Auto Labor Executive Quote Inconsistent with Traditional Industry Labor Relations Strategy

Implications: A quote from an auto executive suggesting that the companies may move production (and jobs) overseas if satisfactory cost reductions are not obtained in the 2007 UAW negotiations is consistent with a more combative labor relations strategy than the industry has traditionally pursued over the past 25-30 years.  Since the late 1970's,  the labor relations strategy of the domestic auto industry has been to work with the UAW to reduce costs, to obtain cost reduction by joint, cooperative efforts.

Analysis:

The front page article in the U.S. Wall Street Journal included the following passage:

We need to eliminate most, if not all...like 80%" of the (labor expense) gap (between U.S. and Asian automakers), says a senior automotive executive involved in labor planning. "It has to be gone by the end of the contract, or doing business in the United States is unsustainable."

All three domestic auto makers "will move investment in plants and people outside the country" if they don't bring U.S. labor costs in line with those of Toyota and the other foreign auto makers, the executive said.

Traditionally, the industry labor relations strategy has been to work with the UAW to reduce costs; to obtain cost reduction by joint efforts.  The assumption underlying such a strategy is that both the UAW and management have a common interest in the success of the industry.  The above statement by this executive is inconsistent with the industry’s traditional labor relations strategy and out of character with statements consistently made by domestic auto executives that suggest that it is in the interest of the industry to maintain a strong working relationship with the UAW.  The recent Cerberus purchase of Chrysler and reported statements by the GM CEO at the last shareholders meeting are examples.

It will be important to see if there are more statements from the industry consistent with the harsher, relatively combative tone of the above quote, or whether the above quote is an aberration.  If the statement does suggest a change in the labor relations strategy of the domestic auto industry, it could make the 2007 negotiations with the UAW even more difficult than they would be based on the domestic auto industry’s financial problems and declining market share.