After a month, it looks like the United Auto Worker’s Union (UAW) strike of 2019 will soon be over. It has been a strange strike. There was a time when even the rumor of an auto strike caused the US economy to falter. President Trump, who ran as the candidate of the little man, hasn’t said much. Neither have the democrats. We have 24 x7 news, but very little of it has been about the strike. Yet, could this strike be the turning point for the Auto Industry?
The reason for the strike goes back to at least the 2009 Auto Industry collapse. With no bank willing to bail them out, auto executives fired workers, cut benefits for remaining workers, and then flew their private jets to Washington to beg for a bailout. Unfortunately, one of their first meetings was with New York Democrat, congressman Gary L. Ackerman.
His opening statement was, “Couldn’t you all have downgraded to first-class or jet-pooled, or something, to get here? It would have at least sent a message that you do get it.” Fly first-class seats and **shudder** rent a limousine (you know, just like the average joe)? The “Big Three” auto-makers never thought that they would suffer such humiliation for a measly few billion dollars.
The workers, however, are much more familiar with “give-ups” during an economic downturn. When the economy falls, regardless of their productivity, workers get pay cuts, get fired, and lose benefits. In 2006 the full cost of an American auto worker was between $70 and $75 per hour, with a starting salary of $31 per hour. Automakers who moved to the US (Honda, Nissan, Toyota), but built factories far from Detroit, with their labor costs around $45. Our (mostly) American car manufacturers complained bitterly that they just couldn’t compete with the new (somewhat American) car manufacturers.
By 2015, Big Three hourly labor costs fell to around $58. Starting wages continued to head down-hill, and many Detroit factories relocated to states with more flexible labor laws. The current entry-level rate for GM production workers is less than $17 per hour.
This “two-tier” wage system has become a common feature at modern union shops. New workers, usually Millenials, start at a lower wage and are capped at a lower wage than workers with more seniority. have wage caps. They will never make the money the previous generation made. Many will never be eligible for benefits, and even those that are eligible will receive much less than older workers. Workers of past generations could afford to live a middle-class life off of assembly-line work. Millennials can only look forward to declining wages and lost benefits.
In the last century, it was normal for industrial workers to have cycles of pay cuts and layoffs. But these were followed by cycles of rehiring and wage increases. The upside of these cycles has virtually disappeared. It’s now all downhill. While it does look like the negotiations that will end the strike will give one-time bonuses it will also close 3 plants. Despite the fact that business is up (GM alone made profits of $35 billion over the last 3 years), and the labor cost gap between America and “foreign” cars (that are made in America) is much smaller auto companies need to cut labor costs, by another $4.5 billion.
Closing old production lines (and plants) is a central part of the Auto Industry’s plan for the future. The oldest plants usually have the most obsolete equipment and the most expensive employees. oth can be removed when a plant is closed.
In the past, when one factory was closed, workers could transfer to another. Today, however, few factories are still in and around Detroit, the birthplace of the American Auto Industry. New factories are usually in different states, and production workers are never offered financial assistance to move to another state. If they did move, they would lose all seniority and apply as a new worker, at entry-level wages.
Not a very attractive option, but it will get worse for America’s auto workers. The auto industry is undergoing its greatest transformation since Ford introduced the assembly line…
End of the sedan: A “car” used to mean a sedan, or maybe a mini-van or station wagon. In just a few years, all of these models will be gone. Nobody wants to buy them anymore, and auto companies make more money from higher-margin vehicles, like SUVs and Pickup trucks. Auto companies need those profits to produce new products like…
Electric Cars: Few of today’s cars are electric (1%), or even hybrid electric (2%). However, within 5 years every car manufacturer plans to transition from gasoline and diesel to electric vehicles. That’s a HUGE change! Aside from Tesla, every car manufacturer must retool every factory. How will they fund the transition? Largely through worker layoffs and pay cuts.
Today’s electric cars have higher-costs and lower performance than comparable gasoline vehicles. But by 2025 they will cost less, perform better, and have dramatically lower fuel costs. That’s why auto companies MUST retool, and become more efficient.
New Vehicle Types: Gasoline-powered cars have been tweaked for a century, and there’s not much room for further engine efficiency. Electric vehicles (EVs), especially their motors and batteries, have a lot of room for improvement. Electric motors typically have 5 to 10 parts, while the ICE (internal combustion engine) has hundreds of parts. Electric is 2-3 times more efficient as converting power into motion. EV’s don’t need a water cooling system & radiator. Motors are located in or near the wheels, eliminating transmission systems and gears. Even 12 volt power cables can be replaced or eliminated, cutting 200 lbs or more in weight. Most of the mechanical parts under your hood will go away, eliminating the entire front end of your next vehicle.
Lower-weight and increased fuel efficiency allow for new design opportunities. The car of the future could be bubble-shaped, with seats facing each other (like a conference room). Maybe it will be something completely different. But it will have fewer parts, and require less labor. We won’t need billion-dollar factories to make a car. And that means we will see a LOT more new car companies.
China: China never sold traditional vehicles in the US. But they may be very successful in selling EVs. China is the world’s largest EV manufacturer, a major source for elemental lithium (critical for new batteries), and (along with South Korea and Japan) is a dominant battery manufacturer.
Self Driving: Your next car might not drive by itself, but it will have more self-driving features. Eventually, autonomous driving will become a standard feature. Like seat belts. If the Big Three give away software that took billions of dollars to develop, how will they make up these losses? Yep… more layoffs and salary cuts.
UBER: Fewer young adults want to own a car, especially in cities. They use bicycles for short-trips and shared cars for longer distances. UBER doesn’t want to be a taxi company, they want to be a logistics company that rents vehicles to consumers and corporations.
If we efficiently share cars, fewer cars will be on the road, eliminating 100 million (or more) vehicles. Similarly, if electric trucks are self-driving, inefficient humans (that require sleep) will be replaced. When vehicles can be on the road 24×7, the same work can be done with fewer vehicles.
America has as many cars as adults. The US population has moved out of rural areas and into cities, and no longer needs as may long-distance vehicles. We have reached maximum car saturation. That has increased traffic congestion. Parking is unaffordable. Fewer car sales, simpler and less expensive vehicles, and the loss of vehicles due to sharing. That the reality for UAW workers, which will lead to a loss of a quarter or more of their jobs in just the next decade.
The only question is, “How will this play out?” Will the UAW accept declining wages and small membership or will they rebel? If they do rebel, what will they ask for? Is there any way to choose a different path for workers? What do you think? Share your opinions with us!