Will the UAW Ruin the Domestic Car Industry Again?

Cars and Drivers

Published: December 16, 2014 6:55 am

One of the causes of the deep losses that drove General Motors Co. (NYSE: GM) and Chrysler into Chapter 11 where the high wages and benefits the United Automobile Workers (UAW) had negotiated. Add those to the recession. The union cannot be blamed much. Its threats to strike were taken seriously by the Big Three, which worried that a long period of plant shutdowns would cause a loss in profits and market share erosion to foreign manufacturers. The UAW’s ability to bargain was knocked into submission as the federal government found ways to lower car company expenses. Now, the UAW wants to get some of those wages and benefits back, figuring the industry can afford them. Whether that is the case may not be true.

According to the Detroit News:

Bridging pay gaps and raising wages appear to be the top priorities for United Auto Workers President Dennis Williams heading into 2015 contract negotiations with Detroit automakers.

Williams said it’s time for the union’s nearly 139,000 members at General Motors Co., Ford Motor Co. and Chrysler Group LLC to be rightfully rewarded for their work and the sacrifices members made during the economic downturn. He said the days of automakers arguing that union labor costs are making them uncompetitive are over, as the pay gap between CEOs and the rank-and-file has grown.

UAW membership is much smaller now than before two of the three American car companies went bankrupt. All the more reason to do a better job for those members who still have jobs.

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There is some truth to the UAW’s position. For example, the Chrysler division of Fiat Chrysler Automobiles (NYSE: FCAU) had a banner quarter in the most recent period it reported:

Chrysler Group LLC today reported preliminary financial results for the third quarter and the first nine months of 2014, including net income of $611 million for the quarter, up 32 percent

Also:

Net revenue for the third quarter was $20.7 billion, up 18 percent from $17.6 billion a year ago.

Finally:

Worldwide vehicle shipments were 700,000 for the quarter, including 11,000 contract manufactured vehicles, an increase of 18 percent from a year earlier, when the Company shipped 593,000 vehicles, including 19,000 contract manufactured vehicles.

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The anxiety about the domestic car and light truck markets in the United States is that sales cannot grow indefinitely and may slow as early as next year. Sales are on a pace to reach 16.5 million in 2014. At some point, Americans will no longer need as many new cars.

The UAW’s efforts, if successful, may collide with a drop in domestic car profits brought on by market forces. Once again, car company profits will be pressured from two sides.

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