TOPICS > Economy

Automakers and Union Negotiate Workers Pay, Health Care

July 23, 2007 at 6:10 PM EST
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GWEN IFILL: It was literally a stretch to shake hands for the cameras today, as talks between General Motors and the United Auto Workers union got underway in Detroit. The awkward ritual handshake underscored the challenges ahead for both sides, as the UAW, one of America’s largest unions, begins talks with GM, Ford and Chrysler on labor contracts set to expire in September.

TOM LASORDA, CEO, Chrysler Group: Negotiations are difficult, and this one will be no exception. The challenges we’re facing are clear.

GWEN IFILL: In 2006, the big three domestic auto makers lost a combined $15 billion, as Toyota and other overseas manufacturers continued to grow. At the same time, health care costs for employees and retirees have soared, and auto makers have closed plants, eliminating 70,000 jobs. Chrysler, Ford and GM are spending $100 billion on health care, most of it for retirees.

JULIUS COSEY, Chrysler Worker: Our biggest concern right now is if you’re going to take any money away from us and how much we’re going to lose in health benefits. So that’s two of my biggest concerns.

GWEN IFILL: Meanwhile, the auto workers are struggling to preserve historically generous benefits at a time when coverage is shrinking in other industries.

Joining me now to discuss what’s at stake in these negotiations for the auto companies, the auto workers, and the rest of us are James Womack, founder and chairman of the Lean Enterprise Institute, a non-profit research organization. He has written extensively about the auto industry and management issues.

And Harley Shaiken, a professor at the University of California at Berkley, he specializes in labor issues.

So, Mr. Shaiken, I’ll start with you. What is at stake for labor?

HARLEY SHAIKEN, University of California, Berkeley: It’s a defining moment for the industry and for labor. I think there’s a key question here, which is, can we have competitive domestic auto makers in the global economy that also create middle-class jobs? That’s pivotal for auto workers; it’s pivotal for the UAW. It’s critical for the companies, but it’s also, I think, of importance to all Americans.

Historically, this is an industry that has not only produced effectively, but also created a core of the middle class that resulted in some of the strongest economic growth in this country’s history. So these are auto talks that begin today, but the impact of this, I think, affects the entire economy, really the country.

GWEN IFILL: Mr. Womack, are we talking survival here for the companies especially?

JAMES WOMACK, Lean Enterprise Institute: Well, the companies have got a cost burden that I think most anybody would say can’t be pulled with the pulling power they’ve got, so they’ve got to do something. And the question really becomes, who’s going to pay for the transition from an uncompetitive situation to a competitive situation? So, yes, they have to do something. This really is a defining moment; I think that’s quite right.

"How did it come to this?"

James Womack
Lean Enterprise Institute
The result of all of this competition was the domestics retreated steadily, what's known in the industry as segment retreat, until finally they were left with just big SUVs, big vans, big pick-ups.

GWEN IFILL: So, Mr. Womack, how did it come to this?

JAMES WOMACK: A lot of things happened. The world changed a bit, in terms of best practice, in terms of how to design products, how to run factories, how to manage suppliers. And that was the contribution of the leading Japanese companies, not all the Japanese companies, but leading companies, who then faced the challenge of, could they succeed with those practices in the U.S.? And it turned out they could, not absolute replication of performance in Japan, but they could very nearly replicate that performance.

So that caused a real problem, particularly when it turned out that those companies were not organized by the UAW, and therefore facing the same total compensation cost. And then, of course, finally, the result of all of this competition was the domestics retreated steadily, what's known in the industry as segment retreat, until finally they were left with just big SUVs, big vans, big pick-ups, and those were viable as long as Americans priced their energy very low and, of course, significantly below the level of other advanced countries.

So then, when it all comes to this point, the company is steadily declining, so they are more and more retirees and fewer and fewer active workers as they have competitors who are taking more and more market share. And you have a different compensation arrangement. And you finally get to a point -- and this is the point -- when you say, gosh, the future really isn't going to be like the past. And the only question to be answered is, what is the future going to be like?

Three major issues

Harley Shaiken
University of California, Berkeley
The U.S. is the only auto-producing country in the world without national health insurance. We have a trade policy that resulted in $108 billion trade deficit last year. Both those things create an enormous burden on the bargaining table.

GWEN IFILL: Well, let me pose that question to Mr. Shaiken, because what we have, as these two sides sit down at the table, are some pretty tough questions. For instance, will the industry be reneging on a deal if it tries to revisit these health care costs for retirees?

HARLEY SHAIKEN: Well, I think the UAW would certainly think that, but let's put these specific negotiations in a bit of a larger context. I think Jim gave a good overview, but there are really three issues here.

First, it's the industry was building Hummers while Toyota and some of their Japanese competitors built Priuses. In other words, they made some poor strategic choices over the last decade. To the industry's credit, it is turning around with a plan that's much more in tune with the market.

But, second, we have a failure of public policy here. The U.S. is the only auto-producing country in the world without national health insurance. We have a trade policy that resulted in $108 billion trade deficit last year. Both those things create an enormous burden on the bargaining table.

I think these are going to be a tough set of talks. I think there will be a lot of creative solutions. I don't think the notion of workers giving up health benefits or wages is going to get the industry out of its current fix. That's not to say that this isn't a critical moment, but it is to say that we've got to look at the larger context, that are strategic decisions, public policy, and wages and benefits in that context.

GWEN IFILL: But none of the things you just identified, Mr. Shaiken, are easily fixed, certainly national policy. There's not going to be a national health care coverage any time soon. And when you talk about changing the product that Detroit has produced, that doesn't happen overnight. So September 14th is the deadline for these negotiations. What can happen between now and then to address those fundamentals?

HARLEY SHAIKEN: I think both sides realize that this is a critical moment, even a defining moment. I think both will work together. Tough issues, but in a constructive atmosphere to see how costs can be lowered, the companies made more competitive.

Over the last year, Ford and the UAW, for example, signed much more flexible local agreements in over 40 of Ford's 42 or 43 North American plants. That's a sea change over what happened in the past. In terms of health care in the last year, the UAW made some very painful concessions in terms of retiree health care, wage cuts for active workers to support health care. That's already happened.

And, finally, the industry in the last two years has decided to -- and the UAW has agreed to -- shed 80,000 jobs. So, in a very real sense, the union has already stepped to the plate. That doesn't mean that the remaining issues aren't critical. There will be tough talks, and there will likely be some new approaches, but simply to put the burden of the crisis on labor costs or the union I think misses the larger context in which these negotiations are taking place.

Different challenges for companies

James Womack
Lean Enterprise Institute
GM is widely owned. Ford is still family-controlled. Chrysler is now, if the deal closes, in the hands of private equity, which is totally new territory for the car industry.

GWEN IFILL: In the larger context, Mr. Womack, each of the big three companies have different sets of challenges, that is to say, Chrysler, Ford and General Motors, are they bringing different concerns to the table in these negotiations?

JAMES WOMACK: Well, certainly. Historically, the way Detroit worked always was that GM, ever since the 1930s, was by far the strongest company, and then Ford was in the middle, and Chrysler was sort of the runt. And so, therefore, there had to be a little bit of adjustment to keep everybody in the game.

But now you have a situation where GM has, I think, made a lot more progress than people realize in terms of fixing the product development system and fixing their factories, which by the way are very close to competitive. If you didn't have all of this legacy cost from the past, GM would really not be in such a bad situation.

Ford has really struggled trying to get their product development, production and purchasing to work right. Chrysler had a hot hand with product, and now suddenly they've sort of got the wrong product for the current feeling in the market and the country.

So, therefore, each company is a little bit different. GM is widely owned. Ford is still family-controlled. Chrysler is now, if the deal closes, in the hands of private equity, which is totally new territory for the car industry.

So the companies have different situations in the market. They have different models of ownership. And yet they've had a very similar labor agreement. And now I think the pressure is pretty great to have some divergence with regard to how they come up with their individual settlements with the union.

The likelihood of a strike

Harley Shaiken
University of California, Berkeley
But I think, long term, whatever the outcome of the contract, the issue remains, how do we ensure that we have middle-class jobs in this country in a global economy?

GWEN IFILL: As we talk about that kind of pressure, I want to ask you and then Mr. Shaiken briefly a final question, which is, what is the chance that these negotiations could end in a strike? Your opinion, Mr. Womack?

JAMES WOMACK: Well, what's the point of striking? In a way -- you've got sort of bankruptcy on one side and a strike on the other as options that don't really make a lot of sense. I think a much more sensible option is try to bound the problems of the past, a lot of talk about creating some sort of trust funds that perhaps would be administered by the union, in which you kind of bundle up the sins of the past, if you will, the commitments that were made that may or may not be keepable. And then you put a pot of money in there.

And some very optimistic assumptions will probably be made about the performance of those investments, about the future cost of health care, even about the longevity of the typical retiree, so that, to get started, that separates the past from the future, which is a really necessary thing.

And then whether or not the past can be fully paid for -- in other words, whether that fund is really adequate to sustain benefits -- is a very open question. I'm very doubtful. But I think that's, in a sense, what has to be done now. Separate the future, which is better, I think, than people think, for the domestic companies from the past, which is a tremendous pile of obligations that it's going to be very, very hard for them to fully pay off.

GWEN IFILL: So, Mr. Shaiken, do you agree that there's no point to any kind of strike or even talking strike at this point?

HARLEY SHAIKEN: I think a strike is unlikely but not impossible. Collective bargaining has its own dynamic. I think both sides over the last year or two have worked together very constructively. I think we will see that, even on the toughest issues, the notion of a trust fund for health care will likely be on the table. The issue of how to support pensions will be on the table.

But I think, long term, whatever the outcome of the contract, the issue remains, how do we ensure that we have middle-class jobs in this country in a global economy? What Jim referred to as the sins of the past I would term differently. This is what gives millions of Americans security and the ability to purchase the very cars that created the success of the industry.

What we want is, of course, a brighter future. In that sense, these negotiations are transitional to give the industry relief today in a way that allows public policy to catch up with what the auto makers and what the union are trying to do in Detroit. The future is not all grim, but the challenge is something that will affect all Americans.

GWEN IFILL: Harley Shaiken, James Womack, thank you both very much.