Harbour

Many elements influence whether a manufacturer is competitive, and labor cost is only one of them. Nonetheless, attention already is turning to the upcoming negotiations between the UAW and the Big 3, even though the contracts do not expire until September. Is it a bit early to turn the spotlight on labor issues that may not heat up for another six months or so? Maybe, but then again, this is a pivotal year for both the union and management at DaimlerChrysler, Ford and General Motors.

As the two sides begin their rounds of negotiating, they are facing a much different automotive environment than in 1999. Very peacefully, the UAW and Big 3 reached four-year agreements that were historic only in their duration (past contracts traditionally were three-year deals).

The companies were riding high four years ago — both in sales and profits — and agreed to a generous contract with the union. But since then, the auto industry, and the fortunes of the former Big 3 in particular, has undergone dramatic change.

Ford and DaimlerChrysler have continued to lose market share to their foreign rivals, particularly those from Japan. And in the post 9-11 era, the domestic companies have been forced to offer strong buyer incentives to drive sales, which have impacted their profitability.

Like the auto companies, the UAW has been affected by the events of the past four years. The erosion of market share and the improvement in productivity have meant a reduction in union workers at many operations. Today, union membership continues to shrink in the face of increasingly fewer workers at Big 3 operations.

The UAW also has not been able to make inroads into the plants of foreign automakers such as Toyota, Honda and Nissan. These companies have been successful in convincing their workers that they do not need a union to negotiate a fair wage and benefits, job security and a safe working environment.

Meanwhile, the unions also have seen a not-so-subtle shift in the construction of new plants south of the Mason-Dixon line, where the business atmosphere is much more favorable to manufacturers than to organized labor.

The Big 3 know they have to become more cost competitive with their rivals. And they believe their contract with the unions — including benefits and retiree costs, as well as some of the generous provisions provided for in the last contract — continues to be one of the many balls and chains around their ankles. At the same time, unions believe — and rightly so — that they are not the reason for the erosion of U.S. market share, and that their next contract is not likely to have much of a role in winning back market share in the future. An increasing number of union locals at the plant level are very aware that the relationship has to change between workers and management. Time and time again we have talked with union workers on the plant floor who were rallying around the issues of quality, safety and cost, and were working with management to make their operation more competitive. These local unions understood the importance of working together to succeed, and that divided they will fall.

We have seen the differences local unions can make. It will be interesting to see how the UAW’s national leadership will tackle the issues that will go a long way toward determining the union’s long-term sustainability.

And it will be just as interesting to see what the companies will do to make sure the agreement reflects the union’s role in leading change, improvement and profitability of their overall business.

The table is set. Now let the negotiations begin. What will be — and should be — the key issues? I’ll tackle some of the obvious and not so obvious issues between union and management in next months column.