The Auto Industry's Biggest Question in 2012

Most analysts agree that the new United Auto Workers union contracts are good for the Big Three in Detroit. But will the good times for contract negations last for Ford (NYSE: F  ) , General Motors (NYSE: GM  ) , and Chrysler?

When Bob King became the UAW president, he said one of his main goals was to unionize the foreign-owned auto plants operating in the United States. Toyota (NYSE: TM  ) , Honda (NYSE: HMC  ) , BMW, and Volkswagen currently have no UAW unionized plants inside our borders, although they have a history of unions in plants abroad.

Now that negations with the Big Three are complete, the UAW will focus more time and energy on the non-unionized companies. In a shift in strategy, the union will not announce which automaker will be its main focus. However, success or failure for the UAW could affect all automakers that produce cars in the United States.

Size = power
The UAW was once a force to be reckoned with, representing nearly 1.5 million U.S. workers in 1979. Since then, the numbers have fallen to around 377,000 in 2010.The UAW benefits from the network effect; the more plants with union workers, the more power the union has at the negotiation tables.

Although every contract is tailored to each individual company, when the union is negotiating it uses the contracts at other companies as a starting point. The new contracts at Ford, General Motors, and Fiat subsidiary Chrysler, all added similar benefits for workers: signing bonuses, a raise for new hires, and a clearer and considerably better profit-sharing structure.

UAW needs a lifeline
Entering into the foreign-owned plants would give the UAW more influence over the industry because not only will membership numbers increase, but so will the revenue brought in from membership dues. This money is what the UAW uses to gain influence through political support, rallies, and the shaping of public opinion. Without large funds, the union becomes less relevant. During a speech in January, King stated, "If we don't organize these transnationals, I don't think there's a long-term future for the UAW. I really don't."

This statement says it all. The union has slowly been losing the power and support it once yielded. If it fails to bring in new members, the organization will continue to have less of an influence during future contract negotiations with the auto industry. Most will agree that the UAW will never totally disperse, but looking at the long term, if the union continues to weaken, the Big Three automakers would possibly be able to lower labor costs and grow stronger.

Foolish take
The UAW has attempted to organize workers in the foreign-owned auto plants for the past 30 years and has not yet been successful. The Japanese, South Korean, and German manufacturers built plants in the southern states, which are generally not union-friendly. If history tells us anything, the union will once again fail. We'll have to see whether the new UAW strategy can turn this trend around.

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At the time this article was written, Fool contributor Matt Thalman owned no shares in any of the companies mentioned. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors and Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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