The Detroit Abyss

Another good piece about how the UAW actually runs Detroit and why bankruptcy is inevitable.

It's easy to blame the problems of the Detroit Three on their CEOs. Yet the three leaders come from different business backgrounds, with only Rick Wagoner at GM an industry man. Alan Mulally was a star at Boeing and has only two years at Ford. Robert Nardelli comes from General Electric by way of retailing (Home Depot), and has only about a year at Chrysler.

How is it that successful executives become so unsuccessful as soon as they move to Detroit? Also, how can we explain that whenever GM, Ford and Chrysler leave our shores, they compete well in foreign markets as varied as Europe, South America and China? What makes them viable competitors as soon as they cross the border?

One can point to state franchise laws, or to the federal government's Corporate Average Fuel Economy (CAFE) regulations. But the most striking difference appears to be that the Detroit Three are unionized, and the foreign transplants are, overwhelmingly, not. (The exceptions are the transplants that have historic ties to the Detroit Three, like NUMMI, the GM-Toyota venture in California.) Yet the issue can't just be about wage rates. The foreign transplants pay well, and the UAW has given significant concessions in recent bargaining.

It is perhaps the mode of doing business in a unionized company that remains a crippling disadvantage. The UAW is arguably the most successful industrial union of all time. But its very strength has allowed it to permeate into every aspect of manufacturing in the Detroit Three.

The collective bargaining agreement with the UAW is a heavily negotiated document the size of a small telephone book. It is virtually identical for each of the Detroit Three, owing to "pattern" bargaining, but it doesn't exist at all in their U.S. competition, the nonunionized transplants. Not only work rules, but fundamental business decisions to sell, close or spin-off plants are forbidden without permission. That permission may come, but only at a price, since everything that affects the workplace must be negotiated.

Both the UAW and the Detroit Three maintain large staffs of lawyers, contract administrators, and financial and human-resources representatives whose principal job is to negotiate with the other side. These staffs are at all levels, from the factory floor to corporate headquarters and the UAW's "Solidarity House" in downtown Detroit.

The collective bargaining agreements are now renegotiated every four years; in each negotiation the power and penetration of the union grows. If the company asks to change the flow of work for any reason, from cost-savings to vehicle improvements, the local union president will listen politely, and then say something like, "We can help you with this, but what's in it for my guys?"

Typically, he will have a list of things he wants, some understandable (better cafeterias) some questionable (hire my nephew), but there is always a quid pro quo. These mutually sustaining bureaucracies exist to negotiate with each other.

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