Tuesday, November 18, 2008

Yeah or Nay on Bailout, But Don't Blame Detroit's Problems Only on Labor

DETROIT - Any day now, the country and its decision-makers will decide whether to extend a massive financial lifeline to sustain Detroit's suddenly cash-anemic automakers. Judging from the rhetoric coming from the auto industry and sympathetic voices in Washington, DC, it needs to be any day now, or Detroit won't be around to hear the verdict.

And every day now, there are colliding opinions regarding whether an automaker bailout is wise - or politically and socially proper.

As has been said many times as the domestic auto industry continues its frenetic unraveling, there's plenty of blame to go around, and a portion of it lies with the unions. The United Auto Workers has rarely been out of the conversation of what's ruined Detroit Inc., but arguments centered on the notion that fat, uncompetitive unionized labor is the root cause of Detroit's ills are specious - and little more than an excuse for some good-old-fashioned union-bashing.

Noel Tichy, a management professor at the University of Michigan, told the Wall Street Journal this week, "All three of them (Detroit's automakers) inherited 50 years of Rust Belt bad strategy and leadership. This is not something that blew up overnight."

Definitely correct. Wall Street's recent "issues" didn't develop overnight, either. It's still no excuse for institutional mismanagement, for which General Motors Corp., Ford Motor Co. and Chrysler LLC - as well as the UAW - are patently guilty.

But the UAW is hardly the main problem.

Maximizing compensation and working conditions, after all, is the general directive of organized labor. How often have you turned down a pay raise, for example, a scheduled increase in your number of vacation days, improved health care or an enhancement of your other benefits. Yet when similar benefits are won by organized labor, it's portrayed as extravagant.

Social Experiment Equals Social Contract

Suggestions that a Big Three bailout is really a blank check to support the UAW's past and present wish list ignores the facts and assumes an almost anarchistic role for Big Labor that undermines its mostly positive portfolio of contributions.

Greed abounds in almost all business relationships. But contracts eventually are just that: both sides agreeing to terms. If one side cannot bear the supposed injustices of the contract, it doesn't have to sign. So in the end, a signed contract is the symbol of each party saying it can live with the terms.

The UAW should be proud of the battles it won in the earlier parts of the 20th century, when men gave blood to settle the differences between organized labor and corporate America. It was a giant social experiment that helped rein in the barons of 18th-century industry - and together with select other major labor movements, forged the nation's vibrant middle class. A middle class that drove America's consumer-fueled economic engine for the ensuing half-century.

But those embryonic UAW tussles largely were to force basics such as more-humane working conditions and living wages. It was to assure the social contract between company and worker that ruled for decades to follow. A social contract that many believe has been sacrificed anew by modern corporate profit-maximizing tactics - offshoring of labor and entire manufacturing industries.

The net result has been, many economists argue, an erosion of the middle class that now might be intensifying the nation's economic meltdown.

Yes, the vision of assembly-line high-school graduates with lakeside vacation cabins and a fleet of motorized toys might epitomize the stereotype of the overpaid auto worker, but those workers enjoying such luxuries certainly did so thanks to the toil of heavy overtime schedules - the kind of physical hardship it's hard to image the typical Wall Street broker emulating.

More important, the UAW, for all its faults and as corny as it now seems, uniquely symbolized the ultimate fulfillment of the American Dream: work hard for a successful company and everyone enjoys the fruits of their labors.

The UAW's handsome standards were embodiment of the social contract for which all laborers could aspire. It's what made Henry Ford's notion of $5-a-day wages an economy-pumping primer today's politicos and corporate magnates would do well to revisit.

Social Contract Gone Awry

In the modern era, the UAW's marching orders evolved to become less about human rights and more about entitlement.

And as the auto business thrived, the automakers got taken to the cleaner. It was  management's obligation to see that didn't happen - but it didn't, leading to myopic capitulation to the UAW such as the notorious "Jobs Bank," which we now cite as the grandaddy of all whacko concessions: paying people nearly full wages regardless of whether you could actually put them to work. The ghosts from both sides of the Battle of the Overpass wept when that contract was signed.

But what the automakers and the UAW both are guilty of is not so much greed but shortsightedness - the Achilles' heel of nearly all contemporary business thinking.
The UAW wanted too much in relation to what its members individually contribute, winning increasingly out-of-proportion compensation with each new four-year contract. Automaker executives, meanwhile, often acquiesced to avoid costly short-term setbacks - i.e. labor strikes.

"Peace" with labor was more important for the coming quarterly earnings than it often was for long-term viability of both entities. It is this serial capitulation to labor's demands that remains one of Big Three management's more prolific blunders. The Jobs Bank is an example no less a business mind than the average grade-schooler might divine to be nonsensical.

Yes, It Needs Fixin'

So when UAW president Ron Gettelfinger said in the Wall Street Journal, "This industry is in a crisis situation not of its own making," that's more than a little bit of window dressing.
There's no doubt the relationship needs fixing. But the UAW's figures say labor amounts to only about eight percent of the cost of an average-priced new vehicle (we won't dispute that seemingly self-serving statistic - in the past, we've seen several automakers cite similar figures when it's suited their purpose to downplay labor cost). So fix the major problems first and let's save wringing more out of the middle class for later.

Perhaps Detroit's automakers should be forced to sink or swim without a life preserver fashioned from taxpayers' greenbacks. Maybe their century-old business model - and thinking - simply is outmoded. And maybe bankruptcy is the answer if the requirement is a more "efficient" method of addressing the massive labor legacy costs that overshadow automakers' balance sheets.

But consider the proffered side-effects of one or more automaker bankruptcies:

For legacy costs: offloading pensions to the federal Pension Benefit Guaranty Corp. How does that relieve taxpayers from shouldering the Detroit-UAW burden?

For displaced workers: job retraining. To do what? Stand behind a Starbucks counter dealing out the premium frappuccino nobody can afford anymore? Oh wait, Starbucks is hurting too.

For our sacrificed manufacturing base: let others do it. Okay, let's go with what got us here.

Photos from the UAW

1- A scene from the early days of union organizing

2 - The Battle of the Overpass led to the establishment of the United Auto Workers union in 1935.

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