Toyota no longer lives in fear of UAW
David Sedgwick is the editor of Automotive News.
"Toyota is setting the pattern for the industry," says economist Sean McAlinden. "If you don't follow them, they'll break you."
TRAVERSE CITY, Mich. - Now that the UAW is negotiating new labor contracts with the Detroit 3, everyone wants to know which company will be the strike target.
Conventional wisdom holds that Ford will be the target this year. That is, the union will negotiate Ford's contract first, then use that deal as the pattern for General Motors and Chrysler. That's wrong. This year, the pattern will be set by Toyota!
Yes, I know that Toyota has only one unionized assembly plant in the United States. All the same, Toyota is going to set the pattern for the entire industry - wages, benefits, pensions - you name it. And the UAW will be powerless to stop it.
Here's why: Over the past two decades, Toyota has been careful to offer wages and benefits that are comparable to those of the Detroit 3. That's how it has fended off the UAW.
$14 an hour
But now, the union has become so weak that Toyota no longer fears it. So the Japanese automaker feels confident enough to focus on another threat: Hyundai. When the Korean automaker opened its assembly plant in Montgomery, Ala., it offered a starting wage of $14 an hour.
Now Toyota is determined not to let an upstart like Hyundai enjoy significantly lower personnel costs. Most likely, that will mean lower wages in such places as San Antonio, where Toyota builds the Tundra pickup.
Inevitably, the Detroit 3 will pressure the UAW to accept a wage-and-benefit package that will approximate Toyota's pay scale. They won't get it all at once. But the embattled union will consider proposals once considered taboo: two-tier wages, some nonunion workers in assembly plants, higher health care deductibles and so forth.
Follow the leader
Naturally, the Detroit 3's labor experts aren't exactly eager to talk about this. But one expert - Sean McAlinden, chief economist of the Center for Automotive Research - has crunched the numbers.
According to McAlinden, the Detroit 3's hourly workers average $63.65 in wages and benefits. Toyota's hourly employees earn $47.50 an hour, McAlinden estimates. And that includes Toyota's annual bonuses.
Can any automaker afford to ignore Toyota's example? "Toyota is setting the pattern for the industry," McAlinden responds. "Toyota has the market power. If you don't follow them, they'll break you."
What can we expect on Sept. 14, when the Detroit 3's labor contracts expire? McAlinden has a few predictions:
The union won't strike, and the automakers won't lock out the UAW. A work stoppage would amount to a suicide pact.
The UAW will negotiate a pattern contract with Ford first because that automaker is in the deepest trouble. As noted, however, the real pattern will be set by Toyota.
The union may accept financial responsibility for retirees' health care plans, though it will demand heavy compensation. GM is especially eager to spin off those obligations because it has the most retirees.
To save factory jobs, the union may accept two-tier wages or more temporary workers.
The automakers will eliminate the Jobs Bank - which guarantees laid-off workers nearly full pay and benefits - or limit the number of workers who qualify.McAlinden insists that he doesn't own a crystal ball. But I've been watching labor negotiations since 1988, and I can tell you that he understands the UAW better than anyone else.
This summer, there is a very real sense of desperation in Detroit. If the automakers don't get the right contract, they may not survive.
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