeking better benefits and has said he is open to compensation tweaks that won’t raise automakers’ fixed costs, which may include a mix of profit sharing and bonuses based on achieving productivity and quality goals. “We are going to make sure the companies are competitive coming out of these agreements,” he said in August at the Detroit Economic Club. Yet he also contends that workers must be rewarded for the $7,000 to $30,000 in concessions they each gave since 2005 to help the U.S. automakers survive. Finding a middle ground won’t be easy.

The bottom line: The UAW, whose membership has fallen 80 percent since 1979, may try in contract talks to raise the industry’s $14 hourly starting wage.

David_welch
Welch is a reporter for Bloomberg News and Bloomberg Businessweek in Detroit.

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