What Does a Dying U.S. Auto Industry Mean for the Rest of America?

In the 1980s Chevrolet proclaimed itself the “Heartbeat of America.” Today, many would say that the American auto industry barely has a pulse. Last November, General Motors (owner of the Chevy brand) announced that it was cutting 25,000 jobs and closing up to 12 factories by 2008. The news came one month after auto-parts giant Delphi declared bankruptcy, threatening to shutter at least a dozen plants and cut 24,000 jobs within three years. Ford completed the grim hat trick in January, revealing a plan to cut 30,000 jobs by 2012. Just months before, GM and Ford had convinced Solidarity House, headquarters of the once-mighty United Auto Workers (UAW), to make $1 billion in concessions to help pay for retired auto workers’ health benefits. Detroit is abuzz over the additional give-backs the Big Three auto makers (GM, Ford, and DaimlerChrysler) are likely to wrest from the union in next year’s contract talks. The industry’s problems seem almost insurmountable. Collectively, U.S. car makers are billions of dollars in the red and foreign competitors continue to gobble up market share. America’s auto giants boost their bottom line only by selling gas-guzzling trucks and SUVs, and cars would be moving off the lots even more slowly were it not for thousands of dollars in incentives that sweeten each sale. It’s no surprise that analysts from the Motor City to Wall Street are convinced that this is the end of an era. The auto industry helped create a middle-class life for millions of working-class people. Is Detroit about to call an end to the American dream?

WHAT’S GOOD FOR GM—At the end of World War II America’s auto manufacturers were the undisputed titans of industry. Although UAW president Walter Reuther began his tenure with visions of government-provided pensions and health care for all Americans, that drive was blunted when the union achieved at the bargaining table a private welfare state for its members. Besides private insurance and 30-years-and-out retirement, they also won “supplemental unemployment benefits” to cushion the blow when the cyclical nature of the industry caused layoffs; annual cost-of-living increases; and, over the decades, tuition and legal services. Health care was top of the line. Unions in steel and rubber followed suit with similar contracts, and, to a lesser extent, other blue-collar workers such as miners, telephone workers, truckers, and electrical workers all attempted to follow the UAW’s lead. The pattern of steady wage increases together with health and retirement benefits set a high standard for all the nation’s employers, union and non-union alike. The ratcheting productivity that allowed for these benefits was good for the bottom line, but it meant that the factories continued to be, in Reuther’s words, “gold-plated sweatshops.” The work remained an inhuman way to make a living. The common pattern was for workers to sign on, thinking to stay just a few years, but to be seduced by the benefits—and say to themselves, “It’s only 30 years.” Removed as they were from the daily grind of factory life, however, UAW officials became far more attuned to the gold-plating in the shops than to the sweat. They sought gains they could measure in dollars, and Reuther’s belief in the benefits of technology and productivity kept him from protesting either automation or speedup. Officials repudiated the tactics that had given birth to the union in the 1930s and came to see themselves as partners with management, truly convinced that “what’s good for GM is good for America”—and for UAW members.
This outlook ensured that a host of management initiatives—and stupidities—went unchallenged. Early on, the UAW abandoned Reuther’s fight for low car prices; later, it joined manufacturers in lobbying against higher fuel-economy standards. Years of collaboration and quiescence left the union ill prepared for the crisis that shook the auto industry in 1979. The UAW once again blazed a trail the rest of the labor movement would followonly this time it was the path of concessions and explicit labor-management cooperation.

THE CHRYSLER EFFECT—Through postwar recessions and expansions, it had not occurred to American employers that signed contracts could be breached. But when Chrysler Corporation threatened bankruptcy in the fall of 1979, the UAW stepped up to the plate, and workers and retirees took concessions, breaking a once-sacrosanct pattern. More cuts soon followed; by January 1981, Chrysler workers were collectively $1 billion behind. The next year, with the economy, and the industry, in full-blown recession, the union opened pacts at Ford and GM to make cuts there. Describing the new bargaining climate, a steel industry official told the Wall Street Journal, “The whole posture of negotiating is changed. Basically we’re asking for something that we’re not entitled to.” A staffer for the United Food and Commercial Workers noted, “After Chrysler, everything changed.” Employers from meatpacking to airlines to education demanded and got wage cuts. As important as the monetary concessions was an explicit change in union philosophy: acceptance of the notion that it is the union’s job to make the employer more “competitive.” Workers were to contribute ideas for boosting productivity, including speedups and job cuts. This “team concept” quickly spread beyond the auto industry. By 1988, AT&T, General Electric, Procter and Gamble, Xerox, Honeywell, and United Technologies were all using teams. By 1990, 85 percent of Fortune 1,000 firms reported using at least one employee-involvement practice. In essence, the UAW’s deal with the auto makers was: do whatever you need to do to boost profits, as long as you maintain the wages and benefits of (a shrinking number of) workers at the Big Three. That “whatever” included lean production; outsourcing to nonunion parts plants; the sale of GM’s and Ford’s parts divisions in 1999 and 2000, respectively (lopping off a total of 52,000 workers); and, today, worker buyouts. There were 466,000 hourly workers at GM in 1978, and in 2006 there are 112,000.

BUOYED BY THE BUBBLE—In the 1990s, after a decade-long downturn, Detroit discovered a gold mine: the Sport Utility Vehicle (SUV). Foreign rivals lagged behind in making them, and Detroit’s market share never dipped below 75 percent. Concerns over the SUV’s fuel efficiency were minimal, with gas prices averaging a dollar a gallon. Bolstered by strong sales in this niche, Detroit’s auto giants, their stock prices climbing, hoped to reclaim the global dominance that had seemed to slip through their fingers a decade earlier. The Big Three engineered some high-profile mergers and strategic investments, acquiring the Saab, Fiat, Suzuki, Daewoo, Jaguar, Volvo, and Land Rover brands. Investments, of course, can flow in both directions, and in 1998 Chrysler was acquired by Daimler-Benz. GM and Ford also paid less and less attention to producing cars, focusing instead on their financial services arms, which by 2000 accounted for a third of their net revenues. For U.S. auto workers, the 1990s were more mixed. On the one hand, after a decade of concessions and plant closings, workers were relieved to see the return of steady wage increases. On the other hand, most of the new investment was from foreign companies—Toyota, BMW, Mercedes, Nissan, Honda—which sprinkled factories on the edges of the Midwest auto corridor and then across the right-to-work South. These “transplants” kept their factories non-union, as did the auto parts industry that mushroomed in the 1990s. Union density in the auto plants, which in the dog days of the 1980s declined from 62 percent to 50, fell even faster in the prosperous 1990s, dropping to 37 percent by the year 2000. The UAW proved unwilling or unable to organize the new factories. Instead the union concentrated on the state of its existing members, securing promises of new investment and job security from the Big Three. For example, a 54-day strike at two strategic GM parts plants in 1998 idled most of General Motors’ North American operations, and resulted in $200 million in new investment in the two plants. Unfortunately for the UAW, its fight to protect its shrinking store of good jobs ran headlong into a much bigger trend. The 1990s witnessed an explosion in income inequality. The longest economic expansion since World War II did surprisingly little for those on the lower rungs of the income ladder, in part because of the declining share of the workforce represented by unions. Adding to the insecurity were large-scale retrenchments by bulwarks of corporate America, including Xerox, IBM, and AT&T. While these layoffs initially grabbed headlines because white-collar professionals were getting pink slips, the nation became inured to the sight of profitable corporations kicking tens of thousands of workers to the curb. The 1990s also saw the move from employer-funded pension plans to worker-funded 401(k)-style plans. This seemed of little consequence when the stock market was posting yearly double-digit gains. But when the turn-of-the-century recession hit, baby boomers saw their retirement accounts vaporize. UAW members at the Big Three were some of the few to retain their original pensions.

These trends collided with a deflating stock market in 2000 to create a squeeze play for the industry. Rising gas prices turned consumers off the SUVs and minivans that had saved Detroit’s bacon. In just the last five years the Big Three’s market share has fallen from 66 percent to 58 percent. At the same time that the domestic picture soured, many of the Big Three’s global acquisitions started to go bad. GM, for example, paid $2.4 billion to acquire a 20 percent stake in Fiat in 2000, then ponied up another $2 billion to get itself out of the deal five years later. Ford has injected more than $5 billion into Jaguar, which to this day remains in the red. Meanwhile, the merged DaimlerChrysler is worth less today than Daimler was on its own before the two united. Hemorrhaging money and with no end in sight, last year the automakers took desperate measures. Delphi declared bankruptcy. GM and Ford put thousands of jobs on the chopping block. And Detroit has redirected decades of consumer frustration with U.S. automakers for their lackluster designs and poor quality into widespread resentment of rank-and-file auto workers for their company-paid health care and pensions. The automakers have tapped into middle America’s insecurity with a not-so-subtle message: “If you don’t have a pension or job security, why should they?”

NO FUTURE?—The scale and speed of these changes have left the UAW flat-footed, struggling to get a hearing—much less formulate a strategy—in its fight to save some of the last good manufacturing jobs in America. Cynics might ask: Who cares? After all, the UAW represents fewer than 400,000 auto workers in an industry of more than a million, and the concessions the companies are clamoring for will simply bring their wages and benefits closer to what the market will bear for less-skilled workers. Besides, manufacturing is so 20th century. Aren’t we a post-industrial economy with a future in services and high-tech jobs? This mindset misses what’s important about the crisis in auto. Downsizing isn’t accountants shuffling numbers around on a spreadsheet; the lost jobs hit real people who are concentrated in specific communities. Cuts of this magnitude will reverberate throughout the Midwest, leaving a lasting economic and social hangover. And they will not be confined to auto, as other companies follow the Big Three’s lead. High-tech companies can’t fill the void. Google, for example, has just announced plans to open up shop in Michigan. But Google employs fewer than 6,000 people worldwide, a drop in the bucket compared with the 70,000 jobs this round of auto restructuring will destroy. How can the industry right itself without devastating workers and communities? Execs have shown themselves curiously unwilling to campaign for one measure that would save them billions per year: single-payer health insurance. GM is the largest private purchaser of healthcare in the country, providing coverage to 1.1 million people. Last year the price tag was $5.3 billion, which, as CEO Rick Wagoner is fond of pointing out, is more than GM pays for steel. The Big Three say that such “legacy costs,” which also include pensions, are choking their business, obscuring the fact that all three automakers have pension and retiree health funds flush with cash—healthy for the foreseeable future. If health care is such a heavy burden, why not join the movement for a national health care plan? Canada’s single-payer system makes it much less expensive to do business there and has spared most Ford and GM plants north of the border from the ax. But despite GM’s promise to the UAW to pursue “universal coverage” in exchange for the union’s $1 billion in concessions on retiree health care, Wagoner didn’t even mention national health care in his testimony in June before a congressional panel on the health-care crisis. Either free-market ideology is trumping good business sense, or else paying for benefits isn’t such a burden after all. When Henry Ford introduced the five-dollar day in 1914, he famously quipped that he wanted to pay his workers enough so that they could afford to buy his cars. Today, a new-hire at parts-makers Delphi or Visteon makes $14.50 an hour. In 2007, when new contracts are negotiated, the Big Three’s new-hires are sure to take a hit. What will America look like if most workers earn Wal-Mart, instead of GM, wages? For those without a four-year college degree—about 70 percent of the labor force—average wages have stagnated or fallen for the last 30 years, hovering under $15 today. Manufacturing jobs paid wages no better than the economy-wide average when Henry Ford was perfecting the assembly line. But by the end of the twentieth century they were about 25 percent above average, in no small part due to unions like the UAW. To solve the industry’s problems, many analysts have urged Detroit executives to go back to the drawing board and start afresh. They point to decades of bad decisions and wrong turns, and are convinced that the auto giants will remain beached whales on the shores of the twenty-first century economy if they can’t reinvent themselves. This advice is as relevant for the UAW, although the union’s challenges are even greater: creating more good jobs and affordable health care for everyone. The UAW was born in the crucible of Depression-era social upheaval, and its leaders originally saw the union as just one piece of a large-scale movement to solve the problems of the time. Inspired by those challenges, the UAW helped forge the political climate necessary for bold social policy to take root. Today the need is just as great. Now more than ever the UAW needs the audacity and inspiration of its founders to help the country, and its remaining auto workers, form a more perfect union.