Blaming the Bottom



A big reason the auto-maker bailout failed was the insistence by some Senate Republicans that the United Auto Workers, which represents many of the Big Three’s employees, make concessions on wages and other benefits sooner than they already have. It’s important to note here that the UAW* has made some of these concessions, scheduled to go into effect in a few years. No one knew when that contract was negotiated that the credit crisis would lead to this emergency.

Senator Bob Corker, a Republican from Tennessee, says it’s the UAW’s refusal that is stopping the bill. He insists that they need to cut wages to be more in line with foreign auto-makers’ plants here. 

The hourly wages are not as different as is being portrayed. It’s health care costs and pensioners that are killing the American companies. Funnily enough, Tennessee has had a bit of a manufacturing Renaissance in the past few years, pulling it out of the poverty in which its neighbors are still mired. Who’s behind it? Foreign automakers, like Nissan, which opened plants there. Who’s gotten nearly a quarter of a million from the automotive industry during his political career, according to the Center for Responsive Politics? Bob Corker.** More than half of it was in the 2008 cycle. Unfortunately, this doesn’t break down by company, so anyone with info on who’s giving it is welcome to weigh in. I have to say, though, my money’s on the companies that are in his state.

Putting aside for a minute the fight between Corker and the UAW, whose president says they fear they’re being made into a scapegoat, I think it’s clear that the amount of money the Big Three pay their workers isn’t as critical as it’s being made to seem. The companies have a pensioner problem. Part of it stems from the automation of the car-making industry: Many more workers were required per car in the past, which means there are fewer workers per pensioner paying into the system now. But part of it is because, when unions and automakers began negotiating they made individual companies – not industries, states, or the entire country – responsible for the well-being of their employees. That shrinks the risk pool which, in roundabout ways we can explain later, raises costs.

I’d like to say the crisis was a surprise. But some predicted it from the beginning, and it was entirely foreseen by the time Malcolm Gladwell wrote this excellent piece for the New  Yorker in 2006:  

A year later, the same issue came up in Detroit. The president of General Motors at the time was Charles E. Wilson, known as Engine Charlie. Wilson was one of the highest-paid corporate executives in America, earning $586,100 (and paying, incidentally, $430,350 in taxes). He was in contract talks with Walter Reuther, the national president of the U.A.W. The two men had already agreed on a cost-of-living allowance. Now Wilson went one step further, and, for the first time, offered every G.M. employee health-care benefits and a pension.

Reuther had his doubts. . . . In the nineteen-thirties, unions had launched a number of health-care plans, many of which cut across individual company and industry lines. In the nineteen-forties, they argued for expanding Social Security. In 1945, when President Truman first proposed national health insurance, they cheered. In 1947, when Ford offered its workers a pension, the union voted it down. The labor movement believed that the safest and most efficient way to provide insurance against ill health or old age was to spread the costs and risks of benefits over the biggest and most diverse group possible. Walter Reuther, as Nelson Lichtenstein argues in his definitive biography, believed that risk ought to be broadly collectivized. Charlie Wilson, on the other hand, felt the way the business leaders of Toledo did: that collectivization was a threat to the free market and to the autonomy of business owners. In his view, companies themselves ought to assume the risks of providing insurance.

America’s private pension system is now in crisis. Over the past few years, American taxpayers have been put at risk of assuming tens of billions of dollars of pension liabilities from once profitable companies. Hundreds of thousands of retired steelworkers and airline employees have seen health-care benefits that were promised to them by their employers vanish. General Motors, the country’s largest automaker, is between forty and fifty billion dollars behind in the money it needs to fulfill its health-care and pension promises. This crisis is sometimes portrayed as the result of corporate America’s excessive generosity in making promises to its workers. But when it comes to retirement, health, disability, and unemployment benefits there is nothing exceptional about the United States: it is average among industrialized countries—more generous than Australia, Canada, Ireland, and Italy, just behind Finland and the United Kingdom, and on a par with the Netherlands and Denmark. The difference is that in most countries the government, or large groups of companies, provides pensions and health insurance. The United States, by contrast, has over the past fifty years followed the lead of Charlie Wilson and the bosses of Toledo and made individual companies responsible for the care of their retirees. It is this fact, as much as any other, that explains the current crisis. In 1950, Charlie Wilson was wrong, and Walter Reuther was right.

So, then, execs decided they didn’t want labor to have too much power. Now, Corker and others say they actually do have a great deal. Either way, this isn’t the failure of the workers whose labor actually builds the cars, but the predictable result of an executive decision. If politicians and a complicit television media have their way, no one will know it.

  * Disclosure, I am a member of UAW. I am not an auto-worker. I’ve been member of one union or another in every job I’ve had as an adult, because all of my employers have had existing agreements.

** Though, in fairness, the industry was not among the top five of his contributors.

  • Andrea

    Excellent piece. Thank you for putting this crisis in historical context for me. I, too, am worried that the UAW is turning into a scapegoat. While I now live on the East Coast, I’m from northern Indiana, and I worry a lot about the people back home.

  • Big Word

    I’ve always thought this was just another Republican attempt to kill Unionized labor in this country. The fact that most people are willing to let it happen is sad.

  • ladyfresshh

    this blame game has now sickenly turned on the auto workers. i doubt anyone is buying this slick attempt to blame the unions attempt to help the workers. instead now i’m looking, yet again, at a failed healthcare system that desperately needs fixing.

  • scott

    Sorry, the difference in wages are different. That is unless a difference of $10 per hour is nothing. The second article you reference says “Add the two together (wages and benefits), and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. It’s a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda’s or Toyota’s (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.” You also forgot to mention those wonderful union mandated “job banks” (quite a misnomer) where laid off union members are paid incl. benefits to sit around until they are rehired. And people wonder why the Big 3 are in trouble.

  • quadmoniker

    Scott, the hourly wage difference is between $3 and $5. The $10 difference includes health benefits, time off and holidays, which is not money that workers actually take home. The workers are being portrayed as these big-earning, big spending workers, which is simply not true. The Big Three have a wage problem, but that’s not the whole source of their problems, and setting an arbitrary date to cut actual workers take-home pay is not going to help the economy (you want those workers to be spending, and not foreclosing on their homes, etc.) The foreign automakers are largely located in the South, where not having off for Martin Luther King Jr. day is less of a big deal for companies, etc. The UAW has already scheduled pay cuts that will shrink the remaining difference. Additionally, it’s not the foreign automakers’ plants here alone that make them more profitable. Elsewhere they have dramatically lower benefits costs because the governments cover health care, though most other countries have more generous time-off packages. It’s the pensioner and health care costs the big three can’t get rid of. If you paid attention to the point of the article, that’s the point.

  • Big Word

    QM- 1 Scott-0

  • scott


    You can’t have it both ways. You can’t rely on your article when it is convenient and dismiss it when it is not. The article counts both wages and benefits as hourly compensation. The difference is $10 per hour. Maybe that is not a lot to you but I would suspect most ordinary folks would say different. Further, the article says the union workers make twice what the average American worker does, which to me seems to clearly show how the UAW distorts what the market would normally pay. GM doesn’t need union wage concessions in 2011 when it is convenient for the unions, they need them now. The unions don’t seem to have any sense of urgency. Yes, the Big 3 have higher retire costs. Your article conveniently ignores that fact that those benefits were demanded by the unions and bear the union made label. Are you going to defend the union “job banks” next?

  • quadmoniker

    Scott: That is the cost per hour for the employers, it’s not what the employees actually take home. It’s because health care is expensive, not because workers are getting so ridiculously much more. The cuts are phased in because new hires will take a pay cut, not existing ones. If you want to cut the salary a worker is taking home, then you should offer up a salary cut for yourself first. The unions, if you’d read what I wrote, demanded benefits for their workers but not from individual employers. The costs are higher because the burdens are born by individual companies, whose fate no one can predict. The Big Three have a wage problem, but that is scheduled to be fixed. This happened with Big Steel and other manufacturing sectors too. The companies could be profitable when they got out of their legacy costs. If you’re going to comment again, read the links first.

  • quadmoniker

    Also, none of this alters my point. Corker and other Senate Republicans, all from Southern states where foreign automakers have plants, want the Big Three to go into bankruptcy. Now’s not the time for a social experiment.

  • This is an excellent post. For reasons that I think are fairly straightforward “regular folk” who aren’t somehow connected to Detroit (either the city itself or the auto industry) have exhibited a great deal of resentment towards the auto bailout, resentment driven by antagonistic attitudes about blue collar workers and about the union. What I think is most interesting though is that even though even now universal health insurance would help the automotive industry become more competitive by redistributing costs, they refuse to push for it.

  • quadmoniker

    L.S. – I find that interesting too. Some businesses began forming groups a few years ago to try to lobby states or the federal government to provide health care costs, but the manufacturing sector stayed out of that effort, for the most part. I don’t know why they aren’t pushing for universal coverage but, I suspect, it might still have to do with their old reluctance to “give labor power.”

  • ladyfresshh

    Quad/LS – UC seems to still be the boogeyman issue