UAW suicide pact with Detroit Three will mean higher costs, lower profits, overseas manufacturing

[Leroy N. Soetoro]

https://www.washingtontimes.com/news/2023/nov/7/uaw-suicide-pact-with-
detroit-three-will-mean-high/

The smashmouth victory of the United Auto Workers over GM, Ford and
Stellantis conjures up two Wall Street cliches: “Don’t confuse brains with
a bull market,” and “pigs get fed, hogs get slaughtered.”

UAW President Shawn Fein is being rightly lauded for the innovative
strategy he used to bring the three Detroit automakers to heel.
Historically, the UAW struck only one automaker, cut a deal, and then
forced that deal on the other automakers. With this “pattern bargaining”
approach, however, the UAW steadily lost ground over the last several
decades: Wage increases lagged productivity and inflation, plants closed
and pension benefits eroded.

This time, the UAW strategically attacked key production and supply chain
nodes across the three automakers. These surgical strikes minimized lost
wages for striking UAW members while inflicting maximum punishment on the
automakers.

The resultant deal dramatically raises wages and restores a cost-of-living
adjustment lost in 2009. It also enhances profit sharing, provides two
years’ income security and health insurance for laid-off workers, improves
pension benefits, provides the right to strike in the event of future
plant closings, and incentivizes further unionization at nonunion U.S.
plants such as Elon Musk’s Tesla and Japan’s Toyota.

Given the pact’s exorbitant cost, one must ask in an era of intense global
competition and a rapid transition to electric vehicles whether the UAW
overplayed its hand, whether the automakers capitulated to a foolish deal,
and whether between the two warring parties, they have essentially entered
a suicide pact.

Enter the Wall Street cliche “don’t confuse brains with the bull market.”
Mr. Fein had two bullish things working in his favor that no previous UAW
president had ever seen.

First, UAW negotiators benefited from the biggest bull market for workers
since the end of World War II. The unemployment rate oscillates around
historic lows, labor shortages abound, and any damn fool could negotiate a
very good contract in such conditions — Mr. Fein simply stuck the knife in
to the hilt.

Second, the automakers themselves are as bullishly flush with profits as
they may ever get. These historically high profits gave the automakers
perhaps false hope that they could deliver unprecedented wage increases
and other benefits. Soaring profits also gave the union the moral high
ground argument that fat cat executives needed to share far more company
profits with the rank and file.

Here’s the obvious fear: Mr. Fein and the UAW cut such a “hoggish” deal
that the UAW rank and file will not get fed over the longer term. Instead,
the U.S. auto industry itself, saddled with high costs, will get
slaughtered by the heavily subsidized foreign competition from Japan,
South Korea, Mexico and China.

Consider here that President Biden’s war on fossil fuels under the twin
banners of “fighting climate change” and “advancing environmental justice”
has sent the U.S. auto industry hurtling down the path of an all-electric
vehicle future. Lost in this transition will be the U.S. manufacture of
internal combustion engines — the highest value-added component of any
fossil-fueled automobile and a key driver of corporate profits and union
wages.

Replacing the manufacture of internal combustion engines will be the
production of EV “engines,” otherwise known as batteries. But China has
such a huge advantage in EV battery production that no amount of U.S.
taxpayer subsidies can overcome that. If the batteries are produced mostly
in China, so, too, will most of the EVs themselves — and one big reason
will be skyrocketing U.S. labor costs.

Here’s the more subtle fear: Elon Musk continues to move the bulk of his
Tesla production to China. He is already engaging in predatory pricing —
with the help of illegal Chinese subsidies — designed to put EV production
in America out of business. The UAW has just given Mr. Musk yet another
leg up.

A second competitive problem U.S. automakers will likely face is a wage-
price spiral. The lucrative UAW wage hikes coupled with its COLA will
contribute to that spiral. Note here that, in reaction to the UAW
settlement and to stave off possible unionization, Toyota has already
raised wages at its nonunion U.S. plants.

Any wage-price spiral will mean the Federal Reserve will keep interest
rates high, likely for a long time — it took 10 years to wring inflation
out of the economy in the 1970s. In the meantime, high interest rates on
car loans will directly depress auto sales and indirectly lead to slower
economic growth and possible recession. Bye-bye, then, to those historic
automaker profits.

The one glimmer of hope the U.S. auto industry has for a robust future may
well be the return of former President Donald Trump in 2025. He would
eliminate Mr. Biden’s EV mandate and restore the primacy of fossil fuel.

If 2017 past is 2025 prologue, Trumpian policies would also likely bring a
far swifter end to the current wage-price spiral and collateral high-
interest rates than the profligate spending Democrats and congressional
RINOs that collectively constitute the uniparty.

And yes, Mr. Trump would slap stiff tariffs on EVs made in China, starting
with Mr. Elon’s slave labor Teslas. As Mr. Trump likes to say, “Let’s see
what happens.”


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