The United Auto Workers’ strike will have a ripple effect throughout the economy. It has the potential to cause upward inflationary pressures and increases the chance for recession. Neither would be good for the Biden Administration.
But does this strike have more to do with the planned transition to EVs than wages? The answer is in part yes.
I can’t say that I’ve been a big fan of unions. Unions were once necessary to force corporations to treat workers fairly. Then, it appeared natural market forces were resulting in a better equilibrium. But not lately.
Corporate management has flat out gotten greedy. With compensation committees comprised of fellow CEOs, CEO pay increases haven’t gotten out of control. And you lose the “moral” high ground when CEOs pad their pockets, pay dividends to stockholders, and authorize billions of dollars in stock buybacks. Not to mention golden parachutes when said overpaid CEOs are terminated due to a failure to do their jobs.
This has put the U.S. auto industry in a tough spot. However, just as in 2008, this is a self-inflicted wound resulting from short-sighted leadership.
That’s why in this case I side with the unions. The UAW made significant concessions in 2008 to help the industry through the financial crisis and now want payback.
Nonetheless, the EV transition is a complicating factor. Battery production requires less labor than engine production. That will translate into fewer union jobs.
The union wants labor at the battery manufacturers to be covered by their contract. That’s problematic on two levels. The battery manufacturing facilities are joint ventures with international partners and not wholly owned by the U.S. automakers.
Second, such a move would put the “Big Three” at a further disadvantage to Tesla, which runs a non-union shop. It has been reported that Detroit’s average cost of labor is $66/hour versus Tesla’s $45/hour.
Yet, in my opinion, automaker management doesn’t have a leg to stand on in these negotiations. Not when a CEO like Mary Barra is making nearly $30 million/year, the industry is making billions in profits, and they continue to prioritize stockholders and Wall Street over its own workers.
That is an example of poor and greedy leadership. So when the automakers whine about the investments needed to facilitate the transition to electric cars my response would be: it wasn’t an issue when you issued billions in stock buybacks – why is it an issue now?