The precipitous decline of the Big 3 as the world leader of the automotive industry has been stunning both in duration and magnitude. Some believe negotiation of the master UAW-auto industry contract this fall may represent the final opportunity for this several decade slide to be stopped and possibly turned around. The consequences of not arresting this decline are ominous. Continuing the present glide path virtually insures GM’s and Ford’s eventual sale to financially stronger and better positioned Asian and European competitors (remember Chrysler’s fate). Time is running out.
The Big 3’s decline started roughly in the early 1980s, and can be measured by a wide array of metrics including market share, profitability, return on investment, technical innovation, capacity utilization and quality and reliability to name just a few. There are many factors that have contributed to the growing performance gap between the best performing European and Asian competitors and the Big 3. These factors can be grouped broadly into three categories — external environment, Big 3/UAW relationships and management choices. While there are very significant issues relating to the external environment (such as environmental regulation and exchange rates) and management decisions (such as product definition process, product design and development process and supplier management process), the UAW-Big 3 relationship is particularly critical as the industry moves toward UAW negotiations this fall.
Various Big 3 manufacturing executives privately acknowledge select labor contract provisions have slowed progress in narrowing productivity gaps between the better Asian OEMs and the Big 3.
These include: • Appendix “L” that seriously inhibits and slows outsourcing of components and assemblies from Big 3 plants to more productive suppliers plants. • Provisions that mandate one worker be hired for every two retiring UAW workers, whether needed or not to support appropriate manning levels. • Restrictions on shuttering older less productive plants, or capacity that is simply no longer needed to support production requirements. • Restrictive work rules that drive higher overall manning levels. These provisions represent impediments to Big 3 competitiveness and ultimately contribute to threatening Ford and GM survival as independent OEMs. Now is the time for both sides to quit finger pointing and instead explore and implement contract and relationship changes that increase Big 3 competitiveness and satisfy certain co-dependent objectives of the Big 3 and UAW. Maintaining traditional adversarial practices will only insure suppliers, UAW and the Big 3 fail together. Several of the critical restructuring requirements include:
- Increased OEM flexibility in setting manning levels at assembly, stamping, and powertrain plants, while insuring work content and safety concerns are appropriately considered.
- Quickly improving initial product quality, warranty performance and durability.
- Increasing OEM flexibility in outsourcing assembly content, particularly to Tier 1 operations with UAW work forces.
- Permitting OEMs to close down unproductive and excessive assembly, stamping and powertrain capacity.
- Developing a plan to begin dealing realistically with legacy costs for retirees (health care and retirement benefits) including cost shifts and cost sharing.
- Beginning the process to align Big 3 health care and pension coverages provided by the new domestic OEMs.
Pension benefits and health care insurance affects more than 500,000 UAW retirees and over 250,000 active hourly personnel. Cost sharing is a fundamental element in nearly every private sector health care plan one can think of. While health care is a benefit that has been hard fought and earned at the bargaining table by the UAW, the ability of the Big 3 to afford this benefit has changed fundamentally from when it was originally granted. Hold the Big 3 to their original health care promise, and watch Ford and GM land either in the hands of Toyota, Honda or VW, or in bankruptcy court. How does either of these outcomes serve the interests of UAW members?
Instead we need to begin cost sharing in the form of deductible, co-pays and intelligent managed care provisions that provide quality health care with appropriate incentives to promote prevention, treatment at appropriate health care settings, prudent access to health care resources and decreased regulatory burden. The clock is ticking and time is running out. Not only is cost sharing appropriate, but we must increasingly consider cost shifting. Health care is a national problem that deserves a national solution. The UAW has the obligation to protect the safety interests of its members, to make sure work content is reasonable and to maintain hefty paychecks. However, these interests need to be balanced with the requirement for much better assembly and powertrain plant productivity and helping the Big 3 achieve better capacity utilization by enabling the closure of uncompetitive and excess plant capacity. Keeping plants open that aren’t needed drains the entire system of critical financial resources that is imperiling the Big 3 from providing long-term employment security for UAW members. The only sustainable means to guarantee jobs is to ensure marketplace competitiveness.
Each of the Big 3 has made substantial strides in improving their initial product quality, warranty and long-term durability performance of their vehicles. However, much more needs to be done. And while internal engineering and development and supplier coordination practices need to change at each of the Big 3, the OEMs and UAW need to embrace each other as full partners in their fight for quality improvement, warranty reduction and becoming number one in the hearts and minds of the customer. Improved relationships at the plant level characterized by organized, focused, empowered jointly staffed quality improvement teams can make substantial progress in closing the quality and reliability gap. The enemy is both near and clear and it is those taking market share from the Big 3 one share point at a time. Time is running out for the Big Thee and UAW to truly collaborate to improve product quality and reliability.
Outsourcing is an explosive issue. Appendix L makes it cumbersome, slow and difficult to outsource UAW work to Tier 1 suppliers. Using the UAW contract to protect work in less cost effective environments (i.e., Big 3 assembly plants) is a formula that insures structural noncompetitiveness, which consumes valuable resources and saps the vitality of both union and auto company. The competitive marketplace ultimately determines the mix of labor, capital and material resources that are optimal for the production of a component, assembly or system and where that is best performed within the supply chain. Long-term union interests are best achieved by reflecting this reality in the new contract and securing agreement that UAW-organized Tier 1 suppliers will receive preferential sourcing consideration for assemblies and modules that can be most cost effectively manufactured by Tier 1s.
Time is running out. Ford and GM are on the ropes and a 2003 master labor agreement that impedes economically justified outsourcing, limits closing down old and unneeded plants, preserves astronomically high health care and pension costs and tries to solve national problems with local solutions cannot possibly be in the best interest of the UAW, our overall economy, or the Big 3.
This may be the last opportunity for the Big 3 and UAW to constructively fashion creative solutions that meet many of the common objectives and interests shared among the codependent Big 3, UAW, government and the overall economy. Let’s hope there is a renewed spirit of cooperation and urgency among and between the Big 3 and UAW and that contract provisions emerge that fundamentally change the relationship paradigm and substantially enhance the competitiveness of the Big 3.
Again, time is running out.