Our Contracts, Our Country
UAW job security pacts push automakers to increase sales — instead of cutting jobs
A year ago, the outlook for auto sales looked pretty grim.
After all, the U.S. economy had been slowing down even before the awful shock of Sept. 11. And after the terrorist attacks, people were thinking about anything but buying a new car or truck.
Consumer confidence was shaken. Traffic in auto dealerships had slowed to a crawl. The stage was set for a sharp decline in vehicle sales, which translates into sharp economic pain for the 8.5 million Americans (according to Ward’s Automotive Yearbook 2002) whose jobs are dependent, in one way or another, on the health of the auto industry.
But the crash in car sales never came. On Sept. 21, General Motors announced a plan to “Keep America Rolling,” with 0 percent financing for new car purchases. Ford and DaimlerChrysler followed suit. And October 2001 turned out to be the greatest month in the history of U.S. auto sales.
While the rest of the economy has sputtered, the incentive-driven boom in auto sales has continued, surprising many forecasters.
“I’m surprised how well the industry has done,” says William Strauss, a senior economist at the U.S. Federal Reserve Bank in Chicago. “A lot of people have been wrong in forecasting the demise of vehicle sales.”
In articles marking the anniversary of Sept. 11, GM received widespread credit — deservedly so — for rapidly coming up with a dramatic sales plan that connected directly with consumers.
Less noticed was the role played by UAW members. Not only because we stepped up to keep quality products rolling off the assembly line, but because we negotiated the contracts which led GM and its rivals to push a high sales strategy in the first place.
“The role of union agreements is overwhelming,” says Sean McAlinden, an economist at the Ann Arbor, Mich.-based Center for Automotive Research (CAR). “It played a huge role in that decision.”
What does a union contract have to do with corporate sales strategy? Because of the strong job security language in UAW contracts — no plant closings, more than $3 billion in Supplemental Unemployment Benefit (SUB) funds, a 42-week limit on layoffs — the Big Three auto makers are committed to fixed payroll costs regardless of production volume.
“You really save nothing from a plant shutdown,” explains McAlinden. “The best thing the companies can do is try to cover the variable cost by lowering price, instead of laying workers off.”
“It used to be we would lay off workers by the hundreds of thousands, and costs would fall with sales. Today if you do that, your costs don’t change. The UAW contract forces the companies to consider reducing price” instead of laying off workers.
“It’s more effective to keep those plants running and make a smaller profit per car,” agrees Strauss of the Federal Reserve Bank. If companies reduce production, he points out, “they’re not going to be avoiding a lot of costs.”
Keeping auto plants running, experts say, is key to the American economy. David Littman, chief economist at Comerica Bank in Detroit, estimates that the incentive-drive surge in auto sales has added between $25 billion and $50 billion to America’s economic output.
The impact is especially dramatic in the upper Midwest, says McAlinden. “States like Michigan, Indiana and Ohio have far lower unemployment than they would have otherwise,” he says.
The benefits of SUB pay and job security language are not just restricted to UAW auto contracts. The UAW has negotiated similar protections with employers in the agricultural implement, construction equipment and heavy truck industry.
The most effective way to fight an economic downturn, says McAlinden, is with “fiscal stabilizers” like extended unemployment benefits. If workers enjoy a strong social safety net — as they do in Europe, for example — they can maintain their income when times get tough. That means consumer demand never totally evaporates, and the overall economy can recover more quickly.
Unfortunately, fiscal stabilizers and other measures to counter the harsh turns of the business cycle have fallen out of favor in Washington. In the United States, unemployment benefits run out after 26 weeks — and the Bush administration has shown far more interest in delivering tax breaks to those at the top of the economic pyramid than in providing broad-based economic security for working Americans.
“There was no recovery package coming out of Washington
after 9/11,” says McAlinden. “The only recovery
package passed by anyone since 9/11 was 0 percent financing,
from the auto industry and the UAW.”
