Saturday, November 15, 2008

MJS's wrong on Big 3, auto workers & the UAW!

The Milwaukee Journal Sentinel (MJS) is nothing but consistent when it comes to editorializing on labor relations. While it expresses regret over the loss of family supporting jobs and Milwaukee's nationally high and very stubborn poverty rate, it has never missed an opportunity to push for wage or benefit concessions for unionized workers.

A year and one half ago, when the economy was expanding with corporate profits the highest since the Gilded Age and labors’ take the lowest, the editorial board urged three separate groups of local employees to agree to concessions.

First, County employees were urged to be “realistic”and praised for accepting higher health care premiums and scaled back pension and sick leave benefits.

Then Milwaukee’s Harley Davidson workers were urged to accept lower wages for new employees and changes in their health and pension plans even as Harley generated record revenues and rewarded its executives with huge compensation increases.

Shortly afterwords, the editorial board urged Kenosha’s Chrysler Engine Plant employees, members of UAW Local 72, to "be realistic" and accept “painful concessions” from the company's new owner, the private equity firm, Cerberus, even though Cerberus hadn't even asked for them.

More recently, it has supported eliminating firefighter and Milwaukee County jobs and opposed requiring employers to provide their employees with paid sick days. But its recent editorial that advocates letting the U.S. auto industry with its 3 million middle class jobs go out of business takes the cake. It blithely ignores that the U.S automobile industry is:

  • the backbone of America's manufacturing sector

  • responsible for 1 out of every 10 private sectors jobs and $150.7 billion in personal income

  • critical to America's national defense

The editorial also ignores that failure would cost $156.4 billion in government revenues over just three years at a time when the economy is reeling, unemployment soaring and the deficit approaching one trillion dollars.

Not only does the MJS editorial advocate allowing the Big Three to go bankrupt, but it targets the United Auto Workers Union (UAW) and its middle class members for unjust criticism. It is so loaded with tired, inaccurate and anti-labor rhetoric it could have easily have been cut and pasted from a 1970s' Heritage Foundation report.

Here's what the MJS editorial writers alleged about the UAW and its members and the facts:

A second bailout won't make up for decades of mismanagement and union intransigence...

The U.S automobile industry has been mismanaged. Congress has responded by appropriating $25 billion to assist the industry in developing a new generation of energy efficient vehicles and green technologies. But the industry's current crisis is driven by the credit markets collapse and the resulting recession. One million three hundred thousand (1.3 million) private sector jobs have been lost causing consumer spending to decline for the first time since the early 1970s. As a result, car sales for all auto companies including Toyota have plummeted.

The Big Three are seeking a bridge loan to help it deal with the most severe economic downturn since the Great Depression.

The UAW has been anything but intransigent. The 2003 and 2007 contracts cut billions of dollars in costs for the Detroit 3. In 2007, new hire wage rates were halved to $14 per hour, new hires got reduced health care benefits and were not included in the existing defined benefit health plan. In addition the creation of the VEBA for retiree health care saved the companies $33 billion in future health care obligations.

The UAW has also allowed many sub assembly operations traditionally done in-house to be outsourced to suppliers and has agreed that certain non-core functions like housekeeping could be contracted out to lower paid workers.

The Detroit 3 and the UAW have been operating as if they were in bankruptcy for the last several years. One hundred thousand (100,000) autoworkers have lost their jobs in just the last two years as auto companies have closed plants and reduced capacity.

The overhaul should include severe cost reductions and the end of onerous union rules that hamper productivity.

The UAW long ago recognized that world class quality and high levels of productivity are essential. The UAW at plants like the Chyrsler Engine Plant in Kenosha and the GM Assembly Plant in Janesville have worked in partnership with management to improve quality and productivity. The Chrysler Kenosha Engine plant has been recognized as an industry leader in team based manufacturing techniques modeled on the same operating systems used by Toyota.

But bankruptcy is a system for reorganization - companies continue to operate in Chapter 11. Jobs would be lost, lots of jobs, and a bankruptcy for any of the three companies would be painful. But all 3 million jobs tied to the industry would not vanish. Other companies have emerged from bankruptcy stronger. The airlines repeatedly have foundered only to re-emerge.

The truth is, the Big Three would most likely face a Chapter 7 liquidation not a Chapter 11 reorganization. It is highly unlikely that the Detroit 3 could get debtor in possession financing to continue operating or that consumers would buy cars, the 2nd largest consumer purchase, from bankrupt companies.

It's astounding that the MJS would suggest that the U.S. airline industry is a model. That industry has been a basketcase for almost thirty years. It is currently hemorrhaging billions of dollars and tens of thousands of middle class jobs while reducing routes and capital investment and increasing fares. It is a model for the failure of deregulation.

The truth is, the government has delayed this day of reckoning for years. It bailed out Chrysler in the late 1970s, imposed quotas on Japanese imports in the 1980s, and for decades let the Detroit automakers build gas guzzlers under sham federal fuel-efficiency standards. For its part, the UAW kept fighting for expensive benefits and embracing a 1950s worldview even as the automakers were crashing

The Chrysler bail out was an unmitigated success story. When the federal government offered its help, Chrysler was responsible for one out every one hundred private sector jobs, most located in urban areas. The loans were repaid in full ahead of schedule. A viable Chrysler continued to exist providing family supporting jobs, health care and pensions to tens of thousands of workers and retirees around the nation and in Wisconsin.

Quotas were never imposed on foreign automobile competitors, although Japanese companies adopted voluntary trade restraints in the early 1980s.

Perhaps the MJS editors are confusing the Big Three with Harley Davidson which successfully restructured under the protection of actual quotas.

It is also untruthful and irresponsible to maintain that the UAW embraced a 1950’s mentality as the automakers were crashing. As a result of the 2003 and 2007 contracts the cost gap between the Detroit 3 and Toyota will be eliminated.

Anyone who has been inside a UAW represented Ford, GM or Chrysler plant recently will attest to the strong union commitment to streamlined work rules designed to build high quality vehicles at low cost.

According to the authoritative Harbour Report, the UAW represented Chrysler Belvidere assembly plant was the most productive car assembly plant in the United States in 2007 topping every foreign owned plant. Another UAW plant, a Chrysler joint venture engine plant in Dundee, Michigan was the most productive engine plant in this country last year.

Wisconsin is the home to hundreds of automotive supplier firms such as Johnson Controls, Dana Holding Company, Charter Wire, and Stratech. Tens of thousands are employed at these companies. We have begun to see the impact of GM's shutdown in Janesville which now has the highest unemployment rate in the state. We simply cannot afford to allow this critical industry to go bankrupt. Congress should provide the Big Three with a bridge loan to help it survive the current recession and retool for the next generation of green vehicles and middle class jobs. The MJS should listen to our new President. It needs to reexamine its blind faith in market fundamentalism with its anti-labor animus and support policies that actually promote the middle class and family supporting jobs.

John Drew, UAW Local 72 President (1996-2004), UAW International Representative Region 4

Michael Rosen, Professor of Economics, MATC


Domine said...

The corporate leaders of the auto industry just kept running their companies like cash cows and did not invest in technology to build new products.

The failure of the American auto industry to move to an electric powertrain is what is causing the demise of the industry. The reason why the Japanese have become the leaders is their continued investment in technology....not just in manufacturing, but in the way that automobiles operate.

Cash cows eventually run out of milk and die......

There should be conditions on the auto industry....basically, the government should be looking at this not a a bailout, but as an investment in is apparent that the leadership of the industries cannot run the companies....then those investing in the company need to provide specific direction to those companies as to what to should be related to our energy plan.....

What is interesting is that the same thing happened after the gluttony of the private sector in the 1920's....the result was that the government, mainly the people of America, had to rescue itself from those individuals that only believed in themselves......

Curt said...

I'm not sure which made less sense, the article or domine's comment.

Sure, the big 3 provide lots of family supporting jobs, and they build some decent products, but how does either of those facts warrant a bailout? They still spend almost twice as much per hour on labor as Toyota and Honda. If one of more of them go under, those jobs may disappear for good, or they may simply move to Toyota or Honda as they fill in the gaps, or perhaps to growing the economy rather than being paid to sit on the sideline in a "Job bank". Bankruptcy is the best thing that can happen to the big3. One or more may not survive bankruptcy, but any that do, may be able to compete less a cripling pension and compensation structure.

As to Domine's comments, I would hope that any bailout comes without installing government as a partner in Detroit. Yes, we could invest and grow companies on a longer horizon like the Japanese do, but socializing the industry is the worst thing we can do. That just layers on another entity on top of management with an ever worse track record of innovation, cost control, and planning.

As to government coming to the aid of big business and bailing us out of the great depression. It was government protectionism, wage controls, price fixing, and other "fixes" in response to a correction much like the one we just suffered that caused much of the great depression, and were the reason is lasted as long as it did. In fact government intervention to prop up industrial wages at a level much higher than the market would dictate (As any big 3 bailout would do) was the proximate cause of the staggering 20% unemployment level reached during that dark time.

Jeff Werstein said...
This comment has been removed by the author.
Jeff Werstein said...

Wow, Curt. So the Great Depression and the current crisis have less to do with unregulated speculation by the most greedy and privileged people in the country and have more to do with the government and trade unions trying to advocate a more equitable distribution of the wealth created? Now that's senseless. Who do you think bought all the automobiles that made the big three rich? How are those people going to buy those cars if they are making a fraction of what they do now? Isn't the drive to the bottom fun?

And, while we're at it, let's blame the working class, the government and the trade unions for everything else that's wrong in America, too.

Anonymous said...

One thing that was not touched on is the role of the federal Reserve in postponing the day of reckoning. To spur sales, the Big 3 gave zero interest loans, taking sales from the future and moving them up. Many bought cars years sooner than they might have, many who were at best marginally qualified got loans that they later defaulted on. In a very real sense, selling more cars in 2002 meant there would be fewer cars to sell in 2006. More sales in 2006 meant that there would be fewer in 2008. The Federal Reserve created the money out of nothing to make this happen. As one great economic thinker put it, "Counterfeit money creates counterfeit businesses that can only be sustained by further debasing the currency."

Note that this same counterfeit money also allowed the CEO's to collect obscene bonuses built on air. Just like in the housing market, the chickens are coming home to roost. Any further postponement will require even more massive amounts of money than previously, and reward both bloated and mismanaged companies and their overpaid workers.

The Unions guy argues in effect that high costs (wages and benefits) are good for the economy. Evidence abounds that this is not true. He cites the Chrysler bailout as evidence that bailouts are good. He ignores the tariff and other trade limitaions that enabled Chrysler to succeed. And remember that it was during this time that Chrysler started using Mistubishi engines, so Lee Iococa had it both ways. Note also the Chrysler succeeded in part because they liquidated numerous assetts. I opposed the Chrysler bailout BECAUSE it set a precedent that was sure to be followed with considerably less success. Well, here we are...

Both Unions and management desperately need a reality check. I say give it to them. NO BAILOUT!!

Ken Van Doren