Tuesday, December 30, 2008

Why Detroit Has a Bad Union Problem; Entrenched Bargaining Structure Causes Many Inefficiencies

How is it that successful executives become so unsuccessful as soon as they move to Detroit? Also, how can we explain that whenever GM, Ford and Chrysler leave our shores, they compete well in Europe, South America and China? What makes them viable competitors as soon as they cross the border?

The most striking difference appears to be that the Detroit Three are unionized, and the foreign transplants are, overwhelmingly, not. Yet the issue can't just be about wage rates. The foreign transplants pay well, and the UAW has given significant concessions in recent bargaining.

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 (see the Ford-UAW 2007 contract pictured above). It is virtually identical for each of the Detroit Three, 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 an environment of downsizing, the problem is exacerbated, as the entrenched bargaining structure causes innumerable inefficiencies. Typically each plant or warehouse is a "bargaining unit" and has a union president, who has a staff. If the company consolidates facilities, there will be no need for two presidents and two staffs. Since neither president wants to play musical chairs, they will both point to the bargaining agreement and resist consolidation. As a result, unnecessary facilities are not sold, but kept open, lit and heated, just to preserve a redundant bargaining-unit president and his team.

As the Obama administration takes the helm, the key political question is whether the Democratic Party, which has so benefited from union support, will have the courage to push the UAW into a more reasonable relationship with the Detroit Three. Namely, a relationship in which employee relations and entitlements approximate those found in the "financially viable" sector of the U.S. automotive industry -- i.e., the foreign transplants. If the Obama administration does not force the UAW to make further concessions, it will not be able to save the Detroit Three.

~Logan Robinson in today's Wall Street Journal

23 Comments:

At 12/30/2008 12:27 PM, Blogger Johnny said...

I think Robinson fails to address the situation where many successful foreign automakers have union employees on their home turf. Most European autoworkers are unionized, as are the Koreans and Japanese. So the problem is not that there is a Union.

The problem remains the mentality adopted by both the Management in Detroit and the UAW within the Big-3. Their relationship is extremely destructive, and they both blame each other for the plight at the Big 3. The result is that they fight and bicker over the smallest of items and responsibilities. The result is the massive inefficiency, entitlement, and "what problem" attitude that destroys the business from within.

Last Year Toyota's Union fought for and won a significant bonus for their workers (about $23.6K when converted to US Dollars). Keep an eye open next spring when their Labor Union opens up talks for the 68,000 Toyota union members in Japan.

Also, Kia/Hyundai have had numerous strikes and protests from their workforce during recent times.

Here's a snippet that you will never read about in the Big 3. The German Union and Daimler actually reached a deal where they weren't ripping at each others throats? DaimlerChrysler, workers reach cost-saving deal, union says

But in my experience, the union/management relationship in other countries is very different when compared to the atmosphere in the United States. There is encouragement by the workers to actually... do whatever they can (within reason) to improve and diversify their work influence. And management realizes the workers are ultimately the most important thing that the company has.

Some UAW plants like the GEMA engine plant use this mentality where many of the work rules are relaxed and workers are encouraged (and rewarded) for taking on responsibilities. But by and large, it's really just an "us against them" attitude in Detroit while the Foreign companies think with the pronoun "we."

 
At 12/30/2008 1:02 PM, Blogger Marko said...

I would argue that the "us against them" attitude is a result of the union, so I would reject your statement that "the problem is not that there is a union". You simply do not have this problem in non-union shops. The existence of a union necessarily creates an adversarial relationship between management and employees, one that does not have to be there. If not for the power of the government backing the union, I believe everyone would be better off. This is based on my experience at a company with both union and non-union shops.

 
At 12/30/2008 3:13 PM, Blogger @sethstorm said...


GM, Ford and Chrysler leave our shores, they compete well in

It doesn't take much when most of your factory builds various poky I-4's that only differ(slightly) in the metal/plastic body and glitzy wheels.

Yes, you can get a diesel in some places. Good luck trying to find anything that doesn't please the environmental activists firmly embedded in their governments. That being anything more than an I-4 that doesn't have an exorbitant price tag attached to it.

How about some greenbusting instead of just pure unionbusting?


The collective bargaining agreement with the UAW is a heavily negotiated document the size of a small telephone book

That's what you get from dealing with a climate of constant combativeness from the opposition.

 
At 12/30/2008 4:02 PM, Blogger Johnny said...

Marko - do you view teachers unions and major league sports players associations to be a bane on their respective environments? What about municipal bus drivers, pilots, and butchers?

The concept of the union is just a means for individual workers to exert influence by combining their voices. Yes, I'm sure this notion would be a friction point in a white-paper world where the bourgeois always cared for the overall benefit of the proletariat. However, the notion of a Union exists in almost all developed capitalistic nations and has influence in many successful businesses across many industries.

The concept of a Union does not have to be as destructive and antagonistic to the point of outright business failure. As it is demonstrated throughout the world, Unions can be a part of a successful company.

It is unfortunate that people have come to associate "union" with "useless and lazy." In Detroit, management definitely believes the Union to fit that negative stereotype. And the UAW continues to perpetuate the problem by not taking the steps to allow the bad apples to be cut from the crop. Instead, the lowest-of-the low become the yardstick that people use to measure the UAW. And of course, management abuses their powers as well, which continues the destructive cycle. Greedy and incompetent management is as destructive than a greedy and incompetent workforce.

 
At 12/30/2008 4:33 PM, Blogger Michael Smith said...

Johnny wrote:

The concept of the union is just a means for individual workers to exert influence by combining their voices.

No, in most cases -- not all, but most -- the purpose of a union is to obtain by physical coercion or threat thereof, wages and/or benefits and/or working conditions they would not otherwise be able to obtain through fully voluntary, un-coerced negotiation with management.

The union's desire to use force to win what they cannot otherwise obtain now has them agitating for the elimination of the secret ballot in union organization elections. The elimination of the secret ballot will allow union organizers and pro-union employees to bring intimidation and threats to bear directly on any employees that do not support the organization effort. The effort to eliminate the secret ballot is, in fact, a blatant admission that the union cannot win over workers by reason and persuasion and intends now to use force on them just as it uses it on management.

 
At 12/30/2008 4:49 PM, Blogger randian said...

Marko - do you view teachers unions and major league sports players associations to be a bane on their respective environments? What about municipal bus drivers, pilots, and butchers?

Yes, they are a bane on their environments. The civil service unions (teachers, bus drivers) are especially bad.

 
At 12/30/2008 5:02 PM, Blogger Mook Farchings said...

I agree with the writer. Unions have been a wonderful benefit to the american worker, but the UAW has abused their power.

I don't think management should have private jets at the expense of the worker's retirement, but having taxpayers prop up a bad business pisses me off.

Let the market do its job. Send them into bankruptcy and let them try again or die.

 
At 12/30/2008 5:30 PM, Blogger KauaiMark said...

For some humor from Congressional Motors:

http://www.youtube.com/watch?v=rAqPMJFaEdY

 
At 12/30/2008 8:06 PM, Blogger QT said...

That ain't no small telephone book!

 
At 12/30/2008 8:23 PM, Blogger QT said...

The UAW does impinge upon the Big 3's ability to respond to changing economic circumstances and changes within the industry. Additionally, one also has to consider that the Big 3 (particularly GM,& Chrysler; Ford looks like it has adapted) have just plain bad management.

Peter Drucker observed that organizations whether profit or non-profit, union or non-union can lose focus following the formula that brought them success in the past rather than adapting to new and changing customer needs. The only one of the Big 3 that has made the jump is Ford.

The UAW is a complication and certainly doesn't help but, the UAW alone is not the sole factor responsible for this mess. Look at the product lineup for example. Why does GM have 8 different brands when its competitors have 2? How can one argue that it is good business to offer 4 models that compete against the Honda Accord or the Toyota Camray? How can one argue that having double the number of dealerships as Toyota is efficient?

Look at the business model. The UAW contrast is just one of the symptoms.

 
At 12/30/2008 10:14 PM, Anonymous Ralph Short said...

I agree with QT overall and with others who basically posit 'unions seek mediocrity regardless of consequences'.

Another reality though is that management has to take responsibility. They could have taken the strikes back in the 90's, and broken the UAW, but instead, chose a course that was and is "too little, too late".

A truly great and growing company is a dictatorship. Once it becomes just a committee, inhabited by 'professional' managers only, someone needs to write the obituary.

Unless of course you have a monopoly, like the government.

 
At 12/30/2008 10:39 PM, Blogger lineup32 said...

The U.S. has more cars per person then anywhere else in the world. All Auto makers that sell cars in the U.S. are suffering lower volume due to : lack of demand relative to manufacturing capacity!
How many expensive auto's and trucks do you expect the American consumer to buy,or lease?

 
At 12/31/2008 12:44 AM, Blogger @sethstorm said...


Why does GM have 8 different brands when its competitors have 2? How can one argue that it is good business to offer 4 models that compete against the Honda Accord or the Toyota Camray?

Choice.

At least they offer more power for the same price compared to the transplants.

All you get with a Camry is blandness. All you get with the Accord is more underpowered car.

The Big Three don't have to point you to their luxury brands to get a V6 or V8 easily.

 
At 12/31/2008 2:51 AM, Blogger misterjosh said...

That's no phone book, it's a Union Contract!

@sethstorm: Choice is great. I wish that one of the big 3 had made a 6 cylinder 6-speed back in 2002 when I bought my Maxima. I might have bought one, or at least the competition might have driven the price down.

I'm trying to understand your perspective though - are you saying US taxpayers should bail out the automakers so YOU can have a powerful car?

The problem though is that people obviously don't LIKE the choices being offered by the big3. I haven't been car shopping lately, but it sounds like people shopping for "domestic" vehicles are largely being given the choice between a turd and a piece of crap. At least it's a powerful piece of crap eh?

 
At 12/31/2008 6:31 AM, Blogger @sethstorm said...


Unless of course you have a monopoly, like the government.

Or an choiceless oligopoly, like the transplant manufacturers. Either you get a golf-cart I-4 (or worse) or pay an arm and a leg for anything more.

 
At 12/31/2008 8:24 AM, Blogger @sethstorm said...


I'm trying to understand your perspective though

My concern is that they'd turn things into a similar situation as Europe. That is, a lot of "golf-cart" compacts, unless you go for a "luxury segment car". You still have the large cars, just at a lower performance per dollar (vs current situation with the Big Three).

To even get that Maxima (I've driven an mid-2000's as a rental - not bad but is quite high for such a car), you'd have to be able to finance out $25-30k at least if not have the cash outright.

In short: Get the environmental fanatics out of car design.

 
At 12/31/2008 12:09 PM, Blogger randian said...

My concern is that they'd turn things into a similar situation as Europe. That is, a lot of "golf-cart" compacts, unless you go for a "luxury segment car".

Of course they will, Europe is their ideal. Personal mobility is evil, or didn't you get the memo?

 
At 12/31/2008 2:17 PM, Anonymous Ralph Short said...

Here is another perspective on the issue. First, if any entrepreneur woke up one day and found that he/she had 10% or 20% of a multibillion dollar market that person would be ecstatic and develop a business plan to make a profit from it. The business plan would be based on projected sales (somewhat conservative but not pessimistic) and an accounting of the costs of manufacturing. The company would succeed because it tailored it's income to it's costs.

The issue with the "big 3" is they are still bogged down with outmoded concepts and yet combined have 50% of a the market.

In my opinion, the union and the government have to get the hell out of the way and let someone make the strategic decisions necessary to make the enterprise successful.

Sethstorm, I agree with you on the types of cars offered and that is one reason why I continue to buy from the domestics. Also, the cars I have bought over the years have been good ones with all of them going over 200,000 miles and one 400,000 miles and still running.

It is not the quality issue anymore it is the lack of a realistic business plan to deal with competition. My view is that is due to management not being tough enough and the UAW leadership looking to D.C. so they can continue their inefficient ways.

Politicians being politicians they will pander, especially the left or collectivists.

I continue to buy domestic btw.

 
At 12/31/2008 5:13 PM, Blogger QT said...

sethstorm,

Cars have been commoditized. They are no longer a luxury but a convenience like vacuum cleaner.

What the customer wants is reliability which is why Toyota has the highest customer satisfaction rating. The majority of customers want a car that doesn't live in the repair shop, has low maintenance costs, and starts on the coldest day in winter.

The Big 3 are still focused on styling and power. The needs of the customer have changed but the Big 3 have not. They still think consumers want to drive a car like Steve McQueen's or James Bond's when in reality, the majority of consumers are looking for a convenient, reliable way to get from point a to point b.

The same thing has happened in other areas of our lives once dominated by aesthetics. The average house being built in America is a mass-produced, subdivision wonder complete with poster art, reproduction prints and chipboard furniture. The most aesthetically pleasing object in the house is generally an ipod. Aesthetics are no longer an important consideration.

 
At 12/31/2008 7:13 PM, Anonymous Mika said...

Throughout the entire national discussion (as well as again in this specific discussion) on the Big 3 crisis, the prevailing assertion has been that "they" brought this problem upon themselves via excessive union worker greed and mismanagement, AND, if only they did things like the foreign car industry, they'd have no problem.

Last week my newspaper headlined, "Japan Posts Worse Auto Output Drop Since 67". A few days previously it reported: "Toyota's Red Ink Symptom of Tight Credit" and "Foreign Transplants Downshift Output".

And so, it seems the battered auto execs were correct when they tried to tell a deaf congress that their primary problem is a horrendous economy in which no one wants to buy (anybody's) cars.

 
At 1/01/2009 2:28 AM, Blogger @sethstorm said...


The Big 3 are still focused on styling and power. The needs of the customer have changed but the Big 3 have not.

They have a perspective of engine power first, then make the result as efficient as possible. That's opposed to rehashing the same tired engine and body with different wheels.

There are still plenty of customers who want the muscle without having to go high-end in everything else.

It would be forgivable if it was common knowledge to swap engines or build custom fabricated parts to put the desired engine (within the limits of the body and frame). Building or remodeling a house is more likely to be common knowledge.



The majority of customers want a car that doesn't live in the repair shop

Be aware of the build from the factory. Refuse that car built from the spares. Maintain the car at the recommended intervals. It is not meant to be driven as if the hood was welded shut.


They still think consumers want to drive a car like Steve McQueen's or James Bond's

However, they still have the idea of wanting to drive what they bought, not be left wanting when they drive it.


Cars have been commoditized.

No, the transplants have willful ignorance of building affordable performance.

 
At 1/03/2009 9:12 PM, Anonymous t jefferson said...

Okay Mr Professor show us what your contact looks like. You have the same type contract covering your benefits so publish it on your blog.

 
At 1/04/2009 12:08 PM, Anonymous Anonymous said...

Those pesky gosh-darn contracts. If only we could ignore the ones we don't like....

 

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