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Last Updated: Wednesday, 21 February 2007, 07:30 GMT
The dilemma for US car workers
By Steve Schifferes
Globalisation reporter, BBC News, Dearborn, Michigan

Ford built a modern truck plant on the site of River Rouge, employing 6000 workers
The headquarters of the United Auto Workers (UAW) Local Branch 600 stands in the shadow of the giant River Rouge plant, once the largest industrial complex in the world.

Located on a mile-long tributary of the Detroit river, the Rouge once employed 100,000 men who built every Ford manufactured in the US when it opened in 1928.

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Henry Ford, the inventor of mass production, aimed to control every aspect of the production process - and he didn't like unions.

Even when other big companies like GM recognised the union after a bitter sit-down strike in 1937, Henry Ford vowed to close his plant rather than give in - and his security staff beat up union organisers who came near the plant.

It was only in 1941, when the Federal government intervened - and his wife threatened to leave him - that Henry Ford finally recognised the union.


Now, that bitter legacy may come back to haunt Ford as it enters a key round of contract negotiations with the unions, with a deadline of 15 September.

"Ford is going through a meltdown and will ask the union for deep concessions in pay and benefits during contract talks set to begin this summer," says Sean McAlinden, chief economist for the Center for Automotive Research.

Ford workers at River Rouge explain why they won't give up their benefits without a fight

Ford, like GM and Chrysler, has been losing market share to Japanese companies such as Toyota in the US market for three decades.

But recently its position has become critical.

Ford lost $12.7bn last year, the largest annual loss in its history, and says it will not be profitable until 2010 - despite cutting 35,000 jobs.

Mark Fields, president of Ford North America, says there is no longer any place to hide. "We face competition in every segment and in every market," he says.

Legacy costs

Ford and GM are at a crucial disadvantage compared with Toyota. They are burdened with the extra costs of paying benefits to all of their retired workers, who now far outnumber those still working for the company.

These legacy costs, which include both pension and retirement health care plans, cost the companies billions of dollars a year. Health care costs alone could add an additional $1,700 to the cost of each vehicle they make, Mr McAlinden estimates.

According to labour historian Nelson Licthenstein, when these contracts were first negotiated, UAW president Walter Reuther warned car companies in the 1940s that they were courting trouble by making long-term promises they might not be able to keep, and urged them to support national health insurance instead.

Japanese car imports
Japanese car imports undermined Ford and GM

But in the end Reuther signed the "treaty of Detroit," in which GM and Ford gave workers health and pension benefits and cost-of-living wage adjustments in return for industrial peace.

Now GM is down to 80,000 US workers, compared with 450,000 25 years ago.

And the companies say they cannot afford to pay the pension and health care costs of their 500,000 retirees.

Cuts in the workforce

When Ford and GM began to get into trouble in the 1980s and 1990s, the union signed away some of its gains in order to keep the companies afloat.

But with US workers having no right to state-financed health benefits until they reach 65, there is considerable resistance from the rank-and-file workers to any more concessions.

Jerry Sullivan, the president of Local 600, reckons that this will be an even tougher sell than in 2003 - when earlier UAW health concessions were accepted by the workforce by a vote of only 51%-49%.

Some rank-and-file activists, like Ron Lare, argue that the UAW actually lost the Ford vote over these concessions, and are pursuing the matter with the union.

Toyota's younger workforce costs less in benefits
Toyota's younger workforce costs less in benefits

Mr Sullivan agrees that the workers are tired of "give, give, give" and says "it is no good cutting if you can't make cars people want".

But he hopes that the commitment made by Bill Ford to build a new factory on the site of River Rouge - with an on-site museum on Ford's history - will save his workers.

Company break-up

The financial community is closely watching the union battle with Ford and GM.

Mark Oline, of Fitch Ratings, says that both companies need concessions on legacy costs if they are to survive the next two to three years.

Dean Braid at closed Buick plant
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His company now rates their corporate bonds as junk bonds, signalling to investors that there is a significant risk that they will default on their borrowings.

"It is going to be a difficult year for the Big Three automakers," he says. "They have to continue to cut costs, but they also need to invest in models to increase their revenues."

The continuing battles over these huge, uncosted liabilities to pay health care costs far into the future may be one reason that so far, no private equity firm has tried to break up Ford and GM - although both companies have assets worth 10 times their stock market price.

Union blues

However, some rank-and-file activists are not sure the union - or the workers - have the stomach for a fight.

The UAW is losing members fast, dropping from 1.6 million to 550,000 in the last two decades, and may be forced to merge with another union to survive.

Flint workers strike parade
Walter Reuther won the battle for union recognition from GM in 1937

And many activists, like Ron Lare, and Dean Braid, a former Buick worker in Flint who was laid off in 1999, have taken the generous company redundancy buyouts.

Dean, who was active in the rank-and-file movement in the 1980s and 1990s, says that such organisations are not as strong as they used to be - and says that the lack of union democracy has disillusioned workers.

Alienated workers

Sociologist Ruth Milkman is not surprised by the workers' attitudes.

When she studied the GM plant in Linden, NJ, in the 1980s, she was struck by the workers' hostility to the company and to their jobs - and by the alacrity with which they accepted company buyouts.

Gary Cowger, GM global vice-president for manufacturing and labour, is confident that the company can reach a deal this year.

"We have to get more concessions, but we have been working constructively with the union over the past few years, and have already reached a deal to take $15bn out of our health care costs," he says.

He is clear, however, that GM will continue to cut jobs in the US while it expands into Asia.

So the UAW, once the most powerful, and most politically progressive union in the US, is now facing a choice of a continuing slow decline into impotence, or a confrontation that could destroy both the union and the companies it bargains with.

UAW membership

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