The Effects of Globalization on Labor Relations in the Auto Industry in the 80s and 90s
The Effects of Globalization on Labor Relations in the Auto Industry in the 80s and 90s Over the last several decades Labor relations within the United Auto Workers (UAW) and the automakers they are attached to have been a roller coaster ride. In the 1960’s and 1970’s the Union made substantial gains for its members in all aspects of bargaining. Wages were increased at levels unheard of today and they made huge improvements on health care and other fringe benefits. Membership was steadily increasing and the union’s power was profound.
The Nations economy was growing as fast as the baby boomers who were driving it and globalization was a term seldom heard of. Strikes were a lethal weapon in the union’s arsenal and they would use them at will when dealing with uncooperative employers. The mere thought of cooperating with management was a cardinal sin and the two sides battled constantly to see who could “one up” the other. In the early eighties the economy and the rise of foreign competition reluctantly forced the automakers and the unions to form an averse partnership.
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Up to this point the Big Three (GM, Ford, and Chrysler) were manufacturing vehicles primarily in the United States and the UAW was at the peak of its power. The UAW was able to keep the companies in check because almost all of the automakers’ employees were union members. Today U. S. trade policies and the global economy give big corporations an unfair advantage over the unions. The UAW’s failure to keep up with the Big Three in the global market is rapidly diminishing the balance of power that once existed between the two collaborating adversaries and their ability to play catch up will be vital to the organizations survival.
In order to understand the effects the global market had on the balance of power between the union and the companies in the last decade, one must look back even further, at the prior two decades. The eighties began with a recession that crippled the economy and forced layoffs for the automakers. Although the UAW’s membership began to decline, the union still had a considerable amount of power. Times were tough however and the UAW was left with no choice but to approach negotiations in an untraditional manner. The conventional union management relations game that the Big Three and the UAW engaged in for years had to cease.
For the first time in history the companies and the union began to realize the importance of cooperation and worked together at the negotiating table. The union understood the situation the automakers were faced with and although they didn’t give in to all of the corporations’ demands, they agreed to take some concessions in order to help them survive the ailing economy. In a joint effort to pass the concessionary agreements, both parties told hourly workers that the concessions were temporary and that when the economy recovered so would the labor contracts.
The economy began to recover steadily in the late eighties and the automakers along with the UAW survived the recession. The external pressures of the economy had a profound effect on labor relations in the auto industry. It exposed weaknesses of both the union and the companies. The UAW was an international organization whose strength correlated directly with the size of its membership and the national market power of the domestic automakers that employed its members. They were hit harder than the Big Three and they were not able to restore the balance of power they had achieved in the sixties and seventies.
The losses the UAW endured during the recession and the concessions that their members accepted in the previous contracts were never made up. The economy was only part of the reason the union had difficulties regaining its position. Around the same time the nation began recovering from the recession; globalization was taking up roots within the Big Three and around the world. Foreign competition was on the rise and management realized that in order to be competitive, they had to be able to adapt to the rapidly changing business conditions within the new global economy.
This meant that they needed to diversify their operations and build plants in other markets outside of the United States. They also needed more flexibility within their current operations and an avenue to reduce the amount of employees needed to manufacture vehicles. Technology was better than ever and played a big role in the automakers plans to become competitive, however the union contracts that governed the companies operating procedures were binding documents and limited managements’ actions. The union still had a considerable amount of power within the Big Three.
They were already organized and the contracts that were established made it difficult for management to deviate from the agreements. The union contracts limited the flexibility that automakers had with their hourly workforce and any changes the companies wanted to make had to be negotiated with the union when the contracts expired. That practice was not an issue for the foreign companies and the Big Three needed a way to get around this bureaucratic process. The avenue they chose was outsourcing. The Big Three in their endless attempts to out do the competition, focused on outsourcing work to automotive supplier companies.
This was not a new concept, but in the past there wasn’t as large a disparity in wages between workers so there was little or no cost savings and foreign competition was not a factor. This tactic saved the Big Three billions of dollars and played a huge role in weakening the UAW. The production jobs that the auto makers outsourced to the smaller supplier plants were paying workers thirty to fifty percent less than their current employees covered by the union contract. The supplier companies were non union and they were not governed by costly labor agreements, so they could do the work with less people at lower wages.
The automakers dictated to the suppliers what their needs were and the suppliers had the freedom and flexibility to do what the customer wanted. The UAW had to spend money to attempt to organize the suppliers with no guarantee of success. Even if they were successful they still had fewer members working at lower wages and the companies had succeeded in creating division amongst the membership. Outsourcing both at home and abroad along with the companies’ relentless efforts to compete on a global scale has greatly weakened the position of the union.
Division in the membership, declining numbers, and lower wages were not the only problems caused by outsourcing. The UAW negotiated a jobs bank agreement with the Big Three in an effort to stop or significantly reduce outsourcing. Workers would be paid ninety percent of their wages and maintained their benefits if their jobs were eliminated until the company found work for them. This strategy was ineffective and very costly to both parties because it was cheaper for the companies to send work to Mexico and pay the idled workers to do nothing than to keep jobs in the United States.
The union stood by and watched their jobs leave the country because they overestimated the effectiveness of the jobs bank and underestimated the influence of globalization. The Big Three continued to outsource work because they saw the big picture that the future of the industry was headed away from a national economic market and towards a world economic market. The union, hesitant to change was trying to hold on to the power it had established in the national market. The jobs anks began filling up with workers and the companies began to focus on eliminating the excessive amounts of employees on the payroll that were not doing value added work. Pressure to be more competitive was building on the Big Three. The foreign automakers were gaining market share and their gains meant losses for the domestic automakers. The unions were also feeling the pressures of foreign competition and it began to reflect in their membership numbers. The national economy was doing well but globalization was clearly affecting the Big Three and their supplier plants.
Realizing that the companies needed help the union began to negotiate more competitive agreements with the automakers at their pace and on their terms. They were very reluctant to give on manpower and the strategies they devised to provide relief to the companies were only meant to be temporary. They had to stabilize the current membership and maintain as much of their current agreements as possible. The union leadership knew that wages and healthcare were the most important issues for its membership; therefore, it was critical that they protected those aspects of the contracts first.
The two parties got together and devised new techniques to negotiate flexible increases in the union employees pay with minimal impacts on the hourly wage rate actually paid out by the company. They developed two-tier wage systems which paid new workers lower wages more comparable to entry level non union wages in the same industry. They established lump sum payments, which provide workers with a single payment, usually on a yearly basis, instead of raising the hourly wage. A third technique the parties developed was profit sharing, it is a negotiating tool used to link wages or lump sum payments to productivity and profits.
These techniques developed in the eighties began a new trend in labor relations that were used extensively in the nineties and are still prevalent today. However, when they were initiated they were only meant to be temporary techniques to help the companies and the concessions were supposed to be recovered (Freedman 3). In the early nineties the global economy was on the rise. All of the automakers were doing well but General Motors had clearly separated itself from the pack in terms of market share and profits.
Membership in the UAW was on the decline and a big part of this was due to the union’s failure to creatively address globalization. They were trying to compete with big companies in the political arena and were seeing some progress, but at the same time it appeared that they were neglecting organizing. Both factors contributed to lower numbers in the rank and file and union officials had to figure out new ways to compensate for the loss of dues. At the bargaining table they refocused their efforts on increasing the wages of current members because the economy was booming.
They also recognized a huge potential for growth within the supplier base due to the push by the Big Three to outsource work, so they began to focus more money and efforts on organizing the automotive parts supplier companies. The UAW had come to the aid of the big three several times in the eighties and early nineties and now they wanted restitution. The help that they had given the Big Three at the bargaining table was beginning to deteriorate the union’s stability in the industry and the large decline in membership was affecting the union’s financial future.
Automakers were focused on their need to reduce manpower but weren’t willing to go the distance in negotiations to get what they wanted. The UAW won increases in wages and benefits for its members in the 1996 contract negotiations. They were also successful in getting the Big Three to commit to large investments in American plants and to maintain ninety-five percent of the current workforce. The UAW was disappointed with the fact that the Big Three were even cutting five percent of the workforce and they expressed their disappointment with a series of local strikes at two of the three domestic automakers.
The tactic limited the financial burden on the union’s strike fund by using strategic plants as opposed to walking out the entire country and they still delivered powerful blows to the profits of the corporations. General Motors, who had to cut the most employees of the three, looked at the strikes as part of the costs of downsizing. “Ford was able to avoid a local strike for more than a decade. But its good relations with the union have cost the company goodwill with suppliers; Ford’s backing of the UAW in its recent strike against seat maker Johnson Controls Inc. nraged its non union suppliers” (Vlasic 2). The initiative to reduce manpower was a top priority especially for General Motors. They had more employees than both Ford and Daimler Chrysler and they needed to shed almost forty thousand blue collar workers (Deep 3). They were determined to challenge the union and were willing to toss aside there 1996 promises and withhold millions of dollars in plant investments. The UAW struck a metal stamping plant in Flint Michigan. GM was able to withstand the walk out for ome time by reviving its assembly lines with Mexican parts; however, the economy was so strong that they were unable to keep up with demand and feared losing precious market share to the competition so they settled. The strike forced General Motors managers to realize that if they wanted to become more efficient in the factories, they would have to do so in a civilized manner with cooperation from the union and its members. As with every strike, no one side ever wins and it was clear that the UAW had not yet found a way to effectively defend the organization against globalization (Glen 2).
The 1999 labor talks were more cooperative than the negotiations that took place three years prior. General Motors was setting record profits despite the need for the company to eliminate forty thousand jobs. They were willing to give the rank and file five percent increases in pay in order to avoid employment guarantees but they wanted the UAW to consider implementing the controversial Yellowstone program that was to see modular assembly techniques introduced into two new plants in Lansing Michigan and an assembly plant in Lordstown Ohio. Yellowstone was developed by GM’s Small Car Group General Manager Mark T.
Hogan. Ford and Chrysler were already using the modular build process and their reductions in manpower were already underway. The idea behind Yellowstone was to build the vehicles in the assembly plant from modules that were built by suppliers. This concept would shift work and jobs currently done at the assembly plants to the supplier plants, ultimately helping General Motors reduce their total number of employees needed to produce vehicles. Yellowstone struck a nerve with the UAW for obvious reasons, so GM pulled it off the table and pledged to no longer use the word.
The decision to abandon the modularity push by GM set the pace for the rest of the negotiations. They cooperated with the union on everything from employment guarantees to pay increases and everything in between. Scrapping Yellowstone scored the auto giant big points with the UAW and a pledge to help them organize more of the anti-union suppliers that may surface in any re-cast version of Yellowstone that bubbles up in the future, may further improve the relationship and gain union cooperation for the program (Deep 2-3). Globalization has changed the way all companies in the United States approach labor relations today.
The manufacturing sector, the auto industry in particular, has been faced with many challenges directly related to becoming competitive in the global market. One of the biggest drawbacks to globalization is the loss of jobs to lower cost foreign companies. The UAW has unsuccessfully attempted to limit globalization in America. One main reason for their lack of success is that they focus their fight in the national arena and have failed to address it on a global scale. If the union doesn’t make headway on the negative effects of globalization in the world market, there will no longer be a national market left for them to fight. If U. S. ompanies don’t wake up and protect America’s jobs, there will be no more race to the bottom; the race will be over and there will be no winner, only losers.
Works Cited Deep, Said, et al. “Labor Talks 1999. ” Ward’s Auto World July 1999: Vol. 35 Iss. 7 32-37. 19 Apr. 2008: <A href=http://search. ebscohost. com/login. aspx? direct=true&AN=2066423&site=ehost-live>Labor Talks 1999. </A> Fossum, John A. Labor Relations: Development, Structure, Process. 9th ed. New York: McGraw-Hill Irwin, 2006. 381-407. Freedman, Audrey. “How the 1980’s Have Changed Industrial Relations” Monthly Labor Review May 1988: n. pag. online. 5 Apr. 2008: http://findarticles. com/p/articles/mi_mll53/is_n5_vlll/ai_6832403/print Glen, David. “After Flint. ” The Nation 24 Aug. 1998: Vol. 267 Iss. 6 17-20. 25 Apr. 2008: <A href=http://search. ebscohost. com/login. aspx? direct=true&AN=971424&site=ehost-live>After Flint. </A> John. Personal interview. 17 Apr. 2008 Lou. Telephone interview. 16 Apr. 2008 Vlasic, Bill. “Trench Warfare in Detroit. ” Business Week 5 May 1997: Iss. 3525 134. 25 Apr. 2008: <A href=”http://search. ebscohost. com/login. aspx? direct=true&db=bth&AN=19051017&site=ehost-live”> Trench Warfare in Detroit. </A>