It's the question that has been in the back of investors' minds since the earliest days of Ford's
Is the United Auto Workers about to run this thing off the road?
Part of the problem or part of the solution?
With contract talks looming -- they're scheduled to open next week -- the specter of auto industry labor problems is again rising. Casual industry observers have long had the UAW near the top of the list of ills that plagued old Detroit. The overpaid, underproductive, stuck-in-the-past auto workers and their sky's-the-limit leadership seemed perfect symbols of American industrial decline, making increasingly unrealistic demands rooted in a fast-receding past while first Volkswagen (OTC: VLKAY), then Toyota
But as your grandma always said, it takes two to tango. Sure, over the course of several decades the UAW's leadership negotiated a level of benefits for its members that looks absurd under the harsh lights of today's globalized reality. But the key word is negotiated: The union got those benefits because the leaders of the Big Three agreed to them.
Those executives, as we've since learned, were just as stuck in the past as the union's leadership. But their successors, more clued-in (mostly) and world-wise, know the truth: The auto business today is a rough, globalized, low-margin industry where constant, relentless innovation -- coupled with the lowest possible level of fixed costs -- will be required to maintain any level of success and profitability over time.
Here's the thing that might surprise you: The UAW's current leaders seem to have figured this out, too.
This ain't your father's UAW (except when it is)
Current UAW President Bob King has been making promising statements recently, telling The Detroit News that, "The single most important thing to our membership is long-term security." King has been clear that the long-term prosperity of the U.S. automakers is in everyone's best interest, even as he has pounded home his view that the autoworkers, who made major concessions that helped ensure the automakers' survival, are now due a bigger share of the profits.
Industry leaders such as Ford CEO Alan Mulally have been saying for a while that an expanded profit-sharing arrangement is a more sustainable way to reward workers than an increase in wages or benefits. The reasoning should be obvious: Autos are a cyclical industry. When times are good, everyone should benefit -- but when profits are thin, keeping fixed costs down is key.
King has said clearly that he agrees. I think this is probably going to be the way forward, and it's why I (speaking as a Ford and GM shareholder) am not too worried about the upcoming negotiations.
But there is one possible snag, and it could be a big one: Not everyone in the UAW sees things the way King does.
The possible wrench in the works
A recent Detroit News article suggested that King might be getting a bit ahead of his membership. Some autoworkers clearly feel that they gave up an awful lot during hard times -- and they'd like to get some of that back now that the automakers have returned to profitability. Profit sharing is nice, their argument goes, but guaranteed money and benefits are better -- and they might be willing to fight over it.
Will there be real dissention in the UAW ranks? Will it hobble negotiations, or worse, lead to strikes? King -- in public, at least -- seems confident that he can bring his members around, selling them on a contract that brings them real rewards without significantly increasing the automakers' fixed costs.
I hope he's right, because labor strife might be the only thing other than an economic meltdown that could derail Detroit's comeback at this point. And I think he will be. But GM and Ford shareholders would be well advised to watch the upcoming negotiations very closely.
- Add Ford to My Watchlist.
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- Add Toyota to My Watchlist.
- Add Honda to My Watchlist.
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Fool contributor John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors and Ford. You can try any of our Foolish newsletter services free for 30 days, with no obligation. We Fools may not 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.