Thursday, February 27th, 2014

UAW Loss at Volkswagen Shows Why Unions Need to Reinvent Their Business Model

Workers at Volkswagen’s Tennessee auto plant voted down representation by the UAW last week, a result the Detroit Free Press labeled a “devastating defeat” for the union. Conditions were as close to ideal as possible for the UAW to organize a Southern auto plant. For one thing, VW, prodded by the labor representatives on its supervisory board (German companies operate under a co-determination regime in which unions hold half the seats on the company’s board), tacitly endorsed the UAW’s organizing drive. The company even allowed the UAW into the plant to make pro-union presentations, something not afforded to employee critics of the union. Beyond pressure from Germany’s IG Metall union, VW wanted to set up works councils to help guide the plant, something forbidden by America’s archaic labor laws that only permit outside unions to represent workers.

There was some kerfuffle over local government officials in Tennessee urging the rejection of the UAW, and hinting that signing on to the union would lead VW to stop future investments. The UAW is asking the National Labor Relations Board to void the election because of that. The claim appears specious, but with the heavily politicized NLRB, anything is possible, particularly if VW refuses to mount a defense in order to aid the UAW over the wishes of its own workers.

But rather than outside pressure, it seems more likely that Volkswagen workers were already satisfied with their jobs. Beyond a works council, it’s hard to see what they would be getting. Pay is comparable to the Detroit Three. Working conditions appear to be excellent. No one is complaining. It’s a very different situation from the sit down strike era in which by organizing the UAW was able to significantly upgrade the condition of labor, in the auto industry, but ultimately also in the country at large. The specter of the GM and Chrysler bankruptcies, along with the disastrous experience at an early VW plant in the US some years back which ultimately closed after UAW strikes, seems to have led workers to conclude that the ineffable benefits of unionization weren’t worth the risks.

This result has emboldened organized labor’s critics. For example, South Carolina Governor Nikki Haley said unionized jobs were not welcome in her state. Apparently even the Detroit Three’s management is worried about the union’s future.

What then should the UAW and the American labor movement do, at least with regards to private industry?

First, let’s get one thing out of the way. Who caused GM and Chrysler to go bankrupt? The blame clearly lies with management. Whatever the flaws of the union, they weren’t the ones charged with running the company. Management was. Other heavily unionized companies managed to make the transformation required to succeed. General Electric did it. Caterpillar, a UAW shop, did it. CAT fought a lengthy and bruising battle that left wounds which will never heal in Peoria, yet today they are an American industrial champion in the global economy. The automakers’ management by constrast never had the stomach for tough choices or tough fights.

Instead, their executives lived like kings. The stories I’ve heard from friends who worked at these companies blows my mind. My one friend, who was a manager at GM, had to collect a company Escalade, pick up an executive’s wife at the airport, and chauffeur her around shopping on Michigan Ave. in Chicago during the auto show. He also had to make sure the exec’s hotel room was properly prepped with the right drinks and chocolates. Another friend told of buildings at Chrysler in which there were doors you could only use you were above a certain classification level in rank. The order of the names on memos had to be in the correct pecking order. On and on. Even if these were exaggerated, the various stories from different people in different companies – all of which happened during a time in which these companies were in steep decline – shows an extraordinarily arrogant management culture.

Nevertheless, it’s still difficult to see the relevancy of traditional union models to the modern American workplace. The VW vote shows that they have little to offer, and perhaps might even be a negative. In fact, the enthusiasm of IG Metall for the UAW might not be all that it seems. They represent German workers. And it’s in the best interest of those workers to make American plants inefficient so as to reduce the incentives to offshore from Germany to America. Keep in mind, for VW, America, like Eastern Europe, is a low cost location.

If you look at it, unions may be on the last institutions in America that haven’t rethought their business model for the 21st century. They still want to play hardball to organize, then insist on things like crazy work rule systems and puristic seniority pay structures, political advocacy, etc. What has that gotten them? The private sector is down to like 6% unionized, much of it in industries that are increasingly subject to foreign competition and thus whose management cannot give much away without sabotaging their business.

But could there be a role for unions if they rethought their entire approach? I Think there could be. We keep hearing about a workforce gap in skilled technical workers. We also have a collegiate model of education that’s churning out too many semi-employable graduates with mountains of debt they can’t pay back. And companies increasingly what “just in time” labor the way they want just in time delivery of materials. Why can’t the unions be part of the solution to this?

If unions repositioned themselves as the go to place for skilled labor – or even just workers who can pass a drug test and are able to operate at the level of expectations for the modern factory in a low skilled context – this would be a hugely valuable service.

The one part of the union movement that still seems to be doing fairly well is the trade unions. Many of them have long operated on this model. You get into the union where the union trains you and are staffed on a project basis (e.g., constructing a bridge). The union delivers your benefits and pensions, based on payments from the employers. While this system does have its problems – witness the recent racketeering indictment of Philadelphia ironworkers for violent intimidation (they called themselves the THUGS, The Helpful Union Guys, I’m not making this up) – but in general when I ride an elevator up to the 50th floor of a skyscraper, I’m glad it was built by union labor.

Trade unions and their hiring halls are basically contract consulting providers of the type that routinely provide technical employees to major corporations. Why can’t other unions, reconstituted as a type of worker’s collective, do the same thing? And unlike contracting firms, they wouldn’t have to take nearly as big a middleman’s cut.

This is only one speculation of course. But the need for unions to reinvent their business model into something that’s relevant to the 21st century economy is urgent. With continued declines in membership and the rise of right to work laws in places like even Michigan and Indiana, they’d better figure it out fast before it’s too late.

Topics: Economic Development, Talent Attraction

35 Responses to “UAW Loss at Volkswagen Shows Why Unions Need to Reinvent Their Business Model”

  1. John Morris says:

    This is like saying fish have to change their business model. Force/ intimidation is fundamental to what unions are about. A voluntary organisation that talked and collaborated with management would hardly be a union.

  2. AIM says:

    VW workers enjoy union-level wages and benefits because of what the UAW negotiated with the Big 3. If the UAW goes away, so will those wages and benefits. That’s not to say that VW would boot their workers down to minimum wage levels and benefits. But especially down South, you can bet that wages and benefits would be a lot less than they are today. If that happens, the workers at VW will figure out the value of having union representation.

  3. John Morris says:

    I want to define my terms & goals here. The idea that any organisation can create perfect workplaces; jobs for life or ideal standards of living is an absurd fantasy- especially since no two people have the same definition of the term.

    Life is difficult and many work places will suck. The best society is one where there are many available alternatives. Unions as they are now undermine that.

  4. John Morris says:

    “But especially down South, you can bet that wages and benefits would be a lot less than they are today.”

    But also not surprisingly, the cost of living is lower in most of the South- something that has often benefited all workers and raised real wages- not just for the unionized employees.

    Are unions in NYC and San Francisco good at raising wages above the costs they help impose on the community?

  5. urbanleftbehind says:

    While charter schools and home-schooling no doubt will undermine and threat the existence of teacher’s unions, an interim step might be the break-off of STEM subject teachers into a more trade union-like organization and job acquisition structure (e.g. a hiring hall for math-challenged home schooling parents to locate an instructor for calculus or advanced algebra).

  6. John Morris says:

    I liked this post and often hear about the need for a new “union business model.”

    Can anyone elaborate on what that might be?

  7. Matthew Hall says:

    You are wrong John. Many 19th century unions were more worker mutual aid societies than worker bargaining agents. Do a search of google books to find out about them. As with is happening in so many other things in America today, unions could return to 19th century models of how to operate.

  8. John Morris says:

    “Many 19th century unions were more worker mutual aid societies.”

    Right- but would that fit anything close to how most of today’s unions operate?

  9. John Morris says:

    One thing that seems to come across is the link between unions & monopolies or industries with very limited competition. We all know that public sector unions now dominate.

    In the case of U.S. Steel & GM, we pretty clearly had companies that were structured/ intended to so dominate industry pricing that dividing the spoils was seen as the only problem. WWII helped by giving us a reason to bomb competing industrial bases into oblivion. Airline regulation limited any real competition.

    U.S. Steel died as an innovator from almost the year it was created.

  10. wkg in bham says:

    Re “CAT fought a lengthy and bruising battle that left wounds which will never heal in Peoria”: I read about a new plant Cat was building in Athens, Georgia. I don’t know what they are planning to build there, but it must be a lot because employment at the plant is projected to be 3,000. I was amazed when I read the news. Athens is known for a number of things, but heavy manufacturing isn’t one of them. Locals elated about getting the plant. You can be almost certain that the labor situation was a big driver in selecting Athens. I seem to recall reading that Cat was not at all happy with the state government in Illinois. Can’t remember the details, but I think it had to do with taxes. It always struck me odd that they were still located in Peoria to begin with. I wonder how long that situation will continue. I could easily see them moving to Atlanta, Houston or any other city (except Chicago) with good international plane connections.

  11. wkg in bham says:

    The same argument could probably be made for Airbus selecting Mobile, Alabama of all places to build a airplane plant.

  12. John Morris says:

    As whole, it’s pretty hard for a firm with deep supplier connections, and a long developed skill base like CAT to pull out of a state fully.

    That so many are moving in spite of this indicates big problems.

  13. Derek Rutherford says:

    In the case of Cat, we are seeing the slow-motion relocation of the company out of IL, one site at a time. If a plant in IL is making good money, it stays. If there is a downturn in demand for what the plant makes, it closes. Practically all new investment is elsewhere. Little changes year-to-year; over the last 20 years, the trend is clear. The supply base is following the same pattern at about the same speed.

    At some point they may move the HQ, but it would probably require a ‘trigger’ event.

  14. myb6 says:

    Great article, unions should focus on providing value to voluntary members (training, mutual aid, safety, networking/hiring, etc) and leave wage-setting to the market.

    Both management and the unions got completely out of hand at Big 3.

  15. John Morris says:

    I think in many cases, the management & union disfunction are closely intertwined.

  16. TNMillenial says:

    “There was some kerfuffle over local government officials in Tennessee urging the rejection of the UAW, and hinting that signing on to the union would lead VW to stop future investments.”

    There was no “hinting.” TN Senator Bob Corker: “I’ve had conversations today and based on those am assured that should the workers vote against the UAW, Volkswagen will announce in the coming weeks that it will manufacture its new mid-size SUV here in Chattanooga.”

    While it’s questionable whether coercive statements by a third party can overturn an election (this is something of a novel situation), it’s biased to the point of dishonesty to refer to the complaint as “specious.” Multiple labor law experts have expressed the belief that Corker’s comments were legally problematic.

    Also, I take serious issue with some of the sloppy generalizations here. The paradox of VW was that because the management was treating its workers well (in no small part due to the cultural effects of dealing with IG) and wasn’t playing hardball against the organizers, there was no real short-term demand that the union could offer to fill. One could reasonably argue that the union had little to offer the VW workers, but that hardly means that unions have little to offer to other workers under less enlightened management. Of course, those workers would have to contend with hardball pressure tactics and borderline illegal coercion should they try to organize. It’s always an uphill fight to unionize, regardless of whether the workers stand to gain immediate benefits or not.

  17. TNMillenial says:

    I should note that the State House speaker also stated that a vote to unionize would threaten the economic incentives the TN legislature had previously given to VW: “It would definitely put those (incentives) in jeopardy,” she said. “That would jeopardize a very good arrangement for Volkswagen to locate here.”

  18. Matthew Hall says:

    unions are no more or less affected by change as any other human institution.

  19. wkg in bham says:

    Re: “The UAW is asking the National Labor Relations Board to void the election because of that. The claim appears specious, but with the heavily politicized NLRB, anything is possible.” It is my contention that everything the federal government says, does or produces is political. Nothing that it says or does can be taken at face value. Even the truthfulness of factual statements cannot be assumed.

  20. AIM says:

    Is there a lack of awareness of the government subsidies handed out by southern states to secure these new facilities? These have included everything from free land, infrastructure, worker training, tax breaks and other subsidies. They have been some of the most egregious examples of corporate welfare, many of them pushed by the same politicians who rail against government intervention in the “free market”. Apparently, the Republicans in Tennessee couldn’t appreciate the irony of threatening to withdraw government handouts to VW if workers voted for union representation.

  21. AIM says:

    From Wikipedia but typical of the automotive facilities that have located in the South:

    “Volkswagen invested approximately one billion U.S. dollars to construct the facility, with local, state, and federal governments subsidizing the project with an estimated $577 million in incentives. Alabama had offered Volkswagen incentives of $385 million, the most the state had ever offered for an auto project.”

  22. I don’t know, it seemed to me that the political influence and pressure was quite strong in this case. What UAW is claiming is that area Republicans claimed that the formation of a union there would stop future expansions in their tracks and potentially damage existing operations. When presented with this “information” it is no wonder why some employees would have voted against it…even if they wanted the union.

    This seems like classic hypocrisy from Republicans who say over and over how government needs to stay out of the free market and people’s lives. The UAW wanted the union. VW wanted the union. And, perhaps, most of the employees wanted the union…although this is not totally clear. What was clear was that the conservative politicians in the area didn’t want the union…so they did everything they could to shut that whole thing down.

  23. wkg in bham says:

    Re AIM: “Alabama had offered Volkswagen incentives of $385 million, the most the state had ever offered for an auto project”….and would have been worth every penny of it. The plants themselfs are “loss leaders”. More than made up from the scores of parts suppliers. steel production (yes we still do a lot of that around here), trucking of parts, services, income tax….

  24. Paul Lambie says:

    Aaron, I believe you are being extremely naive here in marginalizing the potential impact of political threats made on the eve of their vote. How could some pro-union workers not be influenced to vote against the union in the face of threats to remove incentives that could result in the plant shutting down, moving, or at the least not expanding?

    Frankly, I’m not a legal expert, but it would seem to me that the complaint about interfering with the vote is not specious. As if having a “right-to-work” law isn’t enough of a roadblock to unions, we get comments like this from South Carolina Governor Nikki Haley, “We discourage any companies that have unions from wanting to come to South Carolina because we don’t want to taint the water.” The deck is so stacked against unions in this country, I’m surprised there are any left at all.

  25. Unions like the UAW are by far the largest source of funds to the Democratic Party. No surprise at the Republicans don’t want them in Tennessee. The UAW has benefited from enormous Democratic Party largesse over the years, such as recently in having bondholders and non-union employees take it on the chin so that UAW retirees could get made 100% whole in their pensions during the recent auto bankruptices. (The Delphi situation where the UAW retirees got special discretionary top offs from GM to make them whole while non-union workers took 70% haircuts on fully earned and vested pensions was particularly egregious). You can’t be a fully political organization and then complain when you find yourself embroiled in politics.

    I think the Tennessee $280K/job giveaway was insane myself. But that at least gives local political leaders a reason to involve themselves – they are trying to protect that investment as they judge best. And they’ve got every right to say that it would jeopardize at least their willingness to subsidize future investment. (As for their claims about VW, that depends solely on whether or not it was true that someone from the firm told them that, not whether it was appropriate to say).

    Local leaders are not part of management or the firm and are free to say what they want, period. That’s called free speech. I’m guessing none of you would ever find any situation in which unions should keep their mouth shut or stop engaging in Democratic leaning political activity.

    Whatever pressure the Republicans by merely talking can bring to bear, it’s nothing like the long history of violent union intimidation a la the Philadelphia ironworkers. This is exactly why Republicans rightly will not agree to eliminate the secret ballot for union elections.

  26. bettybarcode says:

    The future for unions is in the service sector: part-time, benefit-free McJobs. If Wal*Mart was unionized, I might actually shop there.

    Also in organizing adjunct professors, who earn minimum wage or less for course loads that often exceed what tenured professors carry.

  27. DBR96A says:

    Automakers have enough revenue that they can build their own plants with their own money. Of course, Southern states are “business friendly” the same way a whore says that she’s the friendliest person you’ve ever met.

  28. TNMillenial says:

    Mr. Renn, you’re not a lawyer. You don’t know the ins and outs of 1st Amendment jurisprudence (to state the obvious, free speech isn’t a license for blackmail or coercive threats – otherwise we’d let employers make all the public threats they wanted). You also aren’t an expert in labor law, so quit pretending that the issue of whether politicians are subject to the same coercion standard as management has already been decided. It hasn’t, and while you might believe politicians should be exempt, at this point that’s just your opinion rather than settled law.

    And enough with the smarmy tu quoque. I don’t think any party, union, employer, or otherwise, has a “free speech” right to directly or indirectly threaten the jobs of workers. Though I’m not even sure how a union would go about doing that, in light of the fact that if the union vote fails, the union has no presence and therefore no leverage for retaliation. That’s the reason why illegal union intimidation, when it does occur, takes the form of physical threats. Incidentally, the crude measures that union members must resort to if they want to act illegally makes them substantially more exposed to prosecution than the less overt measures that employers can use against workers.

    If you want to learn something about unions beyond corporate stereotypes, maybe you should read something like Jane McAlevey’s “Raising Expectations.” She’s not afraid to call out union leadership for their BS, but she helped reform a number of local chapters and actually obtained some major wins in organizing for-profit hospitals during the last decade. She also describes in significant detail some of the tactics your oh-so-innocent management uses when they get wind of an organizing drive.

  29. Ventura Capitalist says:

    Our intrepid author misunderstands what the organized labor business model actually is: A racket to provide money and muscle (physical force) for the Democrat party.

    Without coercion and thuggery, the union/democrat money laundering racket collapses:
    Workers Dismantle Over 70 Unions in Wisconsin
    Workers decertified over 70 school district unions during annual recertification elections in Nov-Dec 2013. The defunct unions include teachers and support staff. Under Act 10, A majority of each union’s members [not just those voting] must vote to maintain its certification with the state every year. AFSCAM Local 60 Council 40, including support staff in the Sun Prairie School District, was the largest union to be decertified. Only 135 of the 367 members voted to recertify. Substitute teachers with the Milwaukee Teachers’ Education Association also decertified with 128 of 320 members voting for the union. Twenty two actual teachers unions were decertified. The largest included New Berlin, Menomonee Falls, Pewaukee, Berlin, Waterford.

    … and this just in:
    Two senior lawmakers from Connecticut have been subpoenaed in a civil racketeering case involving nursing homes and the SEIU.

    As for those goons with the cutting torches in Philly? Well, you know… boys will be boys.

  30. AIM says:

    How shocking – take away the ability for the unions to bargain on any issue and it’s surprising that most unions were recertified. It’s like going into court and being told that your attorney can’t actually represent you. Why would you bother to pay for representation when the person who is supposed to be your advocate has been muzzled?

  31. Paul Lambie says:

    Aaron, you say it’s ok for high level R’ politicians to say that companies aren’t welcome to move to their state with a unionized workforce because unions happen to give a lot of money to the D’ party, but what would you say if a D’ governor indicated that a company wasn’t welcome to move to their state because said company happens to give a lot of money to the R’s? I would hope that you would find that to be a ridiculously stupid position to take. Why is Governor Haley’s position any less shortsighted and harmful to the people of her state?

  32. Paul Lambie says:

    BTW, I’ve never really agreed with unions making political contributions. I think they should focus directly on negotiating with employers. I think it’d probably be better if workers had separate lobbying groups they could join voluntarily to engage in political activity.

    Of course, the Beck decision (some 20+ years ago I believe) has long given union employees the legal right to opt out of paying the portion of their union dues that go to political campaigning, so that no workers are forced to directly support the political views held by union leadership. That should be enough to placate R’ leaning laborers and their supporters without having to resort to decimating the ability to form and maintain unions through so called “right-to-work” laws.

  33. Paul, I actually don’t think governors like Nikki Haley should say union jobs aren’t welcome in their states. Certainly outright prohibiting them or interfering with their permitting would be illegal and wrong. But it’s certainly valid to suggest that you won’t provide special subsidies to them however (which I don’t support in any case), or to say that you believe a union presence will inhibit development, if that’s what you honestly believe.

    Keep in mind that Democratic politicians have already done similar things to what you suggest. Gov. Cuomo of New York recently more or less said there’s no place in his state for conservatives, for example.

  34. CityBeautiful21 says:

    I’m the child of two union members. I find a lot of tired stereotyping of how unions function in this post and comments, and not enough indictment of the playing field on which labor/capital negotiations occur.

    Aaron got close early on, but then moved away from this idea: “Beyond pressure from Germany’s IG Metall union, VW wanted to set up works councils to help guide the plant, something forbidden by America’s archaic labor laws that only permit outside unions to represent workers.”

    Look- unions amplify the workplace culture and norms of the people they represent. If you have a healthy workplace culture, you get unions that improve the performance of the workplace. Massachusetts has some of the best public schools on earth. Their labor force is heavily unionized. Why aren’t SC and MS union-free schools kicking their butts?

    If you have a toxic workplace culture, you get problems. The subway station reps in DC, NYC, and Boston are all unionized. Can anyone use unionization as a variable to explain what the WMATA folks are much less helpful?

    My point is that the outcome sets for what unions do in the workplace is unduly limited by the playing field. What if unions were allowed to organize internally in a way that better performing workers received some stock options for higher workplace performance? What if being in the union got you access to these benefits, but also required passing tests in certain areas of proficiency that helped the bottom lines (or in the public sector, social goals) of the organization?

    My parents got a pay increase for having Master’s degrees in their union because it was positively correlated with job performance.

    How well are outsiders (external UAW reps, etc) likely to know what drives performance at a company than internal folks? Probably not as well as insiders.

    If you think we have lousy unions in the US, a non-trivial factor is that we have strictures on the types of unions that can emerge.

  35. Paul Lambie says:

    I like CityB’s comments. I don’t know much about labor laws, but I’ve always been a proponent of union contracts allowing employers to pay employees differently within a range, based on performance. Instead of saying that all workers in a given job, with a similar amount of seniority must be paid $20/hour, worker pay could range from say $17 to $23 per hour, such that the average would need to meet or exceed $20/hour. Obviously, the width of the range would probably differ depending on the range of productivity for individual jobs.

    Also, I think that an arrangement where there is an assurance that a certain share of company revenues would go to wages would provide more incentive for workers to produce more while helping to ensure business flexibility and solvency

    If you think about it, this would have a lot of similarities to the most successful unions in the country, those of the major professional sports players. Why can’t average Americans be rewarded in a similar manner, proportional to their revenue production, as America’s richest laborers?

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