Union Workers’ Greatest Enemy: The Collective Bargaining Agreement

In one of the most far sighted foreign policies, King Louis the XIV of France “offered” free land to attract families to Detroit, which grew to 800 people in 1765, the largest city between Montreal and New Orleans. Detroit would later become part of the United States under the Jay Treaty in 1796.

From 1805 to 1847, Detroit was the Capital of Michigan…. The city had grown steadily from the 1830s with the rise of shipping, shipbuilding, and manufacturing industries.

It is clear that by the end of the 19th century, Detroit was a rapidly growing and flourishing community in every respect.

Many of the city’s architecturally significant buildings are on the National Register of Historic Places and the city has on the U.S.A.’s largest surviving collections of late 19th and early 20th century buildings.

From 1850 to 1900, Detroit’s population roughly doubled every 10 years and ending with 285,704. And, then came a transformational event.

In 1896, a thriving carriage trade prompted Henry Ford to build his first automobile in a rented workshop on Mack Avenue.

And so began one of the industrial revolution’s greatest contributions to economic productivity and prosperity. It would make obsolete the animal-drawn carriages, wagons and replace them with the American-made mass produced automobile. This ignited growth in personal income from great industrial jobs for people leaving rural communities and immigrants.

By 1930, the population of Detroit had risen to 1,568,662, close to doubling every decade after 1900. The building of automobiles was clearly supporting job growth in Detroit.

The explosion of industrial capacity and the influx of new workers would result in a collision of forces that would produce one of democracy’s great institutions, the free assembly of workers into unions to offset the structural power of companies where labor was harsh and very physical. Labor was very much a commodity to the early industrialists who could always exercise free substitutions.

By the 1930’s, our history had already recorded many incidents of labor strife. In 1842, the Massachusetts’ Supreme Court held that “unions were legal organizations and had the right to organize and strike.” In 1863, another product of industrialization, the railroad, resulted in the formation of the first railroad union, the Brotherhood of Footboard. Blood flowed in 1877 when a railroad strike spread into a general strike across the nations. At the “Battle of the Viaduct” in the Pilsen neighborhood of Chicago, federal troops killed 30 protesting members of the Chicago German Furniture Workers Union and wounded another 100.

In 1914, “Ford Motor Company raised its basic wage from $2.40 for a nine hour day to $5 for an eight hour day.” In 1926, the Railway Labor Act passed. “It required employers to bargain collectively and not discriminate against their employees for joining a union.” In Toledo, Ohio, in 1934, 1,300 National Guard troop were activated to disperse as many as 10,000 strikers and protestors in the Electric Auto-Lite Strike. And in 1935, the National Labor Relations Act, also known as the Wagner Act, established the right of all workers to organize and elect their representatives for collective bargaining purposes.

In spite of the bloodshed, the contending forces of labor and management were working their way towards equilibrium. And then out of this sometimes intolerant and bloody history, came a most artful technique of overtaking one of industrialization’s most significant institutions at GM’s Flint facilities.

The police attempted to enter the plant on January 11, 1937. The strikers inside the plant turned the fire hoses on the police while pelting them with car parts and other miscellany as members of the women’s auxiliary broke windows in the plant to give strikers some relief from the tear gas the police were using against them. The police made several charges, but withdrew after six hours….

GM obtained a second injunction against the strike on February 1, 1937. The union not only ignored the order, but spread the strike to Chevrolet Plant # 4….

That development forced GM to bargain with the union….

The parties finally reached agreement on February 11, 1937 on a one page agreement that recognized the UAW as the exclusive bargaining representative for GM’s employees who were members of the union for the next six months.

As short as this agreement was, it gave the UAW instant legitimacy. The UAW capitalized on that opportunity, signing up 100,000 GM employees and building the union’s strength through grievance strikes at GM plants throughout the country….

In the next year the UAW saw its membership grow from 30,000 to 500,000 members….

What an amazing accomplishment to have completely overtaken such a delectable financial prize.

The company, dubbed ‘Generous Motors’ by many who wished for jobs with the prosperous firm, was caught off guard by the strike, because it considered its workers to be among the most ‘pampered’ in the industry. GM had just given workers a Christmas bonus of $47 from its ‘GM Appreciation Fund.’ The union seemed to have ignored the ‘GM Layoff Benefit Plan’ and the ‘Income Security Plan’ offered by the company in 1936….

President Roosevelt asked GM to meet with the union once more. The tension subsided. General Motors signed an agreement with the UAW, giving the union bargaining rights in 17 GM plants shut by sit-downs.

Employees at the 17 plants involved got 5 percent pay hikes and were allowed to speak in the lunchroom. The company agreed not to discriminate against union members and agreed to begin negotiations on other matters….

The dramatic military style battles depict the times and the desperation of those involved. The outcome much later in time proved that both the union and the company could coexist and indeed prosper beyond anyone’s expectations. Those who made the cars could finally afford to buy them, pouring profits back to the stockholders. Spreading the wealth caused more to be created. The pension and wages won by the workers raised the standard of living for the whole country.

In a very real sense, the UAW knocked a giant down with a feather using brilliant non-bloody tactics. The history of the struggle of commodity labor against the organizers of industrial production had prepared both parties for this bloodless coup d’état by a UAW that had only 122 members out of 45,000 autoworkers in Flint at the time of the sit-in.

Both parties would enjoy extraordinary economic progress, riding the wave of an incredible increase in human productivity called the American-made automobile industry. So, now joined at the hip with a bargaining agreement, the UAW and GM marched forward together.

But it would not be a quiet or peaceful journey for collective bargaining would institutionalize contractual conflicts that most other employee/employer relationships would resolve by more practical and peaceful alignment of interests.

In the decade ending in 1940, the population of Detroit was 1,623,452 which is just 55,077 more than 1930. This was just a 3.5% increase in 10 years. In the 10 years from 1920 to 1930, the population of Detroit increased by 57%. So, just 3 years after the 1937 strike, the population of Detroit seemed to be peaking.

And in 1950, the population of Detroit did peak at 1,849,568.

Something must have been happening to stop the flow of new immigrants and rural workers to the foundation and capital of automobile mass production, Detroit. Perhaps such a thing as costly work stoppages were discouraging increased investment there.

A depiction of this non-peaceful togetherness is contained in the following data on major work stoppages. Consider that the assembly of an automobile requires the precise interface and timely connection of perhaps 1,000 individual parts. On a tour of local General Motors assembly plant many years ago, I will never forget seeing just a chassis of the car being place on the assembly line at the beginning. Then, after walking around the building for an hour and half, someone would get in the completed car, start the engine and drive if off the assembly line. It was stunning to observe the complexity of the process requiring inconceivable coordination. It was and is unforgettable.

What does a work stoppage do to such a process? It just destroys it and ruins the efficiency which is otherwise passed on to the consumer in affordable prices.

In looking at our plot of major work stoppages between 1947 and 2006, you can see a lot of economic damage. This is because a major work stoppage is defined as a strike or lockout involving 1,000 or more people. Just ten years after the UAW and GM reached their first agreement in 1937, the data implies that collective bargaining agreements in all sectors of the economy, rather than bringing peace between employee and employer, were creating a lot of economic hardship.

 

Image: “Major Work Stoppages” data calculated by the U.S. Dept. of Labor, Bureau of Labor Statistics

 

This data begins in 1947 and shows major work stoppages throughout the unionized economy peaked at 470 in 1952.

Henry Ford’s inspiration of making automobiles on an assembly line was the reason automobiles became increasingly affordable for the general public. At the same time, the assembly line made the whole process extremely vulnerable to the major work stoppages. And it only took a few people to cause a costly major work stoppage. Each one caused economic losses.

From just after World War II until about 1970, there was a lot of chaos in the industrial world of unionized employment. There was also a corresponding loss of efficiencies for the affected companies. From 1947 to 2010, the cumulative number of work stoppages totalled 11,400. And 80% to 90% of them happened before 1985.

The power of discontented employees is magnified unreasonably under a collective bargaining agreement. By sufficient agitation and acquiescence by union leaders, a very few disgruntled people can inflict costly economic damage on this assembly process. Union leaders are always anxious to demonstrate to the union members that they are worthy of running the union and that their dues are worth it. The unions’ ruling class is financed by the members’ union dues. And this leadership has a bias to press management for more of anything by asserting grievances that threaten and/or cause work stoppages. The collective bargaining agreement, rather than producing long-running peace in which the assembly process can be optimized, became an intrinsically destabilizing device in the hands of union leaders responding to even the smallest grievance. The union leaders could always threaten to attack the assembly process resulting in large economic cost to the company. The collective bargaining agreement by going beyond basic economic determination of wages, hours and benefits, makes the “togetherness” of employee and employer intrinsically misaligned and destabilizing. You cannot turnover management of the productive process to discontented workers who are protected by collective bargaining.

If you cannot pay more to the more productive worker than the less productive worker, any discontent is subsidized at the expense of the better worker. And so, the union leadership will always be more responsive to the malcontents. Good workers, to whom the employer would be willing to pay more, are probably not hurting their company with their behavior. On the other hand, the dissatisfied worker is more likely to be the one likely to generate a grievance or radically disruptive behavior. In the absence of a collective bargaining agreement, employers and disaffected employees will normally part company peacefully. Due to the presence of a collective bargaining agreement, however, disaffected, non-productive and even radical trouble makers have coordinated power. And the paid staffs of the union are accountable to no one.

This new dynamic of the union taking a more “managerial” role in running GM led to a transformational event in U.S. automobile history.

The last time the United Auto Workers called a nationwide strike against General Motors was in 1970. That strike lasted 67 days, triggering layoffs at parts suppliers and steel companies and dominating headlines….

The 1970 strike was a ‘titanic clash between two massive permanent entities,’ says Jefferson Cowie, a professor or labor history at Cornell University. ‘They were both the backbone of America at the time….’

The UAW, meanwhile, was enjoying a Golden Age. Its membership was growing, with 400,000 workers at GM alone, as was its political clout. It was big labor at its most muscular, and strikes were common. That same year, more than 2 million American workers in various industries walked off the job.

…In the end, the union prevailed, winning a 13 percent pay raise and other concessions.

The UAW, which had taken down GM with a “feather” in 1936, had risen in 1970 out of the empowerment by their collective bargaining agreement and strike a grievous blow to their tortured togetherness. GM had become the number one builder of automobiles in the world and the UAW members benefited from great paying industrial jobs with benefits never before available, as one individual summarized:

 

…Tally, total and digest those numbers from 1970 again:

– 395,000 GM hourly workers in the U.S. represented by the UAW.

– 165 U.S GM facilities.

– $196 a week, or $10,192 a year.

– 60,000 hourly UAW-represented workers in Genesee County [Flint, Michigan] alone. Oh, and one more numerical formula from the 1970 strike, one that was first written here: ’30 and out.’ That strike led to the UAW’s incredibly generous ’30 and out’ retirement benchmark for hourly workers….

But the 1970 strike was the beginning of an ending. Here is a personal testimony about what was really going on:

I worked at GM’s Fleetwood factory and four other plants for eight years in the 1970s and early 1980s. It was the heyday of U.S. carmaking dominance and union militancy…. I look back on those years as a long chain of mistakes and missed opportunities for the auto industry….

…Back then, as we GM workers clashed over benefits, speed, safety and pay…. GM’s share of the U.S. market has tumbled from 46.9 percent in 1976, when we walked out at Fleetwood, to 23.6 percent today….

Without Fleetwood and its counterparts at Ford, Chrysler and dozens of parts makers, stretches of Detroit are reverting to grass and trees….

Our militancy at GM drew on the youthful rebellion that was gripping the U.S. Hundreds of us at Fleetwood, black and white, grew our hair long, fueled by anti-establishment fervor that helped end the Vietnam War and sweep Richard Nixon out of the White House.

During our 30-minute lunch breaks, we sat in our cars and listened to Jimi Hendrix as we smoked marijuana, drank beer and took Desoxyn and other methamphetamines before returning to the line. Our quality levels and absenteeism rates were among GM’s worst. We didn’t care.…

I got hired. From my sixth-floor window in a room the size of three football fields, I could see smoke billowing from the River Rouge factory where Henry Ford pioneered mass production. An oil refinery, a salt mine, a waste treatment plant, a steel mill, another GM assembly plant, a GM parts plant and GM headquarters filled the panorama. I was in the heart of American manufacturing….

I was fired after two weeks because I couldn’t install vinyl tops fast enough to satisfy GM’s need for speed. U.S. automakers built an average of 12.5 million cars a year in the 1950s through the 1970s, according to analyst Luria….

…I found a job running lathes that cut metal for a company making scales. I called the UAW every day, begging for my Fleetwood job back. There were others, but this one, paying $8.72 an hour with health care, was the best….

After our walkout, the speedup tension simmered, especially among vinyl top workers. There were about 100 on each shift. They were a distinct subset and powerful enough to convince each other that militancy could pay.

The vinyl workers — and a lot of the rest of us — goaded management by working `in the hole,’ or purposely going slow so we’d follow cars beyond our workstations.

The vinyl top people took their job 500 or 600 feet into the hole and disrupted what others were doing for weeks at a time. Management fired or suspended dozens of them….

By Oct. 8, Fleetwood didn’t have enough people to cover absenteeism. GM let one in six cars go without vinyl tops. Their metal roofs, amid the whites, yellows and browns of the completed cars, were visible hundreds of yards away.

As the unfinished models filled repair bays, GM capitulated. It increased the number of vinyl top teams to 39 from 35 and reinstated everybody with pay.

After that, the vinyl top guys could stand around for as long as 20 minutes between jobs. Other workers and managers watched as they congregated in groups defined by their attitude toward factory discipline….

Doug Fraser, president of the UAW from 1977 to ’83, remembers the ’70s as a time when Detroit could sell every car it made, no matter how shoddy.

`We got reckless,’ Fraser, 90, says….

Fraser is tormented by a missed opportunity, which he says could have replenished the UAW’s ranks….

The UAW was losing its grip at GM, too. The company eradicated sixth-floor militancy at Fleetwood with a robot for installing vinyl tops. Workers called it `the flying nun’ because it pivoted over the car and dropped the top in place….

That’s the hard part about being a former autoworker living near Detroit. Even though GM, Ford and Chrysler cut two-thirds of their employees in the past three decades, even though the Fleetwood and Willow Run assembly plants are gone and the UAW is a shadow of its former self, we’re not done paying for our mistakes.

Empowerment of the collective bargaining agreement not only precipitated major work stoppages, but also spawned a destructive culture.

In the past workers have tended, like Oliver Twist, simply to ask for more. Now, on an increasing scale, they are moving away from traditional trade union demands. They are beginning to challenge some fundamental aspects of the work process. The old illusions about ‘a fair day’s work’, about ‘doing a good job’ and about ‘loyalty to the company’ are happily dying.

At Lordstown wages were not an issue. Workers were used to regular wage increases. But despite these their life at work had deteriorated. But even if conditions remain the same workers themselves do not. They are increasingly rejecting the industrial prison.

This the real cause of the crisis in production today. It is an attitude which is beginning to question some of the underlying assumptions of modern society and several of its basic values and priorities….

What we are witnessing today is something very different. The cultural attitudes brought about by a steady and sustained increase in the standard of living are proving most subversive to the smooth functioning of modern capitalism. The desire for more freedom is difficult to coopt. Having by and large secured the basic necessities of life, workers are beginning to think about a more human existence in work. Some are even beginning to question the present structure of work. How much work is necessary? Of what kind? Why…?

Another yardstick of changing attitudes to work is provided by the figures for absenteeism. At GM absenteeism jumped from 2% in 1960 to 6% in 1970 (‘GM:The Price of Being Responsible’, Fortune, January 1972). It rose another 11%, in 5 months, in early 1972…. Every day at GM 5% of workers are absent ‘with no explanation whatsoever’ – On Mondays and Fridays the percentage doubles, 10% are out (Fortune, June, 1970)…. When a worker at Lords town was asked ‘What is it like on a Monday, in summer, then?’ he replied, ‘I don’t know, I’ve never been in for one’ (Sunday Telegraph, December 2, 1973). Another worker, when asked ‘how come you’re only working four days a week?’ replied, ‘because I can’t make enough money in three’ (Newsweek February 7, 1973)….

The cost of all this to management is enormous. For example in 1971, in the Oldsmobile Division of GM alone, the cost of absenteeism (considering only fringe benefits) was about $50 million. Turnover costs were another $29 million (Detroit Free Tress, November 12, 1972, quoting from ‘GM Personnel Development Bulletin’)….

In 1970, the re-equipped General Motors car assembly plant at Lordstown (Ohio) started producing the sub-compact Vega model, aimed to compete with imported cars….

When completed Lordstown was the world’s most automated motor plant. 3 It had 26 ##unimate industrial robots for welding operations. These perform about 520 welds on each car. (Time Magazine, February 7, 1972). There are only some 800 machines of the type in the USA….

The result of this investment and rationalization was a track speed of 101.6 cars per hour: one vehicle produced every 36 seconds, by far the fastest rate in the world….

In the winter and spring of 1971-72, under the pressure of increased workloads, workers (often the usually compliant ‘hillbillies’) began to pass cars down the line with the odd bolt or minor part missing. The movement rapidly gained momentum. In one case a car came down the line with the body shelf neatly covering a pile of unassembled parts. Alvin B. Anderson, Manager of Lordstown, stated ‘we’ve had cases of engine blocks passing 40 men without them doing their work’ (Cleveland Plain Dealer, January 23, 1972).

At this stage workers left out one car in 10, or one car in 20. This meant a reduction of 5 or 10 cars per hour…. Any reasonable well-run campaign should leave at least 80% of cars incomplete. And that’s not counting those which have had secondary operations completed when the primary job isn’t completed, which of course means that the ‘completed’ job has to be taken to pieces again.

Clearly one of GM’s responses to this type of destructive work stoppage was the beginning of automation by mechanical robots. But there remained an ideological contempt for the whole process by radical workers who could still sabotage the assembly process. There wasn’t a mutually beneficial process to reconcile differences under the collective bargaining agreement. Rather, it was an attack against the work itself by workers who suffered little consequence. In another environment, such attackers could have been discharged. And more willing job seekers could have replaced them. Unfortunately, the collective bargaining agreement would never allow the engaged parties to retreat and reconcile.

Here is an excellent description of the collective bargaining environment:

…How can we explain that whenever GM, Ford and Chrysler leave our shores, they compete well in foreign markets as varied as Europe, South America and China? What makes them viable competitors as soon as they cross the border…?

It is perhaps the mode of doing business in a unionized company that remains a crippling disadvantage. The UAW is arguably the most successful industrial union of all time. But its very strength has allowed it to permeate into every aspect of manufacturing in the Detroit Three.

The collective bargaining agreement with the UAW is a heavily negotiated document the size of a small telephone book. It is virtually identical for each of the Detroit Three, owing to ‘pattern’ bargaining, but it doesn’t exist at all in their U.S. competition, the nonunionized transplants. Not only work rules, but fundamental business decisions to sell, close or spin-off plants are forbidden without permission. That permission may come, but only at a price, since everything that affects the workplace must be negotiated.

Both the UAW and the Detroit Three maintain large staffs of lawyers, contract administrators, and financial and human-resources representatives whose principal job is to negotiate with the other side. These staffs are at all levels, from the factory floor to corporate headquarters and the UAW’s ‘Solidarity House’ in downtown Detroit.

The collective bargaining agreements are now renegotiated every four years; in each negotiation the power and penetration of the union grows. If the company asks to change the flow of work for any reason, from cost-savings to vehicle improvements, the local union president will listen politely, and then say something like, ‘We can help you with this, but what’s in it for my guys?’

Typically, he will have a list of things he wants, some understandable (better cafeterias) some questionable (hire my nephew), but there is always a quid pro quo. These mutually sustaining bureaucracies exist to negotiate with each other.

In the demise of the United Auto Workers union, one of the greatest unions ever, we discover that unions are not about creating or maintaining jobs for their member-workers.

Just 11 years ago, GM tried to make modest work-rules changes at parts plants in Flint, Mich., and the union went on strike, halting production of GM trucks. It cost the company about 500,000 vehicles and more than $2 billion in net losses before the strike ended in a compromise 54 days later….

Here is the most poignant reflection and absolutely perfect summary of what happened after the devastating 1970 strike.

 

 

Who won what? Clearly, 75,000 and still declining UAW auto workers have well paying jobs, but another 325,000 have been cast off. And in Flint, Michigan, the “birth place” of the UAW, 87% of the 1970 jobs are gone.

…As I said: Staggering….

And we can blame anything or anyone we want….

But market share, productivity gains, offshoring and morphing automotive tastes have all combined to destroy – destroy – the old paradigm of the ‘American’ automotive industry.

That paradigm promised – and delivered – good, middle-class jobs, with middle-class benefits, to generations of families.

To entire cities. An entire state. An entire nation…. (emphasis added)

Shall we just say that the UAW just slaughtered itself while deluding itself into believing that it was taking over GM to dominate it? What do union leaders have to say about this data?

Collective bargaining agreements produced work stoppages, radicalization of some labor, high costs and a spectacular loss of jobs in the UAW which had conquered GM with a “feather.” Suppose the UAW leadership had just cooperated with GM a little more to assist growing productivity to lower costs instead of constantly attacking it? But, then, UAW leadership has a bias to demonstrate achievements to their due paying members. Work stoppages evidence this power. But, as you can see, in the end, UAW jobs collapsed. At the close of the decade marked by 1970, the population was 1,514,063 in Detroit. This was down 335,505 or 18% from its 1950 peak.

The silent and unintentional killer in all of this was the collective bargaining agreement. It put two great institutions, free assembly unions and General Motors, into a state of constant disruption and conflict. And it is clear that wages were not always paramount. But, under collective bargaining small grievances of dissatisfied people could produce expensive chaos and expansive destruction on the exquisite assembly line from which affordable cars were pouring. Was this conflict necessary?

After 1970, GM and the other legacy manufacturers were locked behind a wall of uncompetitive costs and benefits. It would create an unprecedented vulnerability.

Let’s put some perspective on how big the economic wall that trapped GM was since at least the 1970 strike.

For a company that perpetually faced a roughly $2,000-a-car cost disadvantage for most of the last few decades versus its Japanese rivals, the turnabout is monumental….

‘It means the curse they’ve been carrying for 20-some years is gone,’ said David Cole, chairman of the Center for Automotive Research in Ann Arbor….

GM had battled the cost bugaboo fruitlessly for decades. It couldn’t make a small car competitively in the United States because of the huge manufacturing-cost differential, seen in the form of a woeful labor-cost comparison and also in the efficiency advantages of the Japanese approach to manufacturing. The whole idea of launching the Saturn brand in the mid-Eighties was for GM ‘finally’ to make a cost-competitive small car that could steal sales from the Japanese.

The background of the Saturn failure is more than just interesting in uncovering how unrelenting was the UAW’s opposition to GM escaping the deadly trap of collective bargaining culture as it had evolved over the years.

…the union waged war against Saturn’s labor reforms to keep them from spreading to other GM factories.

The story began on Jan. 8, 1985, when GM announced Saturn at a press conference in Detroit. It would be GM’s first new brand in 70 years and operate as a separate subsidiary, with its own labor contract, to develop a small car fully competitive with the imports….

Saturn’s chief UAW apostle was Donald Ephlin, the visionary head of the union’s GM department…. Ephlin strongly believed that Detroit’s auto makers and the UAW had to change from confrontation to collaboration.

Thus the Saturn contract, built on the Memorandum of Understanding, eliminated most of the work rules that strictly limit the tasks UAW members can perform. Workers would be called ‘technicians’ and get just 80% of standard UAW wages but would share in Saturn’s profits, allowing them to earn more if Saturn succeeded. Most Saturn executives and managers would be assigned a UAW counterpart, and the two would share in key decisions.

The latter provision was overly idealistic, but certainly an improvement over constant and costly combat. Nonetheless, Saturn’s labor innovations were attacked by UAW traditionalists, who coined the term ‘Ephlinism’ to describe Saturn’s heresies….

…Saturn sales peaked at 286,000 cars in 1995.

But that year saw another, more menacing development. The UAW elected as its new president Stephen P. Yokich, a militant firebrand with an explosive temper who hated Saturn. Before his death in 2002, he opposed profit-sharing, the elimination of work rules, and the flexible factory shifts that improved Saturn’s efficiency….

In 2003 the Spring Hill technicians—now workers again—voted to scrap Saturn’s special agreement and return to the UAW’s standard contract with GM. Spring Hill became a regular GM factory after the last Saturn was built there two years ago.

To the bitter end, radical union leadership could not do anything to help the company out of the destructive collective bargaining box. It would take a bastardized bankruptcy in 2009 to finally get the UAW to wake up to reality, and after illicitly receiving a vast portion of GM stock.

… And the UAW agreed to give each of the Big Three new future flexibility to add workers at a lower new wage-and-benefit tier than existing employees, which would roughly halve the previous hourly compensation for new production workers.

The key point here is that the post bankruptcy hourly compensation would “roughly halve the previous hourly compensation….” And even after the bankruptcy, GM is still at a disadvantage.

Bottom Line: Even with the new contract, there will still be about a $14 per hour pay gap in total labor costs between GM ($62) and Toyota ($48), and more than a 29% total labor cost premium for UAW workers compared to their nonunion counterparts at Toyota.

This post-bankruptcy higher cost will continue to precipitate the decline of vehicle production and market share of retail sales. The world’s number one automobile company has and will continue to shrink in its cost crippled state—in America.

Now many will say that GM was such a poorly managed company and that nobody wanted their products. There is a simple answer to this. From the UAW’s recognition by GM in 1937, GM became the number one and largest automobile manufacturer in the world. They had to have a lot of satisfied customers to achieve this. All legacy brands have declined dramatically in market share after the 1970 high cost wall was put in place buy the UAW. But throughout this violent up and down cycle, GM remained number one.

 

Image: GM Market Share data calculated by Ward’s Communications, Inc., “Wards Automotive Yearbook”, various issues and General Motors, “Annual Report”, various issues.

 

Under the ongoing burdens of collective bargaining, you would have to have been making outstanding products to experience such a decline and still be the number one company in market share.

It turns out that these costly and permanent disadvantages for GM and other legacy manufacturers, unfortunately for them, would turn out to have created a land of opportunity for a whole new group of industrialists.

During the 1973 Arab Oil Embargo, gasoline prices soared and there were always long lines at gas stations which would often just run out of gasoline altogether.

In response to this crisis, the Japanese decided to send a few small, fuel efficient cars to America to see if they could develop the market for them. It didn’t take long for them to answer their own question. Honda came to Maryville, Ohio in 1982 and, not long thereafter, Toyota and others would follow. GM and the legacy manufacturers had crippled themselves by having acceded to the UAW’s wage and benefit program in 1970 and thereafter. Both GM and the UAW would suffer dramatically with GM losing sales and the UAW losing members.

Let’s look at the numbers:

 

Image: GM Production numbers calculated by Ward’s Communications, Inc., “Wards Automotive Yearbook”, various issues, and General Motors, “Annual Report”, various issues.

 

How many businesses do you know whose production could decline from just over 6 million units to just 2 million, a 66% collapse in volume, in 34 years and still be in business? Do you think it might be because they stopped investing in America and found other places where they were well-received and more competitive? Wherever they went and succeeded, there was no UAW.

But the disaster for GM was perhaps exceeded by the disaster for workers in the UAW. This is a bitter irony. In the end, the UAW’s attack on GM originating from the powerful collective bargaining agreement would hurt the auto workers dramatically.

 

Image: UAW membership levels calculated from data available from the Walter P. Reuther Library, UAW, and the U.S. Department of Labor.

 

In a very real sense, by abusively exercising their power, the Union leadership ultimately killed hundreds of thousands of jobs. This loss of billions and billions of dollars of industrial wages for industrial laborers was a catastrophe for the workers and for the industrial sector of our economy.

With production beginning in the U.S. in 1985, Honda would reach an annual number of assembled cars of almost 1.0 million cars by 2010. Toyota, with production beginning in the U.S. in 1990, reached an annual output of almost 900,000 cars by 2010. In addition, they would also be importing cars from Japan. And almost everyone is familiar with their standards, quality and value.

And so the “collective bargaining agreement” powers and abuse thereof self-destructed two great American institutions, GM and the UAW. Proof is made certain by looking at the fate of the foreign transplants, who dared to come to America and build their cars here.

A twenty-five year data plot on Honda and Toyota says it all. And almost everyone who knows, know how extremely successfully they have been.

 

Image: Honda and Toyota Production numbers calculated by Ward’s Communications, Inc., “Wards Automotive Yearbook”, various issues, and Toyota and Honda, “Annual Report”, various issues.

 

So, in an industry that Henry Ford invented and in which GM became the world’s number one automobile manufacturer, here are the current market shares of retail sales of the industry: GM-18.8%, Honda-10.4% and Toyota-15.0%. The year before the 1970 strike, GM had a market share of 45.8%, down from its peak in 1962 of 50.7%.

 

Image: GM, Honda and Toyota Production numbers calculated by Ward’s Communications, Inc., “Wards Automotive Yearbook”, various issues, and GM, Toyota and Honda, “Annual Report”, various issues.

 

We know from our GM Light Vehicle Production Chart, that GM was incapacitated long before Toyota and Honda appeared. When they did appear, the “cost wall” behind which GM was trapped sheltered and assured the ascendancy of the “invaders.” As we can see from the long term growth rates, the destruction will continue.

In a sense, “collective bargaining” and all its costly spawn became a protectorate for the foreign entrants.

What about major work stoppages and all the damage they caused GM, Ford and Chrysler? Well, for the “invaders,” there weren’t any. Now at this point you will probably say, “what do you mean there weren’t any work stoppages?” Well if you don’t want to believe this, here is an expert authority:

Eyeing last year’s picketing of Toyota dealerships by UAW members, John Mendel, American Honda executive vice president, voiced his opposition to any UAW threats to Honda’s non-union status.

‘The union announced that they’re going to target the operations of international automakers this year,’ Mendel said in a speech to the American International Automobile Dealers Association.

‘The issue of union representation is one for our associates to decide, not us,’ Mendel said. ‘Having said that, we do not believe that an outside party will improve upon [our] outstanding track record of success … over the past 30-plus years.’

There you have it, the whole story. There are no strikes or lockouts, there are no collective bargaining agreements to let the union gerrymander their way into management. Why? The reason is very straight forward. The workers of Honda and Toyota and others have consistently rejected UAW membership.

In 1937, when workers were given a “free choice” to join a union they did, and the UAW quickly became the largest industrial employer union. Since then, the result of the whole GM/UAW “joined at the hip” collective bargaining relationship has been absorbed and evaluated by the business and worker communities. Now, when given a “free choice” to join or not join a union, auto workers are just saying no.

And this is completely consistent with experience for all unions.

Image: The estimates of private sector union membership were calculated from the U.S. Department of Labor, Bureau of Labor Statistics; Leo Troy & Neil Sheflin of the Union Sourcebook and U.S. Census Bureau data.

 

Over this long period of time, union membership has proven itself to be unattractive to workers throughout the economy.

Our chart shows U.S. Private Sector Union Membership. It peaked about 1970. How ironic that this was the same year of the great UAW strike against GM. In 1970, 31% of private sector employees belonged to a Union. By 2010, just 6.9% of private sector employees belong to a union.

And all workers should be free to either join a union or not join a union.

More than anything else, the collective bargaining agreement destroyed the UAW and, therefore, “the old paradigm of the ‘American’ automotive industry.”

That paradigm promised-and delivered-good, middle-class jobs, with middle-class benefits, to generations of families.

To entire cities. An entire state. An entire nation…. (emphasis added).