King Inherits a UAW Seeking Payback for Concessions

Bloomberg Business Week

 

Bob King, the next United Auto Workers leader, inherits a union that gave up thousands of jobs and billions in benefits to save the U.S. auto industry. His legacy will rest on how workers are rewarded in the recovery.

King, 63, the nominee of the UAW bloc that has controlled the Detroit-based union since 1946, is slated to succeed two- term President Ron Gettelfinger, 65, in an election tomorrow. The electrician with a law degree, who rose through the ranks in 40 years at the UAW, is set to take over a union that has declined to 355,000 members from 1.5 million in 1979.

The UAW shift coincides with signs of recovery in the industry. General Motors Co. posted a net profit and Chrysler Group LLC made money on an operating basis in the first quarter, less than a year after each emerged from bankruptcy. The union helped convince President Barack Obama to provide an $85 billion taxpayer bailout to those automakers, taking concessions to put their labor costs on par with foreign automakers’ U.S. plants.

“Bob is facing a very, very difficult job because there will be tremendous pressure on him to roll back the concessions,” said Gary Chaison, a labor professor at Clark University in Worcester, Massachusetts. “He’s got to walk a very fine line to reverse some of what was lost and keep some in place for the promise of a brighter future.”

UAW workers have each given up $7,000 to $30,000 in concessions in the last five years, King said last month. The union surrendered raises, bonuses, cost-of-living adjustments and agreed to a two-tier wage system where new hires make about $14 an hour, half what hourly production workers are now paid.

Returning Benefits

As head of the union’s bargaining with Ford Motor Co., King filed a grievance in January after the automaker reinstated raises, 401(k) matches and tuition assistance for salaried workers. Dearborn, Michigan-based Ford has since restored tuition benefits for its 41,000 hourly workers and King is pressing for more.

“UAW members at GM, Ford and Chrysler and throughout the supplier sector have made the sacrifices to keep these companies viable,” King said at a Ford factory in Ypsilanti, Michigan, on May 24. He declined to be interviewed for this story.

UAW labor costs, including wages and benefits, have fallen from $75 an hour to about $55, equal to Toyota Motor Corp.’s U.S. workers. The union has about 113,000 members at Detroit- based GM, Ford and Chrysler, which is based in Auburn Hills, Michigan.

“Bob’s going to make sure our members are not forgotten as these companies rebound,” said UAW director Rory Gamble, who runs King’s former Detroit region and has known him 25 years. “But we’ve got to make sure these companies are viable, so there’s going to be a lot of caution in how we go after this.”

‘Vilified’ Union

Part of the caution will stem from managing the UAW’s public standing. “The current perception of the UAW is one of the lowest of any union in America,” said analyst David Cole of the Center for Automotive Research in Ann Arbor, Michigan.

A so-called jobs bank in which auto workers received almost full pay while on indefinite layoff “became the flag by which the union was vilified,” Cole said. The union doesn’t receive credit for giving up that jobs bank or other reforms, he said.

“Bob has to get out front and tell the world it’s a different union than it used to be,” Cole said. “Otherwise, it will continue to decay.”

King, the son of a former Ford industrial relations director, has been painted by challengers in the union as going too easy on the company. More than 70 percent of Ford workers rejected additional concessions in November that King endorsed. Ford earned $2.7 billion last year after three years of losses.

Critics in Union

“We can’t just take at face value when these companies cry poverty,” said Gary Walkowicz, a UAW official from King’s home factory in Dearborn, who is making a self-described symbolic run against him for president. “Workers really disagreed with giving up those concessions when Bob King asked them. It showed there’s a disconnect between the membership and the leadership.”

In the next round of contract bargaining in 2011, King has to work toward restoring raises while ensuring the automakers put new models into U.S. factories, said Sean McAlinden, economist at the Center for Automotive Research.

“As the market comes back, the automakers will be adding workers by the thousands,” McAlinden said. “If he holds the line on canceling too many concessions, he’ll get growth. Otherwise, the companies will say, ‘We’ll build up Mexico like you wouldn’t believe.’”

Business Case

King prepares business cases to show managers that hiring more workers at UAW plants can be profitable, said Bernie Ricke, president of UAW Local 600 in Dearborn, who has been at the Ford bargaining table beside King since 2003. “He’s usually very measured, though I’ve seen him pound the table a few times.”

Billionaire investor Wilbur Ross negotiated against King on a contract for his International Automotive Components Group, the world’s largest automotive carpet supplier. King studied IAC’s books and discussed findings with managers before bringing the information to union leaders and rank and file members. The new contract, which cut pay and benefits, passed by 80 percent.

“He’s the prototype for the kind of labor leader who is needed in this modern world,” Ross said in an interview. “His challenge is to preserve manufacturing in the United States at the same time maintaining a standard of living for the worker. It’s a delicate balance.”

King last year approached Ross for help in organizing auto suppliers to support the U.S. cash for clunkers program that funded government subsidies for vehicle trade-ins. They built a coalition of about 50 suppliers across the U.S., and the program eventually helped sell 677,081 cars.

From the Sickbed

King comes to the table with an “intense” work ethic, Gamble said. He’s been seen working two mobile phones at a time in Ann Arbor, where he lives with his wife and three children. (He also has two adult daughters from his first marriage). The night before stomach surgery last year, King called Gamble from his hospital bed at 11:30 p.m. to check on Ford’s plans to transfer workers among plants. After surgery King was right back on the phone, hoarse from a tube in his trachea, Gamble said.

“He could barely talk and I said, ‘Bob you need to get well, man,’” Gamble said. “He was relentless.”

He took a similar approach to his schooling. After studying religion and philosophy at College of the Holy Cross in Worcester, King graduated from the University of Michigan in 1968 with a degree in political science. He did a two-year tour in Korea with the U.S. Army and then went to work for Ford in 1970 at the Rouge factory complex in Dearborn that Henry Ford built in the 1920s. In 1972, King began an electrician apprenticeship while earning a law degree in his off-hours.

Rapid Rise

“While he was still an apprentice, the journeyman skilled tradesmen elected him as their union committeeman, which was unheard of,” Ricke said. “He had to work weekends to finish his apprenticeship.”

Raised Catholic, King draws a link between the labor movement’s mission and social justice. At a UAW convention in California in 1989, he bused reporters to a shanty town in Tijuana, Mexico, to show them the squalor surrounding U.S. companies’ border factories. He took a group of labor leaders to El Salvador in 1990 to monitor union elections.

King’s greatest challenge may be finding a way to build on his earlier efforts to increase the UAW’s ranks. While leading bargaining efforts a decade ago, he helped diversify the membership by organizing graduate students and casino workers.

Johnson Controls

King also led a strike at Johnson Controls Inc. in 2002 where he convinced the supplier to sign a neutrality agreement allowing the union to organize its other U.S. plants. Ford, one of JCI’s largest customers, also said it wouldn’t object to the UAW representing workers at the auto supplier. That set a precedent that enabled the UAW to sign up 25,000 auto parts workers that year, according to labor professor Harley Shaiken of the University of California at Berkeley.

“Bob King leveraged the good relationship the UAW had with Ford into a broader reach with its suppliers,” Shaiken said. “It was innovative and strategic.”

King also reaches out to other unions seeking new strategies for signing up members.

“He actually believes in grassroots organizing, which I think came from our organizing backgrounds,” said Leo Gerard, president of the United Steelworkers union, who consults with King on strategies for boosting membership and considers him soft-spoken but “tough as nails.”

About 350,000 of the 850,000 Steelworkers in the U.S., Canada and the Caribbean work on products that end up in autos.

The UAW can’t keep shrinking and expect to hold the clout that moved a president to rescue GM and Chrysler, Shaiken said.

“He’s facing an unprecedented crisis; the status quo is not tenable,” Shaiken said. “To survive the union has to go forward, and Bob needs to be a transformational leader.”

Opinion: GM Bankruptcy? Tell Me Another

As Originally Posted at the Wall Street Journal

President Obama rightly says "sacrifices" must be made if GM is to emerge as a viable company. But there's one sacrifice he won't make: his re-election chances, by leaving the fate of the UAW truly up to a bankruptcy judge.

Keep that in mind amid the defenestration of Rick Wagoner, who was not as popular with UAW Chief Ron Gettelfinger as Mr. Wagoner's replacement, Fritz Henderson. Keep that in mind amid reports the administration favors a "quick and surgical" bankruptcy. It's a bluff. The same administration that inserted itself into GM's corporate governance to order the resignation of a CEO is hardly likely to defer to the prescribed legal order for a failing company, namely bankruptcy. Even a "prepackaged" filing runs too much risk of a judge imposing more "sacrifice" on the UAW than the administration is prepared to tolerate.

GM bondholders understand this: They've been intransigent precisely because they calculate the UAW is too important to Democratic electoral politics for Mr. Obama to risk losing control of the reorganization process to a bankruptcy judge.

The GM bailout has become a political operation run out of the White House. It will stay that way. Talk of UAW layoffs already disguises the fact that UAW workers are actually offered generous buyouts and early retirement -- they aren't just sent away with a last paycheck. What about Chrysler? A few weeks ago, Fiat was saying it would consider a merger if a loan from Washington was guaranteed. Now Washington is saying a loan will be forthcoming as long as Fiat does a deal. That's not an ultimatum -- that's a nod and a wink.

Mr. Wagoner did more than any GM executive to deal with the cursed legacy of 75 years of too much government attention. Not for him, though, and not for Team Obama, the real solution to make GM "viable": Getting rid of its North American business to end its UAW captivity.

That captivity, imposed by the 1935 Wagner Act, is the sole relevant factor distinguishing the Detroit Three from the world's other auto makers. The result is downright weird: "Our" auto companies operate in a world that's less "American," in a sense, than the Japanese and German companies that come here and enjoy a free labor market.

The Wagner world was given a second lease on life by a peculiar feature of Congress's 1975 fuel economy law. Known as the "two fleets" rule, it effectively forces Detroit to make its cheap small cars in high-wage domestic UAW factories, even if it means losing money on every car. The rule has no fuel-economy function. Its only purpose is to shield the UAW monopoly inside each Detroit auto maker from global labor competition.

You wouldn't have noticed, but a legislative accident two years ago almost stripped away the two fleets rule. A couple of Republican senators from the South took the lead in crafting the Senate's new fuel economy bill, and built it to please Nissan, which had railed against two fleets for its own reasons.

In the final bill, to no one's surprise, two fleets was quietly restored by Rep. John Dingell and Illinois Sen. Obama (among others) as a political favor to the United Auto Workers.

The UAW's Mr. Gettelfinger had testified, coyly, during Congressional hearings that failing to renew two fleets might cost 17,000 auto workers jobs building small cars. He didn't say that two fleets is in fact the fulcrum by which, for the past 30 years, the UAW has been able to defeat globalization.

He didn't say two fleets was the sine qua non for the past generation of the UAW's power to suck the Big Three dry.

Mr. Obama played the tough guy in getting rid of Mr. Wagoner, but he won't go after the labor monopoly. In fact, the union will emerge with a stronger grip on Detroit -- because it will be a major shareholder in a reorganized GM.

The irony is that Detroit has given plenty of evidence that it can make money, even with UAW overhead. Three of the top seven best-selling vehicles in February were Ford, Chevy and Dodge pickups.

Better than trying to rewrite GM's business relationships -- the job of a bankruptcy judge -- Mr. Obama might take up the duties of a president. He might try giving the country a coherent auto policy for a change. He could repeal two fleets so Detroit could build its small cars profitably offshore and tame the UAW monopoly in the process. He could dump CAFE or impose a $5 gasoline tax so at least customers would have a reason to buy the cars Washington is forcing Detroit to build.

None of this will happen. Mr. Obama will be content with incoherent policies that poll well -- which means GM, Chrysler and perhaps Ford eventually will need taxpayer subsidies as far as the eye can see -- or until a real bankruptcy sometime after November 2012.

UAW Chief Has No Good Options

Gettelfinger Faces Making More Concessions or Seeing Chrysler, GM Pushed Into Bankruptcy
As Originally Posted to the Wall Street Journal

United Auto Workers President Ron Gettelfinger has squared off against plenty of auto executives. But now he may be facing an even tougher opponent: the U.S. government.

The Obama administration has made clear it is willing to push General Motors Corp. and Chrysler LLC into bankruptcy if the UAW and bondholders don't agree to cut costs. Bankruptcy would give the companies the ability to tear up their UAW contracts and impose another wave of deep cuts in auto workers' wages and healthcare benefits. At stake are the fortunes of about 141,000 UAW members -- down from 300,000 about five years ago -- and hundreds of thousands of retirees.

Mr. Gettelfinger has said repeatedly that the union has already made substantial concessions compared with other stakeholders and won't make any more until bondholders and other creditors agree to givebacks to reduce GM and Chrysler debt.

But the union chief has no good options. He either agrees to concessions or the car makers end up in bankruptcy, which would mean splitting them into good and bad companies, closing plants and giving up jobs. Pensions and retiree health care would likely be cut as well.

Mr. Gettelfinger has already announced his retirement, so he doesn't have to worry about winning another election. In theory, that makes it easier for him to accept unpopular terms. But he still has to win approval of any agreement from the rank and file, which must ratify any changes.

For Mr. Gettelfinger, it's the biggest challenge he has faced. "If a settlement isn't reached and GM goes into bankruptcy, it could be a black mark against the union for decades," says Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass. "Gettelfinger is good at bargaining, but this isn't bargaining. The union doesn't have the right to strike, and he's already been told what the outcome will be." A UAW spokesman said the union didn't have any comment Tuesday.

The situation is made more difficult because it comes on top of prior concessions, Mr. Chaison says. Negotiations led by Mr. Gettelfinger two years ago resulted in new GM workers being paid lower wages than existing workers and a trust to cover retiree health coverage. At the time, the concessions were touted as a major restructuring of the UAW's historically generous contracts.

The UAW and auto makers face some of the same challenges -- mainly huge legacy costs, overcapacity and foreign competition -- that hobbled the domestic steel industry between 2000 and 2003. In working through those problems, several steelmakers went bankrupt, eventually emerging with new ownership and labor accords that restructured retiree health obligations.

Billionaire investor Wilbur Ross, who runs distressed asset specialist WL Ross & Co., bought out and consolidated bankrupt steelmakers, working with the steelworkers union to create new contracts. One of the biggest challenges facing Mr. Gettelfinger will be balancing the needs of active workers and retirees, Mr. Ross says. "There's obviously much heavier government influence in this situation than there was in steel," he adds, and U.S. car makers could even come out of the restructuring as the lowest cost producer.

The three Detroit auto makers provide health care for more than one million Americans, including union retirees and their dependents. In 2007, the UAW agreed to allow GM, Chrysler and Ford Motor Co. to pay billions of dollars into a trust fund, known as a VEBA, or voluntary employee beneficiary association, that the union would manage and use to cover the cost of retiree health care.

Under the terms of the bailout loans GM and Chrysler have accepted from the federal government, the companies are supposed to renegotiate the VEBA agreements, persuading the UAW to take equity in exchange for half the companies' payments to the VEBA. Labor costs also have to be cut to match those of Japanese auto makers. Some estimates have put the hourly compensation gap between Detroit auto makers and the Japanese at $10 an hour, though UAW officials say that's too high.

One UAW worker, 56-year-old Jeff Hall, a GM maintenance pipe fitter in Pittsburgh now on layoff, says he remains a supporter of Mr. Gettelfinger. But he doesn't like the union leader's options. "It seems like the government and everyone is encouraging bankruptcy. To me that is going to be a disaster."

Accepting more concessions could also hurt the union's ability to grow at healthy companies. The UAW has been unable to organize U.S. workers at plants run by foreign auto makers. Accepting more cuts to GM wages and benefits would make organizing elsewhere even more difficult because the union would have little of value to offer nonunion workers, says John Russo, co-director of the Center for Working-Class Studies at Youngstown State University.