UAW in Serious Trouble

The United Auto Workers union is facing what is called an existential threat. While it’s been over 30 years in the making, the union is in an inexorable decline. It all comes down to a matter of dollars and cents. The union simply is running out of money.

The UAW once had a monopoly on automotive labor in the U.S. and Canada. Not anymore. The Canadians split off nearly two decades ago. Since then, Asian and European auto makers have built 21 assembly and powertrain plants in North America, not including Mexico. Despite major efforts, the union has failed to organize any of them.

The same thing happened on the supplier side of the industry. Large, traditional suppliers such as Delphi, Visteon, Dana and American Axle now have fewer UAW-represented workers or none at all.

When Delphi was spun off from General Motors it had about 185,000 employees, most of whom were UAWmembers. Today, not one of Delphi’s 104,000 remaining employees is represented by the union.

It’s only getting worse. To make GM, Ford and Chrysler manufacturing facilities in the U.S. cost-competitive, the union agreed to allow new hires to be paid half as much as legacy workers.

Because union dues are assessed at two-hours pay per month, every new hire means the union gets half as much in dues. Before the decade is out, most of the remaining legacy workers will retire. Yet, the UAW already is dipping into its savings to pay for its operational expenses because it’s not collecting enough dues.

Then there is the biggest dilemma of all. As part of the government bailout to save the American auto industry, the UAW was forced to assume responsibility for managing the health care of its retirees.

The Detroit Three gave the union more than $50 billion in cash and stock to manage the Voluntary Employee Beneficiary Association (VEBA) which provides those benefits.

That is a massive amount of money, but it’s not enough. According to the latest papers filed with the government, the VEBA is more than $30 billion short of covering its obligations. A year ago the shortfall was $20 billion. Where will the union come up with that kind of money?

Now the kicker. The State of Michigan, home to the UAW, just enacted a right-to-work law. That means no one can be forced to join a union or pay union dues or fees.

Undoubtedly, the law will be challenged in court, so any implementation probably will be delayed. But 23 other states have enacted similar legislation and made it stick. More than likely, that will happen in Michigan, too.

Most UAW members will choose to remain in the union and pay their dues. But some will drop out for political, philosophical or even purely financial reasons. And that just exacerbates the union’s financial burden.

Before the anti-union crowd rubs its hands in glee, watch out. The UAW is seriously wounded and likely will lash out. The contract negotiations in 2014 could become extremely contentious.

So far, the UAW only has talked peripherally about the challenge it faces. When reality really hits home, I expect the union to take drastic action.

For example, couldn’t the union tell its retirees to sign up for the Patient Protection and Affordable Care Act (Obama care), then cut way back on their UAW health-care benefits? That way, it could pocket most of the $50 billion from its VEBA trust, leaving it with a massive war chest.

Obviously, the union will have to do something. The path it’s on now is utterly unsustainable.