The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

United States:
The Best Auto Contract in 20 Years
– But the Bosses Got Better

Oct 17, 1999

Commenting, "It's our turn now that things are good," UAW President Steve Yokich presented the UAW's contract with DaimlerChrysler (DCX), the first of the contracts the UAW negotiated with the Big 3 auto companies this fall. The GM and Ford contracts followed the DCX contract in most details, but added provisions for workers at Delphi and Visteon, the respective parts plants subsidiaries, which GM and Ford are in the process of "spinning off."

By all media accounts, it was a big contract, "the best in 20 years," according to a former UAW president, Doug Fraser. Innumerable commentators repeated the idea that this contract had restored all the "concessions" which the UAW had given up starting 20 years ago during the recession of the early 1980s.

The DCX, GM and Ford Councils approved the proposed contract: unanimously in the case of DCX, practically unanimously in the case of GM and Ford. There seemed to be no opposition in any part of the UAW leadership to the provisions contained in these contracts, nor to the fact that they are to run for four years instead of the traditional three.

Contract Provisions

There were three aspects of the new contracts to which the union drew special attention: restoration of the annual wage increases and improvements in pensions; "improved job security"; and special provisions sparked by GM's "spin-off" of Delphi and Ford's intention to do the same with Visteon.

For the first time in 20 years, contracts at all three companies contain a three-per-cent wage increase in each year of the contract. Although the new cost-of-living formula (COLA) still doesn't keep up with inflation, the three-per-cent increases plus COLA mean that auto workers will stay ahead of inflation over the four years of the contract. Pensions are increased by a formula which puts them almost a percentage point ahead of the current and the expected rate of inflation over the next four years. And workers also receive a signing bonus of $1350, although this is down from the $2000 payment in the previous contract.

The "job security" formulas in the old contracts are revised to require the companies to replace at least part of the jobs lost by attrition for all reasons other than decreases in sales. Previously, they had been required to recall or hire workers to compensate for part of the jobs lost by attrition only to outsourcing.

As for the "new" companies: Delphi, existing since May when GM issued stock in the new company to GM's current stockholders, was already "spun-off"; Visteon is still in the process of being "spun-off." The current rumors have it being taken over by Lear Corporation, in which Ford has a 10% stake. There has been some talk, however, that Delphi would like to buy Visteon.

The Delphi workers are given the right to retire with a GM pension if they do so by this coming January 1. They are also given the right to put in an immediate application to transfer back to a GM plant when openings arise. They continue for the next four years under the same contract as covers the rest of GM. And their pensions and unemployment benefits are guaranteed by GM for some years beyond in the event that Delphi would go under.

By contrast, the current Visteon workers have no exceptional transfer rights. But they are to be considered in all respects like Ford workers, supposedly for life. If laid off, they can go into the same pool as Ford workers, to be sent to a Ford plant or a Visteon plant, depending on what opens up. Newly hired Visteon workers are to be considered like Ford workers for the life of this contract and the two following contracts.

One UAW spokesperson explained: "We went into negotiations like a divorce lawyer. We didn't expect to stop GM from divorcing Delphi, [or Ford, Visteon] but only to get a good divorce settlement for the workers. We think we got it."

"The Best Contract in 20 Years"

When Fraser says this is the best contract in 20 years, he should know. After all, he presided over the first rounds of concessions that the UAW gave starting in 1979, leading to two decades of contracts where auto workers and after them, the rest of the working class fell further and further behind.

But the 1999 contracts are not, what Fraser and the media would have us believe, contracts which restore what auto workers gave up starting 20 years ago. As a simple example, take the annual wage increase. Auto workers would need an increase of about 38% this year just to bring their wage rate up to what it would have been today if the annual wage increases in the 1976 contracts had continued uninterrupted up until today. This doesn't take into account what was lost in COLA increases, which would have raised the base rate even more. But the exact amount isn't what counts anyway. It's simply an illustration of the fact that what the workers once had hasn't been restored.

For more than 30 years, from 1948 up until 1979, auto workers got an automatic three percent wage increase every year, called the Annual Improvement Factor, which was supposed to reward them for increases in productivity; in addition they had a COLA formula which was supposed to make up for inflation. Plus, there was usually some new wage money at the beginning of each new contract. Even though the annual productivity increases didn't fully keep up with increases in productivity, nor did the COLA fully keep up with inflation, these increases were automatically built into the contracts, expected in good years AND bad.

The sacrifices began in 1979, when the UAW agreed to postpone one of the annual productivity increases at Chrysler. Subsequently, Chrysler demanded the union renegotiate the contract, giving the workers no productivity wage increases at all for three years. Ford and GM then followed. When the union agreed to that demand, the idea that the increases were automatic fell by the wayside. In eleven of the last 20 years, there were no wage increases, only bonuses or even no new money at all. The COLA formula was left to fall further behind inflation, not to mention the fact that a significant part of the COLA increases were "diverted" to subsidize some benefits which supposedly were fully paid by the company.

Even if the current contracts promise to keep auto workers a little ahead of where they are right now, it does not make up for what was given up during these last 20 years when the auto companies were pushing productivity to the limit. It's significant that the wage increases were not presented as a restoration of the "automatic" increase, but only as four annual wage increases in this particular contract, conditioned on the fact that times are good now. This is not a restoration of what was lost.

Nor does this contract, as advertised, stop the hemorrhaging of jobs any more than have previous contracts, which also were sold with promises of "improved job security."

The last contract was trumpeted, when it was presented, as a commitment to keep UAW job levels at 95% of what they were in 1996. Nonetheless, overall UAW employment at the Big 3 as been cut to less than 90% of what it was in 1996 despite sales which stayed the same in 1997, went up somewhat in 1998, and went up by 2 million vehicles in 99.

In recent years, GM has instituted the most severe cuts. The number of UAW-covered jobs dropped from over 290,000 at GM in 1993 to a total of 188,000 jobs today at GM and Delphi taken together. Of course, if GM is leading the pack today, this only means that Chrysler and Ford had long ago beaten GM to the punch. Chrysler certainly beat both GM and Ford in "spinning off" parts plants. In the 1980s, it set up a separate parts division, under the name of Acustar, and let it be known it intended to sell Acustar. Formally, Chrysler agreed not to spin off its Acustar parts unit when the UAW protested. It simply sold off or closed most of its parts plants, one by one, then buried the Acustar name. The eventual result was the same as a "spin-off": today Chrysler makes less than 30% of its parts "in-house," compared to less than 50% at Ford, and nearly 70% at GM/Delphi.

Can we expect that these new job guarantees will slow down the loss of jobs? The Wall Street Journal certainly doesn't think so. It noted that "observers said the union in the past has been flexible in its interpretation of this kind of contract language." To back this opinion up, the Journal quoted David Cole, a University of Michigan auto specialist: "Just because it's in a contract doesn't mean it's going to happen. The union can be very expedient in dealing with certain issues."

This contract itself, just as earlier ones, is VERY expedient. The GM "Contract Highlights" may broadly proclaim: "The new job security program requires that new workers be hired when employment declines to unacceptably low levels and the available pool of laid-off workers has been exhausted." But what is an "unacceptably low level of employment"? According to the formula worked out in the contract, it turns out to be ... 76% of current job levels by the end of this four year contract not counting job cuts caused by decreases in demand.

The auto companies would be hard pressed to take full advantage of this formula, but if they did, they would be cutting jobs at a faster pace than what they have done over the last 20 years. And they've cut at a very fast pace in that time. Almost 360,000 jobs have been cut since 1979, when there were over 725,000 workers at the Big 3 and AMC, which Chrysler subsequently took over. The 725,000 figure doesn't even count all those tens of thousands who were already on layoff in 1979.

The Divorce Settlement: Money Doesn't Keep the Family from Fragmenting

Finally, Delphi and Visteon. It's certainly true that these new contracts mean that at least some of these workers will be able to get back to GM or to be governed by wage rates at Ford and to keep the pensions they would have had. Whether all the 42,000 Delphi workers who want to transfer will be able to do it is another question. We've already seen similar arrangements which worked less well in reality than on paper. Less than three thousand of the 7,400 workers at GM's Gear and Axle have been able to transfer back to GM, after GM spun Gear & Axle off as American Axle in 1994, making similar commitments to the workers. As for Ford's commitment that current Visteon workers will remain Ford workers for life, the meaning of that is far from clear. It is clear that the guarantees of similar treatment for Delphi's new hires are scheduled to expire after three contracts.

Whatever happens to current Delphi and Visteon workers, there will be further fragmentation of the workforce: these contracts recognize it. At Delphi some workers will be looking to go back to GM, some won't be able. At Visteon some will be covered as Ford workers, while working for Visteon, others eventually will come in as Visteon workers under different provisions.

One of the strengths of the UAW, which helped it play a leading role in the workers' movement, was the fact that workers were paid practically the same no matter where they worked or how long they had been there. Over the years, the companies have been chipping away at this solid front. The response of the union, trying to protect the immediate financial position of those workers about to be "divorced" from GM and Ford, does not stop the chipping, but simply sets up more divisions in the long run.

In any case, there seems to be no doubt in anyone's mind that the intention of both companies is to severely increase productivity in parts plants, in other words, to cut jobs. As Delphi explained in a prospectus it filed in 1998: "The Company believes that its complete separation from General Motors will enable it, over time, to increase competitiveness by establishing local work rules and practices more consistent with those generally prevailing in the automotive parts industry." On the day the UAW was announcing ratification of its contracts with GM and Delphi, Delphi executives were meeting with Wall Street analysts to discuss the impact of the new contract. Analysts who attended the meeting said that Mark Weber, head of labor relations for Delphi, and Alan Dawes, chief financial officer, insisted that Delphi's contract with the UAW won't hamstring the company's efforts to lower overall costs by 2% per year. One of the analysts, Greg Salchow, subsequently was quoted in the press, "While labor costs are going up, they [Delphi] have enough leeway at the plant level to make productivity improvements. The good news is that they sailed through talks without a hitch."

It also seems clear to everyone, despite assurances to the contrary, that the intention of these spinoffs is ultimately to reduce wages and benefits at Delphi and Visteon below those at the Big 3. Delphi already has lower wages for a good part of the 20,000 workers in plants covered by IUE contracts which contain a hire-in rate of 50% of the base rate, and a phase-in time of ten years to get up to the full rate.

The current UAW contracts may promise that wages, benefits and pensions at Delphi and Visteon will be governed by the GM and Ford contracts. But the Big 3 contracts already allow UAW locals to petition for authorization to lower wages and/or reduce conditions at their plants if a company insists that this is the only way it can invest enough to keep a plant operating. Quite obviously, companies are ready to insist. Ford currently has a permanent two-tier pay system at the joint venture transmission plant it runs in Batavia, Ohio, with ZF Friedrichshafen. DaimlerChrysler currently has two different glass plants, McGraw Glass and Evarts, both covered by the UAW, with Evarts paying wages significantly less than does McGraw. And the International has authorized relaxed work rules at a number of locals like those at Ford's Chicago and Atlanta Taurus Assembly plants. Even as this contract was being negotiated, similar arrangements were being discussed at a GM Lansing plant.

Even if these contracts contain no exceptions to the promise of comparable wages at Delphi and Visteon, we know what promises in a contract are worth. The UAW already demonstrated in 1979, 80, 81 and 82, that it is ready to tear up a contract when the auto companies produce balance sheets written in red ink.

For 20 Years, Everyone BUT the Workers Was Taking a Turn

The biggest concession the auto workers gave was to accept that the enormous productivity increases the auto industry enjoyed were translated into job cuts. That concession continues unabated today.

The degree to which the workers failed to benefit from productivity increases is shown graphically by what has happened to the different "contenders" in the auto industry during this past period.

As for the auto companies themselves, their profits have skyrocketed, as have those of most other major corporations in the country. Over the whole last 20 years, the Big 3, taken together, suffered losses only 5 times, and these paltry losses were insignificant compared to the profits the companies have accumulated in the other years. Over the three years of the last contract alone, GM, Ford and Chrysler rolled up at least 42 billion dollars in after-tax profits. The auto industry as a whole, counting all the parts manufacturers which supply the Big 3, raked up 80 billion dollars over the last five years.

The increase in executive pay has outstripped the increase in profits. When Lee Iacocca raked in his first few million dollars as Chrysler's CEO in the mid 1980s, it seemed enormous at the time but was explained away with the claim that while he had pulled Chrysler away from the brink of bankruptcy, he had paid himself only a dollar a year. (His dollar a year may have made a nice story, but that's all it was a story, since he was given big blocks of stock, on which he later made very big bucks.) Nonetheless, Iacocca's few million pales by comparison to what Robert Eaton made helping smooth the way for Daimler to take over Chrysler last year: 67 million dollars. Over the last 20 years, the salaries of top Big 3 executives have gone up 109% AFTER inflation. And that doesn't count their bonuses, stock options, long-term incentive pay, etc., through which they make the vast majority of their income today.

Stockholders have been the beneficiaries not only of solid dividends, but of all sorts of extra gifts handed over to them which increased their worth. Several times, Chrysler bought up stock, paying a premium to the stockholders who cashed in and driving up the price for the stockholders who held on only to follow this maneuver with a "stock-split," starting the process all over again. Last May, GM gave its stockholders a gift of 7/10 of a share of newly issued Delphi stock for each share of GM stock they owned. In addition, GM maintained its standard dividend. Analysts estimated that this translated into a ten percent pay-out to stockholders on their holdings in one quarter alone. Over the last five years, Ford stockholders enjoyed a total return of 129% on their 1993 holdings.

The enormous amount of cash which the Big 3 admit to holding, the salaries and bonuses paid to executives and the money handed over to stockholders all this gives some hint of how much wealth is available. But only a hint. Unless the workers examine the real accounts of the companies, we have no idea how much is really there and how much is available for the workers' needs.

This vast amount of wealth in the hands of the exploiting class was accumulated precisely because the workers did not take "their turn" at the banquet table.

The increases in productivity which were produced by the greater intensity of their labor did not go to shortening their work day in fact, over the last 20 years, the average hours of work in auto, just as in the country as a whole, have gone up. Yokich himself declared at the UAW Bargaining Convention earlier this year that if overtime hours were suppressed in auto, that could open up 86,000 more jobs. But mandatory overtime hours were not suppressed or even reduced, nor were wages raised sufficiently to make overtime seem completely unnecessary to the workers in this latest contract.

Neither did workers' wages keep up with the increasing wealth their labor produced. And nothing in the current contract challenges this. According to the Wall Street Journal, the language in these new contracts "doesn't appear to restrict the automakers' ability to raise productivity beyond the increase in wage costs."

The 3% wage increase pales by comparison to what stockholders are getting right now. Even while the Ford contract was still to be ratified, Ford announced an 8.7% increase in the dividends it pays to stockholders, the eighth such increase since the second quarter of 1994.

The New York Times reported that Ford increased its dividend was responding to stockholder demands that it give up some of the 24 BILLION dollars it currently is holding in cash. What if the workers made similar demands? That 24 billion, produced by the workers' labor, is the equivalent of a $28-an-hour wage increase for Ford and Visteon's 101,500 workers over the course of the next four years. Even just half of it would allow a $14-an-hour increase. After all, the workers are supposed to be part of a partnership, and partners are supposed to share equally, aren't they?

What's wrong with this contract is not that it did not include some significant improvements. What's wrong is that it continues to be based on the premise that the workers cannot demand a full share of the benefit of what they produce; don't even talk about the possibility that the workers might take all the wealth their labor produces. This contract continues to keep the workers from stepping up to the table, ready to sit down with everyone else at the banquet. What's wrong with what union leaders did is not that they did not negotiate better, it's that by everything they said they conveyed the idea that this is the best that workers can expect.

The votes for the first two contracts were marked by two things: a high yes-vote, and a low turn-out. Chrysler workers ratified by 86% of those voting; GM, by 77%. (Ford voting was not yet completed when this was written, but there's nothing that makes it seem the Ford result will be much different.) To the extent that we can gauge anything beyond that, and this is a not very good extent, the workers didn't have a lot of enthusiasm for this contract, but they also saw no other prospects.

It's probably true that this contract is the best that negotiations can accomplish but something else needs to be said. For the workers to gain a full share of what they have produced, they will need to fight for it. And someone needs to hold out that possibility. This, the union leadership did not do.

Today, auto workers are often called "privileged" but all that means is that their wages and benefits are better than those of most other workers. But no section of the working class truly has what it needs to have a decent, relaxed life. Auto workers need wage rates which would allow them not to work overtime; they need a pace of work which makes life on the job not only tolerable, but enjoyable, and they need to increase the number of their jobs, so their children can expect to have as good a life as they had. To get those things, they will have to start from the amount of wealth the auto companies have, not from the idea that other workers have less. They will need to demand to look at the real books of the companies to see how much wealth there really is and how it really is distributed today. They will need to examine the real plans of the companies for increasing productivity, in order to block the plans which require a greater instensity of work, and to take advantage of other productivity increases to lower their own hours of work. If the auto workers do that, they can open up prospects for other workers also.

Of course, no boss willingly tells the workers what his plans are, nor how much wealth he is stealing from their labor. But then, no boss willingly gave the auto workers their union. They got it because they fought for it.