Is the UAW Responsible for The Automotive Collapse?

The UAW has been a favorite whipping boy of both the press and Republicans in Congress. Every time I turn on the TV or read a news report it seems that another pundit, politician, or member of the press wants to accuse unions of kidnapping the industry, or demands that they make more concessions. To understand the UAW’s role one must examine their past relationship with the domestic auto companies.

The UAW has succeeded at negotiating with the big 3 over the years to further what it saw as its members’ best interests. It used its striking leverage to coerce lucrative contracts from the auto companies. One can argue that the union, like any other supplier, had an obligation to engage in fair dealing which would include considering the long-term impact of driving payroll and legacy costs (retirement benefits, etc.) to non-competitive levels; however, this is not something that a labor union would traditionally concern itself with. One could also argue that the management of the auto companies is charged with looking out for their companies’ long-term interests, given the fact that company officers act as fiduciaries on behalf of the company. This argument seems more plausible. The companies themselves are in the best position to assess their competition and long-term interests.

Auto executives have been heavily compensated with near-term incentives based on near-term profit. They have been willing to agree to concessions that preserved their profit machine and near-term incentive based compensation. Conceding to union demands to avert a strike and the loss of near-term profits that would negatively impact their compensation plans was much more attractive than addressing the long-term interests of the industry. The legacy costs that auto executives frequently complain about to explain their inability to compete with foreign transplants are an example of the impact that management’s ignorance of long-term industry interests has had.

The problem with the foreign transplants is truly a “right to work” vs. “union shop” (mandatory union membership) issue. The transplants are located mostly in “right to work” states, while the domestic automakers are not. This means that the foreign transplants are largely able to avoid the type of dysfunctional relationship that has existed for decades between the domestic automakers and the UAW. I believe that employees have a right to be unionized, if they so choose. I also believe that unions should compete with other available labor in a free market economy. In other words I believe that “right to work” is the way to go, not “union shop”. I don’t say this lightly.
I appreciate the fact that unions have much to do with the creation of the middle class in this country; however, they must compete like everyone else in a free market. My own personal philosophy aside, this problem doesn’t go away unless there is national uniformity (all “union shop” or all “right to work”).

It has been asserted that the big 3 are making products that are inferior to their competition. This idea has been largely debunked. As a person who owns four Fords, I can attest to their high quality. I have owned two of these cars, both Taurus’s, for 8 and 10 years respectively, with no serious repair issues and minimal maintenance. Industry publications consistently back this up. If anything, company management is guilty of failure to get this message out. The workers have done their part.

So is the UAW at fault for the auto collapse? It has to shoulder some of the blame, which lies in many places. Many changes are required, including additional union concessions.