The UAW Strike Against GM - Why Did it Happen?

Implications: The unexpected UAW strike against GM is the result of two major factors coming together:  (1) the Cerberus purchase of Chrysler; and (2) the Wall Street pressure on the the UAW and GM, Ford, and Chrysler to establish a VEBA  for auto company hourly retirees.  These two events forced the parties out of their normal negotiating schedule for the standard issues of labor costs and employment security.  The Chrysler sale diverted much of the UAW's attention and resources during the spring, when the parties could have been discussing traditional issues.  In the summer, intense Wall Street pressure for a VEBA cause the parties to accelerate their negotiations around that issue, again neglecting the traditional issues.  The parties simply rant out of time.

Analysis:

 

Why did the UAW call a strike against GM?  In a real sense, the parties just ran out of time.  But a look back over the past two years informs how the parties reached this point.

In 2005, during the term of the previous agreement, the UAW provided what it believed were substantial concessions to GM with respect to retiree health care.  In 2006, GM (and Ford) and the UAW agreed to employee early retirement buyouts, reducing employment at GM by about 25%.  From the UAW perspective, these should be given substantial consideration in the current negotiations.

In December 2006, Goodyear and United Steelworkers agreed to a VEBA for retiree health care, piquing interest among the auto companies and on Wall Street regarding use of VEBA as means for the domestic auto companies to offload retiree health care liabilities. The fact that the VEBA that was part of a Goodyear-Steelworkers agreement that also included investment in unionized facilities was given little attention. In February 2007, Ford first raised the notion of a VEBA.

At about that time, however, DaimlerChrysler announced that its Chrysler unit was on the market.  The sale was completed in late April, but the negotiations around the sale required the full attention of the UAW leadership and staff, diverting them from preparations for regular end-of-contract negotiations.

At approximately the time in the late spring when the UAW could turn its attention to negotiations, Wall Street began indicating to GM, Ford, and Chrysler that it would welcome a VEBA.  Expectations developed that the parties would agree on a VEBA, and the auto companies felt the pressure from Wall Street, pressure that was conveyed to the UAW.  As a result, the UAW and the companies, and eventually, the UAW and GM, focused on a VEBA during much of the summer.  Regardless of its financial merits, the VEBA was a relatively new and fairly complex notion to explain to the local leadership and the membership.  It took the UAW national leadership a great deal of time to work with the local leadership to make them aware of the reasons for a VEBA, in essence, to “sell” the VEBA within the Union.  It is also important to note that the VEBA negotiations resulted in an unprecedented level of Wall Street interest and involvement in the UAW negotiations, interest and attention to which the UAW was forced to react.

Although the national leadership appears to have “made the sale” for the VEBA, this took time during the summer, and the parties reached the September 14 termination date without fully addressing the traditional but difficult issues of labor costs and employment security, matters that are now drawing their attention.  Eventually, they just ran out of time, and the UAW called a strike.  A short strike of no more than 10 days should have little effect on the company. It may have the advantage to the UAW of strengthening the collective consciousness among the membership in a long period of concessions.  At the same time, from GM’s perspective, a short strike gives the impression of steadfastness.

Nevertheless, there is a fundamental problem that must be addressed by the parties.  The UAW is of the view that it gave concessions in 2005 and 2006, and now GM wants more.  The UAW view is that the savings from concessions must be invested in UAW-represented facilities. This is also linked to employment security that the UAW believes can be provided to a reduced hourly workforce. Based on what is currently known, there is no reason to believe that the parties cannot resolve these issues.