Monday, June 18, 2007

GM's Union Negotiations

According to Thursday's Wall Street Journal, GM is once again in negotiations with the UAW to try to solve its profitability problems on the backs of its blue-collar labor force.

I know, it sounds like I'm some sort of Debsian liberal. But I'm not. I actually happen to believe that the responsibility for Detroit's auto makers' mess is management's, not union's.

As I wrote in one of my first posts on this blog, here,

"Why did unions ever begin taking future pension contributions from the companies for which their members worked, instead of cash compensation?

When you think about it, some of those company CEOs of yesteryear were deceptively brilliant. They managed to get unsecured loans, in the form of future pension “obligations,” from the unions representing their workers. No bank would have lent the same sums on the same terms for the same prices. That’s because, ultimately, companies have much more latitude with which to discharge or change their pension obligations in bankruptcy than they have to escape a group of angry, unified, legally-empowered financial creditors in the same situation

In hindsight, “defined benefit” plans of any type or name, public or private, are a clever way for a public corporation or a government to fund operations with implicit loans. For big steel, autos and airlines, as well as other labor-intensive sectors in the ‘50s, ‘60s and later, this amounted to labor union members lending, via unsecured future compensation and fringe benefit promises from their employers, sums of money for which they had no collateral. Financial engineering which puts modern investment bankers to shame.

Where is the expose on the union leaders who foolishly negotiated, on behalf of their members, to accept unsecured IOUs from companies on terms that the companies’ banks would never have lent them the money?"

As I read the Journal article, what I see is further futility in the actions of all parties. Management attempting to close its cost gap with competitors mainly through cutting its employees' compensations. Union leaders breaking their organization into tiers, so that older members get higher compensation, while sacrificing newer workers, to preserve union membership and jobs. A very French-style, Faustian bargain.

Don't get me wrong. I think the union wage scale has remained stuck at an unsustainably high lever, with respect to the value now added in the manufacture of Detroit products. It's just a little sad to watch even the union leaders sacrifice their own members for the leaders' political aspirations of remaining head of a large union, when the number of members should be declining, with the value of output, and the number of employees necessary to create that output.

Looks like business as usual in Detroit this summer, all the way 'round.

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