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Who Wins in the UAW Bailout?

The UAW is one of the prime players in the government’s bailout of the auto industry. It is an accepted fact that the labor cost of an American made car is one of the driving forces behind the cost of the product produced. With the government accepting an equity share of the automobile business, what concessions will the labor union make to save the jobs that they have?

One of the obvious concessions that the union is going to have to make is a salary cut. One of the easiest ways to make the salary cuts to the rank and file is to agree to having the workers with the highest wages take a buyout for early retirement. The big question however is will the buyout eventually hurt the union in the long run.

One of the largest expenses in the labor contract is the retirement and health care benefits that are made to employees who were under union contract prior to the last contract being signed. While senior management members often have golden parachutes waiting for them, line workers often receive $100,000 in buyouts for early retirement along with providential health care benefits. This “golden parachute” amounts to almost 2 years salary for the line worker on an early buyout. Additionally the early retiree is eligible for state benefits once his position is terminated.

In the first quarter of 2008, the three Detroit automakers, GM, Ford and Chrysler offered buyouts to hourly UAW represented employees. These buyouts represented an attempt by the automakers to cut payroll costs. Typically workers who were offered buyouts were older, more highly paid workers. By cutting the costs of the workers with the most longevity who typically make the most money, the automakers look to replace them with younger employees who are entitled to less compensation. This practice will reduce labor costs however the possibility of a drop in the quality of the product produced is also inherent.

One particular problem that the UAW is facing is that as their membership dwindles as union members are accepting buyouts is the growing automobile manufacturing area in the South. These automobile plants in the South are typically foreign owned (Nissan, Toyota and Volkswagen) and are providing serious competition to Detroit. These Southern plants are generally lower paid and non-union plants. The Detroit automakers are saddled with increased competition and the cost of the tens of thousands of buyouts that they have committed to.

The buyouts of UAW represented employees will allow the Big 3 automakers to close plants that have become un-profitable in the recent economic downturn. These plant closures will provide a cost savings to the Big 3 that can be applied to the existing cost of the UAW buyouts that have been offered. The UAW buyouts will in the long run provide a cost savings to the automakers, however it also in the long run will hurt the UAW as its membership continues to decrease. This loss of membership will ultimately damage the power of the labor union in its contract negotiations with the automakers.

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