Delphi’s CEO Steve Miller has an interesting perspective.
Miller has helped in the Chapter 11 restructurings at Bethlehem Steel and United Airlines. What do the steel and
airline industries have in common? A lot, both industries faced competition that undercut their domestic price
structures and have expensive union obligations. It’s a cause and effect relationship according to many analysts,
like Chris Ceraso of Credit Suisse First Boston. The same problems that crippled these industries also plague the
automotive industry in America, including “an inflexible and uncompetitively expensive labor union.” Many foreign
automakers are able to set up profitable plants here in the US without crippling wage and benefit demands of the
UAW. Miller believes that if the UAW does not concede to GM’s requirements, the automaker may be forced into
Chapter 11, which tends to be a lot worse for labor than taking concessions upfront. [The rant continues after the
jump.]
The Bloomberg story paints an interesting picture, and is definitely worth a read. One question on our minds is
about a comment from Harley Shaiken, a labor professor at the University of California Berkley. Shaiken says about
autoworkers taking pay and benefits cuts, ?who?s going to buy the cars [?]? ?If autoworkers can?t do it, who exactly is
going to have the purchasing power to promote demand-led growth?? How does a domestic autoworker ?promote demand-led
growth?? It seems to us that it?s the consumer who chooses to buy a domestic product, often for a variety of reasons.
Who?s going to buy domestic products? How about conquest sales from other makes? The automotive industry is about
product, not about lemmings mindlessly following the example of workers who build these cars.
Let?s get back to the issue at hand. Miller can believe what he wants, but GM and the UAW have to work together. GM is
just as much at fault, if maybe a little more than the UAW, for their present situation. Over the years they?ve agreed
to these restrictive contracts while expecting to maintain market share and profitability but not adequately investing
in product development or market research. Many analysts want to point the blame on the UAW, but it takes two to get
into this kind of situation. The same can be said for the other industries that Steve Miller has worked in. Steel
makers and airlines were once very profitable ventures. The one thing you learn in economics is if an industry or
market is profitable, it will attract competition and force prices and profitability down. Both manufacturers and labor
have to realize that each must play a part in the turnaround if both are going to survive. For manufacturers it means
managing effectively and creating desirable product. For labor, it means taking wages more in line with what other
non-union workers expect. It would be unfair for manufacturers to ask for concessions lower than what a non-domestic
manufacturer would pay workers in a U.S. plant. It is also unfair for labor to expect the same wages from an
unprofitable company that is losing market share. Most of the decision makers in this situation are keenly aware of
what?s at stake, so hopefully both sides can put away their egos and get to the business of saving their collective
hind-parts.
Thanks for the tip Jamie.