UAW no longer in the driver's seat

It used to be that when members of the United Auto Workers (UAW) walked out on GM, Ford, or Chrysler, weeks of picketing and bitter negotiating sessions inevitably followed. But when the UAW walked out on the Big Three (or the Big Two and whatever Chrysler has become) last September, the story played out differently. The UAW resolved its differences with the automakers in record time, resulting in the shortest strike in the union's history.

What happened in September was unprecedented. Never have the rank-and-file members of American unions accepted such a large pay cut and an equally major change in health benefits. Why did the UAW—after strikes measured in hours, not weeks—capitulate to the Big Three negotiators' demands? And what does that mean for the future of manufacturing and the rest of industry in America?

The truth is that both sides have stared at the handwriting on the wall—largely in Japanese print—for more than 20 years. When translated, it went something like this: "We pay our workers far less and so, we can sell our cars for far less." And declining sales of cars made in the United States only underscored the point.

Japanese auto assembly and parts plants located in the United States pay about half of the total compensation package of the UAW in the Americanowned companies. The total compensation for a UAW member at Ford or GM is somewhere between $70 and $75 an hour. At Honda or Toyota, it is between $45 and $50 an hour. And these Japanese companies have nothing like the huge pension and retiree health benefit costs carried by domestic car producers.

All this helps explain why the UAW agreed to the automakers' demands for a two-tiered pay scale with new hires coming on board at far lower hourly rates and significantly reduced benefits compared to current employees. How much lower? Quite a bit, judging from the pay scale proposed last year by the new management at ACDelco, GM's automotive replacement parts division. It suggested a pay scale that started at about $12 an hour for new hires. Based on this extraordinary development, I've ventured to make a couple of predictions. First, the Big Three will quickly become far more competitive in the domestic auto market, where they have been steadily losing share to their Japanese competitors. Prices for cars produced by GM, Ford, and Chrysler will no doubt come down relative to the Japanese domestically produced automobiles.

Second, the impact of the wage and benefit concessions will be felt beyond the automakers themselves. For example, I believe their suppliers will be forced to follow suit—and quickly.

Before long, the effects will likely begin to ripple throughout the economy. Among the hardest hit will be the workers' local communities. As older workers retire from their jobs at auto assembly and supplier plants and are replaced by new hires earning far lower wages, there will be less cash flowing into the local economies, dampening spending on everything from food to campers, from clothes to entertainment centers.

So while the competitiveness of the Big Three should increase, their contributions to the local economies will likely decline. Simply put, what happened last September in the union world of Detroit is liable to have a significant impact on the U.S. economy as a whole. As for what kind and how much of an impact, we'll have to wait and see.