Auto Negotiations 2007:
Lies, Scare Tactics & Extortion

Jul 31, 2007

“Nothing less than the future of the U.S. auto industry is at stake in this year’s negotiations”—so wrote the Detroit News, as contract talks began between the Big 3 auto companies and the UAW, the auto workers’ union. The Wall Street Journal sounded almost as catastrophic: “Sickly GM, a sickly Chrysler about to welcome new proprietors, and a very sickly Ford find themselves facing a two-front struggle.”

Detroit area newspapers splashed ominous graphics across their pages, smacking their readers in the face with the supposed decline of U.S. auto companies: profits heading downhill; the Japanese auto companies gaining an ever bigger share of sales even within the U.S.; the vast spread between the money GM, Ford and Chrysler lost on each vehicle, compared to the profit the so-called “transplants,” Toyota, Honda and Nissan, made in their U.S. factories. And David Cole, quoted incessantly as the “expert” on the auto industry, declared that U.S. auto companies, once a financial “Rock of Gibraltar,” had “turned into a sandbar.”

According to the Big 3, their big problem is labor cost, which they claim is much higher than what the Japanese “transplants” pay. The Detroit News reported: “U.S. automakers are telegraphing demands for massive givebacks to reduce their hourly labor costs by 30%.” Similar dire warnings appeared regularly all summer long in the business pages of every major newspaper in the country.

It’s a scare campaign, aimed at convincing Ford, GM and Chrysler workers they will have no choice but to give up big concessions this year. And it’s based on a pack of lies.

Labor Costs: Figures Lie and Liars Sure Love Figures

The three U.S. companies say their labor costs run, on average, $73 an hour, compared to $48 an hour for the Japanese “transplants.”

$73 an hour—it took “creative” book-keeping to produce that number! To all the usual wage, benefit and statutory costs for today’s workers, the Big 3 added the costs for what they pay to yesterday’s workers, those who are retired. And, since the “transplants,” who started production in this country only a few decades ago, have few retirees, the Big 3 claim their own labor costs aren’t “competitive.”

What a scam! Ever since the 1950 contract, workers agreed to let the auto companies “defer” some of their wages to cover “lifetime” pensions, health care and other benefits when the workers finally retired. The money to cover benefits for today’s retirees isn’t part of today’s wage bill, it was part of yesterday’s wage bill, supposedly set aside year after year for the day when yesterday’s workers retired.

These companies say there’s not enough money to fund retiree benefits today—did they “borrow” it and forget to put it back?

A study of retirement costs reported on by the Wall Street Journal last year (June 26) concluded: “limited disclosure makes it difficult or impossible to evaluate company statements about their retirement burdens and the need to cut benefits.” Exactly, and the Big 3 make full use of that impossibility to throw around numbers that no one can check.

Obscuring what they pay, the Big 3 try to razzle-dazzle with big numbers, claiming, for example, their health care costs today amount to 118 billion dollars. Actually, this is only an estimate of all the money they expect to pay out on total health care benefits, someday, far off in the distant future. In 2006, they paid out just ten billion dollars—this is what they told the press, anyway. And this includes not only what they paid out for union active workers and retirees and salaried active workers and retirees, it also includes medical care and other costs for executives, management and other useless types.

Not only do the Big 3 distort and exaggerate when they talk about health care, they also conveniently forget some things. Every year, for example, the companies get money from the government to help them pay for health care, in the form of a tax deduction. They don’t mention it. Every year, they get money that earlier contract concessions “diverted” from workers’ cost-of-living increases and from the originally scheduled—then cancelled—2006 wage increase. That amounts to at least $2.35 an hour—more for skilled workers—or almost $4900 a year, not counting overtime. That’s every year, from every worker. In one year, counting overtime, this would total around a billion dollars. It was supposed to help pay for health care. Where did it go?

In 2005, GM threatened to take at least six billion dollars from the retirees’ health care fund to use on other things if the UAW did not re-open the contract. The UAW did re-open, but in 2006, GM took out 5.2 billion dollars anyway. You can check this out on its 10k report, filed with the Securities and Exchange Commission.

Even David Cole, son of a former long-time GM executive and head of an auto industry think tank, told a Detroit Free Press columnist, “In business, lying is one of the things you do all the time.” That’s for damn sure!

But even if Big 3 claims weren’t such a gross lie, even if labor costs at the Big 3 were higher than at the transplants, so what? The workers have no reason to compete in a race to the bottom. As GM and Chrysler workers themselves once demonstrated in 1937 to establish a union, their determined fight encouraged Ford workers to join the fight over the next few years, and to push Ford Motor Company to give the same higher wages and benefits. And the fights of auto workers once set off wider struggles that pulled up wages and benefits of many other parts of the working class. And not just in the 1930s, but in the ’40s, ’50s, ’60s and ’70s.

In fact, the transplants today match current Big 3 wages and benefits because they know they would face problems with their work force if they didn’t. By the way, in 2006, Toyota workers actually made more than did workers at any of the Detroit companies, according to a Detroit Free Press analysis published on July 24, 2007.

Where Did the Other 91.6% Go?

Even using the auto companies’ exaggerated claims of $73 an hour labor cost, the UAW’s Research Department was able to show that labor costs, both direct and indirect, amount to only 8.4% of the average price the Big 3 got for its vehicles in 2006. Think of that—less than 9%.

It’s too bad union leaders don’t publicize this 8.4% figure in the plants to counteract the constant company propaganda about high labor cost. Workers might demand to know, where did the other 91.6% go? Well, a lot of it ended up in the pockets of the wealthy, in the form of payments to executives, payments to stock holders, payments to the big investment banks. Yes, of course, company books show the billions paid out for materials, for plant, for equipment, etc. But we shouldn’t forget that those billions also include profits, outrageous executive salaries and bonuses, dividends and stock awards for the wealthy owners of the supplier companies.

The news media stress Big 3 losses in 2005 and 2006. But just look at the 12 years before their losses, running all the way back to 1993. The three companies, with only three losing years among them, rolled up a whopping 133 billion dollars in profit, not including Daimler’s part of DCX profits after the merger. (After the merger, Chrysler didn’t report its results in exactly the same way, so the numbers aren’t exactly comparable—but this is close enough to give an idea of what was happening.)

With a monstrous supply of cash in hand, the Big 3 paid out their usual dividends, year after year. But that was only the beginning. In the two years 1995-96, Chrysler bought back three billion dollars of its stock at an inflated price, thus awarding shareholders, and it increased its dividend four times. Between 1997 and 2000, GM handed out 18 billion dollars in a stock buy-back, driving up the price of remaining shares. And Ford used a complicated buy-back, extra-dividend deal in 2000 to pass out somewhere between 10 and 20 billion dollars, depending on which of Ford’s various press releases one reads. Before that, Ford had raised the dividend rate several times, including an increase in 1999 of the dividend on “class B” shares, owned only by the Ford family.

Labor costs, as a percent of vehicle costs, have actually decreased steadily, while executive compensation has skyrocketed. A production worker’s wage stands at about $27 an hour today—not quite four times what it was in 1980, when wages were a little over $7 an hour. Contrast that to the growth in executive compensation over the same years. In 2006, GM and Ford awarded a total of $78,840,946 to just their top four executives, an amount 28 times more than what their top four executives got in 1980. (We can’t compare Chrysler because, as part of a foreign company, it didn’t have to report on executive compensation.)

Note that this 78.8 million dollars was awarded to executives in 2006, a year the two companies announced stupendous losses. In fact, year in, year out, whether or not profitable, the U.S. auto companies showered wealth on executives, stockholders, bankers, etc. For example, Ford bought back stock in 2001, a year it claimed to lose 5.5 billion dollars. And it awarded stockholders nearly half a billion in dividends in 2006, when they declared a multi-billion dollar loss.

During the years the companies were flush, they bought up other companies—paying in part with their accumulated cash, and in part with new debt they floated, debt whose interest payments are now paid out regularly to the big banks, sliced out of the value workers produce in the plants, year after year. In many cases, the Big 3 resold companies they had bought, often pocketing a gain on the sale, part of which was distributed to stockholders. And each buying and selling of other companies created many millions of dollars in fees and other payments to investment bankers, brokerage houses and lawyers.

Not only did the Big 3 buy up other auto companies—including parts companies even while they were dumping their parts divisions—they bought up finance companies, and dozens of home mortgage companies. In recent years, the finance arms of Ford and GM became involved in the “sub-prime” mortgage market, which has already caused the collapse of some stock brokerage funds. The two auto finance arms have already been forced to “restate” holdings to account for losses in these so-called “derivatives.” Where will they turn to make up for it if their finance arms are pulled down by their gambling in the money markets?

Even in 2007, while they are pretending to be broke, auto companies continue to buy up other companies. Right after Daimler announced it was selling Chrysler, Chrysler reported it was buying a Chinese auto company, Chery. Ford, despite all the talk of its impending bankruptcy, put in the winning bid to purchase the previously state-owned Rumanian auto company. And GM announced it is buying 50% of VMI Motori, an Italian diesel engine manufacturer.

Such facts, inscribed in black and white on the companies’ own reports, show how absurd are their claims to be on the brink of disaster. The auto industry has always been a cyclical industry, very sensitive to slight ups and downs in the economy. But it is an industry that has always been more up than down—making much more in profit in the many good years than it ever lost in the few bad ones. For the Big 3 to pretend today, after 12 excessively profitable years, that they have no money because they had a few quarters of losses, is simply grotesque. If they are really broke, it’s only because they gave away so many hundreds of billions of dollars to the wealthy class that owns and runs these companies, as well as the whole economy. If the Big 3 are in crisis, let them get the money back from the wealthy people who took big chunks of it.

Aiming to Push 8.4% Labor Cost Down to ...

The business press has been filled with calls by various “experts” for a “transformational labor contract” this year. In the words of a labor relations professor at University of Detroit-Mercy, cited by the Detroit Free Press: “This year more than any other in the history of modern unionism, the union has to make drastic and major concessions.”

And while top UAW officials say they won’t negotiate the new contract in the press, that nothing has been decided yet, they have been laying the groundwork in the press to justify big concessions.

Bob King, UAW vice-president for Ford, told Ford workers that their company is in such desperate shape, it could be pushed into bankruptcy within a couple of years. Only three weeks later, Ford announced it had made three-quarters of a billion in profit in the second quarter this year. Was King embarrassed at being caught with his pants down? He hasn’t said.

Other union leaders warn that if the companies can’t resolve their “crisis,” they could move their production overseas. That’s the most absurd idea yet. Why do Japanese auto companies move here? Because the U.S. is the biggest, most profitable market in the world. Unless U.S. companies are suicidal, they aren’t going to move out of it. They are simply trying to scare workers here into producing still more profit than they do now. If the Big 3 companies are producing fewer cars here these days, it’s not because they moved overseas, it’s simply because they made conscious decisions to cut back on producing small cars as well as medium-size cars for fleet sales—because there wasn’t enough profit in them. They preferred to shift more of their capital into big vehicles and financial speculation, both of which turned out to be a bad idea!

UAW President Gettelfinger has regularly pushed the idea that the Big 3 can’t continue to face mounting health care costs, insisting that the problem of health care costs can’t be solved at one company or industry alone, that it’s a social issue, which needs to be taken up politically. That may be true abstractly, but it’s nothing but an excuse to let the companies off the hook—companies who have never used their influence with Washington to make medical coverage a social right for every person. They certainly have used it for other things they want—for example, the enormous tax breaks they get or the de facto license their old factories have been given to pollute.

Union leaders use Cerberus’ purchase of Chrysler to scare workers. They never ask the obvious question: why are these filthy rich Wall Street types so eager to buy up Chrysler—and not only Chrysler, but also several dozen auto parts manufacturers. If auto is in such bad shape, why do they want it?

Some local UAW officials reflect the unease among workers, expressing it, as several did at the bargaining convention, saying that their members were upset and even angry about attacks on retirees and about two-tier wage arrangements. But many, following the top leadership’s direction, seem to be spreading the idea in the plants that there can be no outcome other than some kind of concessions this year, and the workers’ best hope is to trust the top leadership to protect their interests in the negotiations.

UAW Leadership Makes a Down-Payment on the Big 3 Contracts

Best hope? In June and July, this same top UAW leadership negotiated and rammed through new contracts giving up large concessions at auto parts suppliers, Dana and Delphi. It also imposed a mid-contract change at GM’s Flint and Lansing plants. The only interests that were protected in these contracts were those of the companies.

The new contract at Dana not only set up a second, lower-tier wage package for new hires, it also transferred responsibility for future retiree health care over to the union, while giving only 71% of the money the companies say is needed to pay for it.

It’s a rip-off! Seventy-one percent of the money means only 71% as much retiree health coverage. To talk about “union control” of the benefits in a situation where there isn’t enough money to fund them only means the union will be the one to cut benefits. And if anyone believes that won’t happen—either at Dana or at the Big 3 if such extortion is negotiated there—all they need do is look at what happened at Caterpillar and Detroit Diesel. The UAW signed similar agreements that capped funds at both companies, only to have the funds run out fairly quickly—12 years or less. Predictably, health care premiums and co-pays for retirees were drastically raised. And at both companies, UAW International leaders pushed active workers into accepting wage concessions, supposedly to help out the retirees in a gesture of “solidarity.” The only “solidarity” those union leaders exhibited was with the companies, both of which were already profitable, and became more profitable as the result of the new wage concessions. In 2004, the year these last concessions were pushed through, Caterpillar had made 2.03 billion dollars in profit, an all-time high; only to be bypassed in 2005, when it made 2.85 billion, and in 2006 still again, when it made 3.54 billion.

The concession deal at Delphi is nothing but a roadmap for taking the workers back to the 19^th Century. The two-tier wages and benefits pushed through in 2003 were predictably collapsed back to one tier—a single low tier where everyone’s wage is now about half of what the top tier’s wage had been, where further pension contributions were eliminated, health coverage severely restricted, lay-off protection eliminated, etc. etc. etc.

Buried as an attachment to the contract was a directive requiring every local union to agree within 60 days to a new local contract, one which would “eliminate prior agreements and past practices that generate unnecessary operating expenses.” To drive the point home, negotiators repeated it: “The local parties will not be constrained in achieving a COA by existing agreements/past practices.” In other words, throw out the protections workers have fought for and gained over the years: forget safety, forget the ability to challenge the speed of work, forget adequate break time, forget about seniority rights, forget the possibility for challenging discipline, etc. And forget about getting sick, since the locals are to accept a “no fault” absentee policy—meaning it doesn’t make any difference why you’re absent. Sickness, auto accident, emergency with your kids—you’re still absent and can be disciplined for it. It won’t be long before having a heart attack will cost you your job!

Not only have all wages been brought down at Delphi, but a little-publicized provision written into the Delphi contract gives GM the right to bring Delphi workers back into some GM plants, but pay them the lower Delphi wages. In other words, it’s the beginning of a two-tier wage and benefit agreement in the GM factories.

The third concession deal UAW leaders cut eliminates lay-off protection in mid-contract for GM skilled trades workers at Flint and Lansing. The current overall contract requires the companies to find laid-off workers a position either in their own factory or another one roughly within driving distance of where they had worked. If there are no such openings, the laid-off workers are eligible for income benefits of varying amounts—never as high, by the way, as companies pretend. The Flint-Lansing deal eliminated the distance protection. In other words, workers can be forced to move hundreds of miles away—if they don’t, they can lose all benefits. The companies pretended to offer workers the chance to find another job in another trade or on the line in some factory close by—a joke in Flint where almost all factories have been closed. No, what this deal really boiled down to was: uproot your family, give up your home, or lose your income.

Waiting on the people who negotiated and pushed contracts like these gives the workers no way to resist the concession drive.

Who Will Have the Last Word?

GM, Ford and Chrysler would impose every bit of these three concessions deals on their workers—IF they thought they could get away with it. But the companies know better. Their aim now is to test to see exactly how much of those wage concessions they can get, how far back they can push working conditions—without sparking off a fight by workers to protect themselves. One thing is sure, the less resistance workers put up, the harsher the deal will be.

The companies would like to severely reduce retiree health care; they would like much lower wages and benefits for new hires. And, since neither retirees nor those workers not yet hired will have a vote, the Big 3 may think they can get away with it.

Retirees, however, may show them a thing or two. Voting on a contract is not the only way to have your say—in fact, it’s the least efficient. When contract talks began, GM retirees from Flint and Lansing demonstrated in front of the GM Human Resource Center in Detroit. Arrangements for that demonstration were probably made by top union officials—as is often the case at the beginning of bargaining—but those officials certainly didn’t expect to hear so many retirees denouncing all the proposals to touch their health care. Two signs said it all: “We Worked Hard for the Money, No More Cuts!” and “To hell with VEBA!” (VEBA is the abbreviation for the kind of health care deal the UAW cut at Dana.)

Some active workers have already shown they aren’t ready to collapse in front of the companies’ concession drive.

When union leaders agreed to push through the first set of concessions on retiree health care in 2005, in the middle of the current contract, they ran into problems they hadn’t anticipated. Even pushing it through quickly, with little warning to the GM workers, almost 40% voted against it. At Ford, where workers had more time to know about the deal, the concessions were barely ratified—by the very tiny margin of 50.1 to 49.9%

Gauging what the Ford vote meant, company and union officials decided they couldn’t push the concessions through at Chrysler. They dropped the issue—which DaimlerChrysler’s CEO, Dieter Zetsche, bemoaned ever since.

Regarding the vote at Ford, Doug Fraser a former UAW president commented, “Ford was scary. Going into negotiations you have to keep an eye on what is acceptable to the membership.”

Since then, workers at Ford, starting at Ford’s Rouge complex near Detroit, then spreading to other plants, circulated a statement expressing their unwillingness to take any more concessions. Obviously, statements on a piece of paper don’t change things by themselves. BUT, in some locals, union officials threatened workers circulating the statement—it seems that company and union officials were concerned by this “piece of paper.” They should have been. A sizeable part of workers in the Big 3 plants are fed up—as even Daniel Howe, the auto columnist at the Detroit News, warned the companies.

In fact, wherever there are auto plants, local newspapers regularly fill with letters and e-mails from auto workers, registering their disgust. Two web-sites originally set up by activists at Delphi get e-mails and postings from workers at every company.

Even the vote on the Delphi contract wasn’t exactly what it seemed. The overall margin was 68 to 32 in favor. But, compared to the usual UAW contract votes approved by an 85 or 90% margin, it was close. And this despite two years of bankruptcy threats hanging over workers’ heads, the scare talk about closing plants, and all the divisions set up in the plants by the two-tier, and then the addition of a third-tier of temporary workers. At plants where the work force had not been so decimated by the forced departures, the NO vote was stronger—in fact, better than 80% NO in the big Lockport, New York plant. But no one in the media or the union structure points out the significance of what Delphi workers did. The workers have to make their own calculations.

How far the companies can go—or if they can go at all—doesn’t finally depend on them. It depends on what workers have decided to do. And, as Fraser implied, workers have already done some things to slow down this concessions drive.

In any case, auto workers have no choice but to try to build on this, to reach out as widely as they can—in their own workplace, and connecting to workers in other places, in their families, friends, neighbors. Expose all these lies and scare tactics. Workers who let it be known that they want to resist concessions encourage other workers to do the same.

The auto contracts have almost always had an important impact on other workers’ wages and conditions—up or down. And that means other workers have a direct interest in what happens in the auto contracts. The same owners of capital in the auto industry own capital in other industries. Today, they push for the same sacrifices from workers everywhere, including pushing state and local governments to cut back on the wages and benefits of public employees. A fight by auto workers can start the push back against the auto bosses, and against other bosses as well. If the workers at the Big 3 make a fight this year, their fight can help overturn the horrible deals already imposed on Dana, Delphi and other workers.

Workers want a better future for their children. They know they owe the struggles of earlier generations for getting them where they are today. And they certainly don’t want to be working harder in these life-stealing plants for less money, when they barely have an adequate standard of living today.

To protect those who came before and those who will come after, and to protect themselves, workers must refuse to give up more concessions. And that will take a fight.

There is absolutely no reason to give more concessions to companies that are, in fact, rolling in money.