Liu Jianwei

liujjww@163.com

ON Oct. 30, the United Auto Workers (UAW) reached a tentative labor agreement with General Motors, ending the union’s six-week strike against the last of the Big Three automakers in Detroit.

The new deal, featuring a 25% salary increase over 4.5 years with cost-of-living adjustment, mirrors those agreements reached between UAW and the other two automakers, Ford and Stellantis, in the previous week.

This historic strike started Sept. 15 under the leadership of strongman Shawn Fain, the tough and confrontational UAW president who had been sworn into office for just six months.

The aggressive rhetoric set from the start of the strike was complicated by U.S. President Joe Biden who, to the shock of many political observers, joined the picket line with UAW workers on strike and encouraged them to “stick with it.”

No U.S. president has done this before, and for a good reason: As the top executive official of the federal government, the president is not supposed to take sides this way in a civil business negotiation.

But a presidential reelection is coming, and Biden has demonstrated many a time that he is willing to do anything to get his votes. Biden’s partial favoritism on behalf of his administration took most of the negotiating powers away from the three Detroit automakers, all of whom had to basically roll over and swallow the labor deals handed out to them.

The huge increase in labor cost will add gigantic financial liabilities to the balance sheets of the automakers, which are already struggling to stay competitive. On the electric vehicle (EV) technology side, they are far behind Tesla in the States and BYD in China. On the cost side, they face challenges from Japanese, Korean and European automakers all of which have cost-effective, non-unionized manufacturing facilities in the southern states of the U.S.

Created back in the 1930s and recognized by automakers as the bargaining agent for auto employees,UAW helped to get fair compensation and benefits for its members. With increasing membership, UAW became more and more powerful in unionized auto factories.

UAW used to represent a majority of autoworkers in the U.S. Back in 1979, UAW had 1.5 million members, but its membership has declined substantially since then. In recent decades, its active membership has been hovering around 400,000. It had only 383,000 members in 2022.

High labor cost in the U.S. auto industry, thanks to the extremely generous compensation contracts secured by UAW on behalf of its members, was a major factor pushing the Big Three Detroit automakers teetering on the verge of bankruptcy during the 2007-2008 financial crisis.

UAW rolled back on compensation terms such as cost of living adjustment in labor contracts in 2008 and subsequent years to help the automakers pull through, because if they didn’t, future financial obligations would not be fulfilled and UAW workers would lose their jobs.

Through this current strike, UAW has got most of the pre-financial crisis perks back. UAW demands, says Elon Musk, would again lead to the bankruptcies of the Detroit Three.

Starting in the 1970s, the U.S. auto industry began shifting towards its southern states where wages are lower and where local politicians are more business-friendly and hostile towards unions.

A CNN report in 2007 indicated that almost every foreign auto factory opened since the 1990s had sprouted below the Mason-Dixon Line. The trend continued since then. Mostly nonunion EV jobs are surging in the South, with 66% of planned EV jobs in the U.S. auto industry going to the South according to S&P Global.

On top of the anti-union political climate, EVs, the future of the auto industry, require fewer parts than traditional internal combustion engine-powered vehicles and subsequently less workers. Therefore, EV plants have the relative upper hand in bargaining with autoworkers.

Of course, it all boils down to the fair division of auto profits between employees, the management and shareholders. Financial modeling, statistical examination and candid exchange of opinions by concerned parties would lead to more reasonable and sustainable solutions. However, UAW, led by pugnacious Fain, always focuses on grabbing a bigger share of the pie without caring at all whether the pie will shrink in the future.

Handed the new generous labor contracts with UAW workers, the troubled Big Three Detroit automakers, already shrunk into much smaller versions of their past, are facing more and more challenges, financially and operationally.

(The author is an independent financial investor.)