End of the Road: Is the Auto Industry Dead?

By Mark Brenner and Jane Slaughter, Labor Notes. Posted November 19, 2008.

This outlook ensured that a host of management initiatives -- and stupidities -- went unchallenged. Early on, the UAW abandoned Reuther's fight for low car prices; later, it joined auto manufacturers in lobbying against higher fuel economy standards. The UAW also embraced its role as guarantor of orderly industrial relations, repudiating the tactics that gave birth to the union in the 1930s.

The Path Downwards

These years of collaboration and quiescence left the union ill prepared for the crisis that shook the auto industry in 1979. The UAW once again blazed a trail the rest of the labor movement would soon follow-only this time it was the path of concessions and explicit labor-management cooperation.

Through postwar recessions and expansions, it had not occurred to American employers that signed contracts could be breached. But when Lee Iacocca's Chrysler Corp. threatened bankruptcy in the fall of 1979, the UAW stepped up to the plate. Chrysler workers and retirees broke the once-sacrosanct pattern contract, taking concessions estimated at $203 million, $2,000 per worker, nonrecoverable.

More cuts soon followed; by January 1981 Chrysler workers were collectively a billion dollars behind. The next year, with the economy and the industry in full-blown recession, the union opened pacts at Ford and GM to make cuts there.

Describing the new bargaining climate, a steel industry official told the Wall Street Journal, "The whole posture of negotiating is changed. Basically we're asking for something that we're not entitled to." A staffer for the United Food and Commercial Workers noted, "After Chrysler, everything changed."

Employers from meatpacking to airlines to education demanded and got wage cuts. In Michigan, the hospital workers union reported that every hospital it bargained with in 1982 used the argument "GM took a wage freeze." Companies used economic hard times to force a redistribution of power in their own favor.

Accepting Competition

As important as the monetary concessions was an explicit change in union philosophy: acceptance of the notion that it is the union's job to make the employer more "competitive."

Workers were to contribute their ideas for boosting productivity, including speedup and job cuts. This "team concept" quickly spread from auto throughout manufacturing and beyond. The flagship team concept plant jointly run by GM and Toyota in Fremont, California, became the most famous factory in America and the site of manager-pilgrims from every walk of life, seeking the secrets of productivity.

In essence, the UAW's deal with the auto makers was this: do whatever you need to do to boost profits, as long as you maintain the wages and benefits of (a steadily shrinking number of) workers at the Big Three. That "whatever" included lean production, outsourcing to nonunion parts plants at home and abroad, the sale of GM's and Ford's parts divisions in 1999 and 2000 (lopping off 52,000 workers) and, today, buyouts. There were 466,000 GM hourly workers in 1978 and in 2006, 112,000.

Buoyed by the Bubble

After a decade-long downturn, the 1990s was like winning the lottery for Detroit's auto makers. Mini-vans, one of the Big Three's only bright spots in the 1980s, continued to register solid sales, hovering at about 8 percent of the total domestic car and truck market.

And because their Japanese rivals were slow to introduce their own models, Detroit maintained its dominance, with market share never dipping below 75 percent.

But the Big Three's real gold mine was the phenomenal growth of sports utility vehicles (SUVs) during the 1990s, rising from 7 percent of the total car and truck market at the beginning of the decade to roughly 20 percent by the end. And sales really took off in the latter half of the 1990s, when most Americans saw their real wages inch up for the first time in 15 years.

Concerns over fuel efficiency also seemed to melt away, with gas prices averaging a little over a dollar a gallon for most of the decade. As with mini-vans, Detroit's foreign rivals lagged behind, leaving the Big Three to dominate the SUV market.

Bolstered by strong sales in these new niches, together with skyrocketing stock prices, Detroit's auto giants hoped to reclaim the global dominance that had seemed to slip through their fingers a decade earlier.

In addition to expanding their existing global operations, the Big Three also engineered some very high- profile mergers and strategic investments, acquiring the Saab, Fiat, Suzuki, Daewoo, Jaguar, Volvo, and Land Rover brands. Investments, of course, can flow in both directions, and in 1998 Chrysler was acquired by Daimler-Benz.

Spin-offs and Restructuring

Detroit auto makers were also busy reshaping their domestic operations. They spun off their parts divisions into stand-alone companies and then negotiated steep wage cuts for new-hires there. GM hived off American Axle and Delphi, while Ford created Visteon.

Chrysler took outsourcing to a new level by pioneering "modular production" in the U.S. At its Jeep plant in Toledo, body work, chassis and paint -- considered the core of auto assembly--will soon be performed on-site by non-Chrysler workers at lower pay.

GM and Ford also paid less and less attention to producing cars, focusing instead on their financial services arms, with General Motors Acceptance Corporation (GMAC) and Ford Credit adding more and more heft to each company's bottom line. Indeed, by 2000 both GMAC and Ford Credit accounted for a third of net revenue for their respective companies.

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Mark Brenner is the Director of Labor Notes.

Jane Slaughter is a founder of Labor Notes.

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