UAW in tough spot as automakers seek concessions

The General Motors and Chrysler bailout announced Dec. 19 will keep the two automakers in business at least until spring.
This is a great gift of time for the new presidential administration.

Many argue that closure of GM and Chrysler will cost lots of U.S. jobs—but bankruptcy does not mean closure. Indeed, the
for bankruptcy laws is to allow companies to operate while they fix problems that made them unprofitable in the first place.

Some also argue that bankruptcy will cause buyers to shun GM and Chrysler because of fears of a valueless warranty. This is
silly. Once the bailout talks began, only irrational buyers expected the companies to avoid bankruptcy.

Indeed, this bailout won’t fix the problems at GM and Chrysler. I think a bankruptcy of these companies is nearly inevitable.
It might also spell the demise of the UAW. Here’s why:

A rapidly paced set of contract negotiations should now get under way. GM and Chrysler need to emerge from this process looking
a lot like Honda and Toyota. They need to make high-quality, energy-efficient, low-priced cars and be able to pay back significant
debt. However, there are now five groups of folks involved in the negotiations: taxpayers, stockholders, dealers, workers
and the UAW.

It is unclear who will represent the taxpayers (I vote for Dick Cheney). Shareholders, who own the company, should be represented
by the board of directors, though it is difficult to see how the board has been effectively representing shareholders up until
now. Dealers are simply in a bad spot. At least the negotiating goals for all these groups are obvious.

Workers and the UAW also are involved in the negotiations. The problem is that the goals of the workers and the goals of the
UAW differ significantly, and labor costs are at the heart of the problem.

I assume that workers at GM and Chrysler want to keep their jobs. Any negotiation that places their best interests at heart
will keep them working. While there will be concessions on fringe benefits and working conditions, the folks at the factory
could emerge from this with only modest changes.

The problem is that, in order to stay relevant, the UAW cannot allow this. To become competitive, both GM and Chrysler have
to get rid of job banks, transfer a greater share of health care and pension costs to workers, and have more flexibility in
their labor contracts.

In short, they have to craft a company that is as competitive as the foreign imports. The real question is this: Once UAW
workers have contracts that are the same as their non-unionized neighbors, will their workers still want to pay union dues?


Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached

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