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LABOR RELATIONS IN THE UNIONIZED AUTOMOBILE

ASSEMBLY INDUSTRY IN THE UNITED STATES: 1961-2006

Richard N. Block

School of Labor and Industrial Relations

Michigan State UniversityFor presentation at Una Agenda Legislativa Local para el CSIANN, Toluca, Mexico, 19-21 July 2006

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Three Time Periods

• 1946-79: Market Dominance and Prosperity

• 1980-2004: Response to Market Competition

• 2005-06: Response to Financial Distress

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1946-79• UAW had organized the industry• Major components of labor relations in autos

established – still exist today– Corporate control over business decisions

unrelated to terms and conditions of employment– Negotiated terms and conditions of employment

• Pattern Bargaining over wages and benefits at corporate level

– Minimized variations in labor costs among competitors

– Objective pay standard for union

• Plant/Local Level bargaining

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1946-79 (continued)• Wages through a formula

– Annual Improvement Factor – COLA

• Wage changes highly predictable• Fringe Benefits

– 11.1% of hourly compensation in 1948– 42% of hourly compensation 1982

• Health insurance• Pensions, “30 and Out”

• Business cycle-related downturns addressed through Supplemental Unemployment Benefits

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1946-79 (continued)• An era of economic dominance of the

automobile industry– All competitors organized– Big Three (GM, Ford, Chrysler) profitable– Wages and benefits of UAW-represented

workers growing

• Collective bargaining outcomes reflected this prosperity

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1980-2004

• Era marked by continuing loss of market share of Big Three unionized firms to non-union non-U.S. manufacturers– Currently stands at about 58%

• Employment drop 1978-1980– 1978 – 782,000– 1980 – 575,000

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U.S. Vehicle Sales, June, 2006

SOURCE: Automotive News

Jun-06 Jun-05 Pct. chng. 6 mos. 2006 6 mos. 2005 Pct. chng.BMW* 27,763 27,030 2.7% 157,414 145,029 8.5%DaimlerChrysler** 206,773 238,302 -13.2% 1,244,631 1,286,687 -3.3%Ford Motor Co. *** 267,862 288,356 -7.1% 1,542,823 1,609,059 -4.1%General Motors **** 407,513 550,829 -26.0% 2,036,037 2,320,621 -12.3%American Honda+ 126,449 126,416 0.0% 741,227 692,364 7.1%Hyundai Group++ 71,951 70,146 2.6% 380,613 367,523 3.6%Isuzu 745 1,289 -42.2% 4,718 7,599 -37.9%Mazda 23,727 22,063 7.5% 140,704 134,988 4.2%Mitsubishi 10,004 10,621 -5.8% 58,361 65,753 -11.2%Nissan+++ 75,154 92,781 -19.0% 511,768 542,724 -5.7%Porsche 2,871 2,551 12.5% 18,601 16,126 15.3%Subaru 18,476 17,946 3.0% 96,026 93,303 2.9%Suzuki 9,516 7,449 27.7% 56,959 42,014 35.6%Toyota^ 223,018 194,875 14.4% 1,223,542 1,114,070 9.8%VW^^ 28,430 26,500 7.3% 158,490 136,115 16.4%Other (estimate) 585 592 -1.2% 3,400 3,170 7.3%TOTAL 1,500,837 1,677,746 -10.5% 8,375,314 8,577,145 -2.4%

Big Three Sales 882,148 1,077,487 4,823,491 5,216,367Big Three Share 58.8% 64.2% 57.6% 60.8%Big Three sales change from '05 -18.1% -7.5%

GM and Ford Sales 675,375 839,185 3,578,860 3,929,680GM and Ford Share 45.0% 50.0% 42.7% 45.8%GM and Ford, Pct. Sales Change from '05 -19.5% -8.9%

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1980-2004 (continued)• Shift of UAW bargaining priorities

– From wage increases to employment security• Health Insurance• Pensions

• During the period 1982-99 UAW and “Big Three” consistently negotiated increasing employment protection for workers while moderating wage increases– Complete employment protection

• Employees not working went into a “Jobs Bank” (at GM) and paid from a fund

– Interplant transfer rights– Plant-level work practices

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1980-2004 (continued)• Employment Security Evolution

– 1982 • income protection and limits on plant closings

– 1984• employment security negotiated• GM and Ford monetary contributions to employment security funds

– 1987• guaranteed employment levels and increased monetary contributions

– 1990 – • 36-week limit on time laid off for sales volume• Increased monetary contributions

– 1996 – Chrysler covered– 1999

• adjustments in employment levels• Increased monetary contributions

– 2003• No changes

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1980-2004, Wage Moderation• Negotiated Wage Increases

– 1961–1980 mean annual increase = 7.2%– 1985-2004 mean annual increase = 3.6%– based on UAW data for GM and Ford

• Real Wage Changes – difference between negotiated wage and inflation rate– 1961-1980, mean annual difference = +.018– 1985-2004, mean annual difference = +.0062

• Employment security contributions to fund added about 4.0% - 4.5% to wages– UAW “purchased” an “employment insurance

policy” with about half their pre-1980’s wage increases

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1980-2004, Employment IssueFIGURE 1

Michigan Motor Vehicle Manufacturing Employment, 1990-2005 (in 1000's)

0

20

40

60

80

100

120

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Year

Em

plo

ym

en

t

S

Source: U.S. Bureau of Labor Statistics

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Motor Vehicle and Manufacturing Employment, Michigan and United States,

1980-2004 (in 1000’s)

Year MichiganUnited States

United States

Excluding Michigan

Percentage in

Michigan

1990 98.5 271.4 172.9 36.3%1991 85.1 258.4 173.3 32.9%1992 89.5 259.9 170.4 34.4%1993 84.4 263.7 179.3 32.0%1994 88.2 281.5 193.3 31.3%1995 88.0 294.7 206.7 29.9%1996 80.9 285.3 204.4 28.4%1997 84.7 286.8 202.1 29.5%1998 90.4 283.6 193.2 31.9%1999 90.7 291.3 200.6 31.1%2000 94.3 291.4 197.1 32.4%2001 89.0 278.7 189.7 31.9%2002 82.1 265.4 183.3 30.9%2003 75.4 264.6 189.2 28.5%2004 70.8 255.9 185.1 27.7%

Absolute Change, 1990-

2004 -27.7 -15.5 12.2Percentage

Change, 1990-2004 -28.1% -5.7% 7.1% -23.8%

SOURCE: United States Bureau of Labor Statistics

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2005-2006• Bargaining in Financial Distress

– Losses for U.S. companies in 2005• GM - US$10 billion• Ford – US$1.6 billion in North America• Delphi bankruptcy (employees may return to GM)

– Health Care – “Legacy Costs”• Active Employees at GM and Ford

– Foregoing wage increases

• Retirees– Increase cost sharing for retirees with higher pensions

• No legacy costs at nonunion firms

– Early Retirement at GM• Early retirement incentives of US$35,000 – US$140,000

– Accepted by 35,000 GM workers– Younger workers must sever relationship with GM

• No such agreement at Ford

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North American Free Trade Agreement (NAFTA)

• No evidence that problems of U.S.-based automakers are substantially due to NAFTA

• Employment security provisions have likely encouraged GM and Ford to invest in U.S. while creating wage moderation

• Non-U.S.-based manufacturers continuing to invest in U.S., but not in (unionized) Michigan

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Conclusions• Labor relations strategies and outcomes in

unionized sector of U.S. automotive assembly industry have changed as economic circumstances of product market and firms and representation needs of members have changed

• Flexible response of labor relations system• No reason to think that UAW and bargaining will

be an impediment to recovery of U.S. firms if companies appropriately involve UAW

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Lessons for Automotive Unions in Mexico

• Company wants right to make business decisions, but does not mean they will make good decisions– Union affected by those decisions– Wisdom of UAW leaving these decisions to company?

• Legal issues in U.S.

• Be aggressive in influencing government policy– Health care– Industrial policy

• Consider a European-style social partnership model