Will the UAW Ruin the Domestic Car Industry Again?

By Douglas A. McIntyre Published Dec 16, 6:55AM EST

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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.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.