Is the UAW right?

In August 2023 the United Auto Workers Union (UAW) presented their list of demands for the upcoming contract negotiations. Top on the list is a 40 percent bump in pay, with 20 percent due upon ratification and the rest spread over the four-year contract.

This might sound like highway robbery (and that was my reaction), but the union bosses figure that if CEO compensation has jumped 40 percent across the big three automakers since the last contract negotiation, then why shouldn’t hourly workers get a commensurate bump? Of course, management could argue that they deserve a greater share of the spoils because of their top-notch leadership, but that’s going to be hard to prove and probably not true.

As I write this on October 30, 2023, the latest news is that all three major auto manufacturing companies have an agreement with the UAW that includes 25 percent compounded wage increases, improved profit-sharing payments, and over $8 Billion in new plant investments. The final numbers may be slightly different, but it at least appears we have an agreement in that general amount.

To be fair, I’ve never been a big fan of unions. That might be a story for another day. But this time, they might be right. Hear me out.

Nothing screams “management competency” louder than a stock’s long-term price trend. But for the legacy carmakers, it’s not even a whisper. After bankruptcy in 2009, GM went public again in 2010 at around $33 a share. At the time, Ford Motor Company traded around $15. Today, GM trades at around $27 and Ford at $10.

After 13 years, management has provided no growth for stockholders, even though all market indices are up almost 300 percent overall. We don’t have to talk about Chrysler, the automaker that saved itself several times by selling itself to anyone who would have it. Since the late 1970s, Chrysler has been the hot potato that no one wants to hold.

And it’s not like car companies can’t find the cash to pay the workers. Through government channels, auto manufacturers have a direct line into the pockets of taxpayers and consumers.

GM intends to spend $10 to $13 billion per year through 2025 to remake itself into an electric car company but will recoup billions of those dollars from U.S. taxpayers. Our generous Uncle Sam already has a plan that will pay GM around $5,000 per vehicle. Then, there are emission credits and domestic battery production credits. It won’t be a wash, but it’s better than bearing all that cost alone.

And let’s not forget where GM and Ford reap the most profits: pickups and SUVs from the consumers who buy such vehicles. It’s no accident that car companies earn about a 25 percent profit on pickups. That’s the tariff placed on pickups through the “chicken tax.” (I’ll bet you never heard of that before.) In the early 1960s, the U.S. dramatically ramped up chicken production and sold chicken cheaply in Europe. The European countries responded with a tariff on chicken, and President Johnson shot back with a tariff on pickup trucks. The European tariffs eventually faded, but the tariff on imported trucks remained, driving several importers to ship trucks to the U.S. in pieces to be assembled domestically. Some foreign carmakers decided to build trucks in the U.S. 

The situation is reminiscent of a poker game that a friend of mine used to tell me about. If you sit down at the table and don’t recognize the “mark,” or the person most likely to lose money, then it’s probably you. We’re sitting down with the U.S. government, automaker executives, and autoworkers, and we’re the mark. We’re supporting the car companies with tax dollars as they transition their power trains, and we’re providing big bucks in excess profits because of a 50-year-old tariff. Both of these situations are controlled or mandated by the government.

CEOs are cashing in by the millions, and line workers want a bigger part of the pie. Who can blame them? At least the workers work and produce results, which is more than I can say for management or Congress. Thanks for reading.