There is also a consistent pattern. Companies do great, leading to expansive contracts with workers, then are mismanaged, or not sustainable during down-cycles. Then a down-cycle happens, and the company declares bankruptcy (which more often then not involves a government, a hard core negotiation or a bank bailing them out), and moving to a starvation contract, which they keep in place to far to long, then they get a expansive contract, and the whole thing continues.
Alternatively, Unions don't agree to the starvation contract, which then destroys the company - see Eastern Airlines, Pan Am, and all the carriers that didn't survive deregulation in the 1980s.
Yes, the lavish packages and guarantees are better in the short run, but they will need to be re-negotiated in the next downturn.
This works so long as the corporation doesn't try and muck around with how their profit is recorded. See "Hollywood Accounting" for examples of this in practice in union-using industries.
I talked with a guy who worked 42 years for the same company and was on the bargaining committee when a work stoppage occurred. He said they always thought the company kept two sets of books - the ones they showed the union and the actual books. Nevermind that he worked for a F500 company which was publicly traded at least half the time he worked there, and he worked for the largest facility in the company, driving much of the revenue for the company.
You also hear things about "the company going after tax write-off so they don't have to pay workers as much" when that write-off they're mad about is a standard cost of doing business deduction in the same way payroll is...the company is making a donation to a community organization or buying supplies, but they'd reduce their tax bill by just as much if they paid the money out to employees in the form of profit sharing, bonuses, or higher wages.
Non-profits are a way to buy political influence while getting a tax write-off.
Expanding stakeholder participation, generous profit sharing, limiting CEO compensation, larger social safety net...?
To counteract this and get the employees a fairer share of the value they add to a company unions exist so that the power imbalance gets evened out between workers and management.
Are people just a thing in a financial transaction where each side tries to get the most out of the other at the least cost? If someone thinks that then it's kind of a sad view on humanity.
This isn't "abuse", it's a free market system.
This is an honest temptation. It's not just about the company health. It prioritizes some employees over other employees.
It's more than optimizing expenses.
However, the vast majority of executive compensation is in the form of equity, and labor's demand for more cash will punish the stock price. Plus there really isn't that many executives and you can't squeeze them enough to cover the extra spend on labor.
A small difference in wages won't attract people from far away to move to a new location because of all the thing I originally stated and ultimately while there are some good benefits to manufacturing in the US it's hard to beat Mexico or China because the costs are so much lower there for labor. On top of that because it's a relatively low skill field the potential hiring pool is very large so there's little need to pull in veteran higher wage (and higher healthcare cost) employees from other companies.
You're also now looking at the company's perspective rather than the employee's. The fact that there are other industries is a benefit to the employee -- if you can go to college and get paid twice as much as a software engineer then some people will take that option (benefiting them), which reduces the labor supply in the original industry (benefiting the remaining people).
I still don't think you could/should get rid of the unions though.
But in absence of other information my uneducated sympathy would tilt a bit towards the company and away from the union for one simple reason: many unions are essentially monopolies.
Yes, we all know a good union is a good thing and it can be beneficial for both the corporation and the workers. But what if a union happens to be "bad" it seems like the corporation has very little leverage.
We do have all sorts of laws and regulations preventing formation of large monopolies in corporate world. Do we have anything to prevent a de facto monopolization of workforce by a union?
In terms of equalizing bargaining power, unions make sense in a few narrow contexts -- say, single-employer mining towns -- but far less in cities where workers have many options open to them.
It's called "right-to-work" law. Some states have it and some states don't. But it prevents a union from requiring you to join as a condition of working for a company.
Create a less crooked union...?
GM and others are making fewer cars in the USA.
Hint: the solution is not to drop US wages to $5/hr.
I also see much handwringing about the crazy health insurance costs GM has to pay. That's unfortunately the cost of doing business in a country with an utterly broken healthcare model. There is no sane reason for why 'good' healthcare coverage should cost $13,000/capital/year... Yet, here we are.
But otherwise I agree with you.
As I'm sure you know: GM (and others) have long thwarted single payer. To keep more leverage over labor. To now complain about the expense is pretty rich.
Fair enough, but why stop there? What about all the other productive jobs lost due to cheaper foreign labor? It would be unfair to give special treatment just to auto workers. Either everyone should have a right to forever keep the profession of their choice, or no one should.
Soon enough you find yourself in the situation where everything is more expensive and everyone's standard of living is lower, because all comparative advantage has been lost.
This has been known for well over a hundred years, but people still have trouble accepting it.
You're assuming that the higher costs will necessarily all be passed along to the consumer rather than come from profit margins.
I think it's a valid assumption if the market were comprised of a lot of highly competitive firms rather than 3 not-very-competitive-at-all firms.
There's definitely a link, I think, between record high and increasing corporate profit / GDP ratios over the last 15 years and outsourcing.
For GM, it's probably about 4-5% average in the last years:
> I think it's a valid assumption if the market were comprised of a lot of highly competitive firms rather than 3 not-very-competitive-at-all firms.
Consumer goods are generally highly competitive. There are no monopolies or exorbitant profit margins. The number of companies is irrelevant. Even if it was just a single company, as long as the profit margins are low, consumers are not at risk of being overcharged.
Outliers are companies like Apple, which have a monopoly on their IP, but that's a different story.
Why is optimizing labour costs the only option that such false dichotomies put on the table? Why are all other expenses sacred, but wages the first on the cutting block?
It's not a 'if we don't cut pay, we will live in a dysopia where nothing is affordable' situation.
It's a 'if we don't reign in the capital owners, the healthcare cartel, and management compensation, we are going to continue to live in a dystopia, where the vast majority of normal people continue to get squeezed to enrich those three groups.' (I'd also throw in loan servicing in there, but sadly, the existence of the bloated retail banking sector is a consequence of those three problems, not the cause.)
Most of a typical family's expenses are housing and healthcare. No amount of blue collar wage cutting is going to make either of those two line items affordable. But it sure as shit will make said blue collar family not be able to afford them. Wringing your hands over the cost of consumer goods, while ignoring those two elephants is bad policy.
We'd all be better off if we lived in a world where cars and widgets and clothes cost twice as much, but healthcare half as much. Well, most of us would, at least. You can find such a model on the other side of the pond.
No, we wouldn't, because people buy cars and clothes more often than they buy health care.
What costs a lot in the US is health insurance, not health care. And that's because the thing called health "insurance" isn't actually insurance; it's not just covering you against unforeseen large expenses. It's more like an expensive maintenance plan that you're forced to buy whether it's cost effective to you or not--like the full service maintenance plans that car dealers try to sell you, except that you can refuse to buy them from car dealers.
What really needs to happen is to separate out three very different things that are lumped together today into what is misleadingly called "health insurance":
(1) Routine, predictable maintenance expenses, like regular physical exams and vaccinations, and routine care for common illnesses like the flu. These should be provided by a competitive free market, like they were in the US before WW II when employers started offering health benefits to attract workers since wartime regulations prohibited them from offering higher wages. Competition would drive these costs down since the expenses are routine and it's reasonably easy for people to tell good providers from bad ones.
(2) Unforeseen, large, temporary expenses, like accidents. These are what would normally be covered by something properly called "insurance". For auto accidents, people's auto insurance is already required to cover them in most states; but for other kinds of accidents--slips and falls, broken bones while playing sports, etc.--an ordinary insurance model would be suitable, provided by health insurance companies.
(3) Expensive chronic conditions that require ongoing treatment (usually drugs, but not always). These are the hard ones to cover, but a system that was dedicated to covering them and nothing else would be much better than the bastardized system we have now that lumps everything together. These are the kinds of things where it makes sense to pool national resources and provide some kind of universal coverage, since it's usually not feasible to assign specific causes so an ordinary insurance model can't work. But if national resources were pooled to provide universal coverage for just these things, we could see how much they actually cost and we would be more focused on finding ways to reduce the frequency of such conditions.
> You can find such a model on the other side of the pond.
Really? Cars and clothes are twice as expensive as in the US?
Don't worry, your 401K has a decent chance of losing half its value before you retire.
As for multi-million dollar compensation, why don't you run the numbers and see how much the executive salary adds up to and then tell me how much money could be saved there. Maybe you'll have an argument then.
> Why is optimizing labour costs the only option that such false dichotomies put on the table? Why are all other expenses sacred, but wages the first on the cutting block?
If you run a multi-national company, in order to stay competitive, you need to look for the cheapest prices everywhere, including labor. Labor just happens to be the major cost factor, so naturally it's the first thing to optimize on. Your own wages are, naturally, the last thing you want to optimize on.
You can argue that these companies should be bribed into taking more expensive local labor, just keep in mind that this bears a cost that all of us pay.
> Most of a typical family's expenses are housing and healthcare. No amount of blue collar wage cutting is going to make either of those two line items affordable. But it sure as shit will make said blue collar family not be able to afford them. Wringing your hands over the cost of consumer goods, while ignoring those two elephants is bad policy.
Of course, housing and healthcare can't be outsourced in the same way that car manufacturing can be. If I follow your line of reasoning, manufacturing should get the same privilege, so that housing, healthcare and consumer goods will be less affordable. Like I said, this is possible, but you lose the comparative advantage, which is just leaving wealth on the table. Perhaps those auto workers should get a job in those more privileged industries instead?
> We'd all be better off if we lived in a world where cars and widgets and clothes cost twice as much, but healthcare half as much.
Fair enough, let's artificially suppress healthcare compensation in favor of manufacturing compensation. I'm sure it'll do "wonders" for the quality of either.
On the other side of the pond, everyone earns less, especially healthcare workers.
Your mathematics don't make any sense.
If 60% of my household budget goes towards housing and healthcare, and 40% of it goes towards consumer goods, made by people like me.
If I lose 20% of my wages, for a 10% reduction in the cost of consumer goods, this will put me into a net -16% deficit.
Stop optimizing for the cost of consumer goods. They aren't the problem for a typical household. They haven't been a problem for a typical household since we've figured out mass production in the 70s. They never will be a problem for a typical household, unless we have a complete collapse of civilization.
> Fair enough, let's artificially suppress healthcare compensation in favor of manufacturing compensation. I'm sure it'll do "wonders" for the quality of either.
Every other country on Earth manages to provide equivalent or better healthcare, for much lower prices (Even adjusted for PPP). They don't have parasitic insurance and billing industries, they don't waste healthcare money on marketing spend, and they have reigned in physician salaries. None of those things have any impact on the quality of healthcare (Actually, the first two have a pretty major negative impact on the quality of care), but they do have plenty of impact on the cost of care.
> On the other side of the pond, everyone earns less, especially healthcare workers.
It's not what you earn, it's how much you have left over after you pay the bills.
Believe it or not, markets go both up and down. While it's true that the S&P 500 has shown great paper profits most of the time, for the longest time, other markets haven't been that lucky:
We haven't seen the end of a historically unprecedented low-interest phase yet. Even without a breakdown in nominal terms, at current rates of asset price inflation, a million dollars might not afford you a porty-potty in one of the better areas of the country.
> It's not what you earn, it's how much you have left over after you pay the bills.
Generally speaking, purchasing power in the US is higher and the tax burden is lower. Of course it really depends on where you live. If people earn more, prices will be higher as well. There is cheap housing in the US and expensive housing in Europe. You have to compare "similar" cities, e.g. San Francisco with London:
Also, for socialized healthcare, you will generally pay more than 10% of your paycheck, however high that may be.
I haven't done any mathematics.
> If I lose 20% of my wages, for a 10% reduction in the cost of consumer goods, this will put me into a net -14% deficit.
What's the basis for these numbers? First of all, foreign labor isn't 20% cheaper, it's 50-75% cheaper. That's why there's not that much manufacturing left in the US. Secondly, direct and indirect labor cost accounts for far more than fifty percent. Profit margins for consumer goods are usually in the single digits.
Remember, I'm talking about the scenario where everyone has their profession protected. In practice, you are either protected by virtue of not being outsourcable, or by government intervention. You don't see the government artificially keeping a huge domestic garment industry alive, for instance. We leave that labor in East Asia. Still, you can buy domestic garments, but they are massively more expensive.
In practice, assembly work in a car factory is not such a big factor of overall car costs as to raise prices of cars massively. You can argue that only these people should be protected, it just would be unfair.
> Every other country on Earth manages to provide equivalent or better healthcare, for much lower prices.
Every other country? What are you talking about? Most people in the world barely have any access to health care at a level close to that of the US.
Sure, people in Europe on average get a better deal, but again, they also earn less. Of course health care is cheaper if every doctor, every nurse, every clerk earns less. It also helps to not have million dollar malpractice settlements, or not letting pharma companies set their own prices.
It's not all sugar and spice though:
I find it very hard to believe that any union has ever destroyed any company. But if it has, then it probably was for the best and the company deserved to be destroyed.
From the unions perspective, a bankruptcy isnt welcome, nevertheless it could easily bring one about.
In practice, that isn't necessarily true, at least in the short run. If an airline goes out of business, that doesn't mean all these workers will just be absorbed into other airlines, especially not at the prices they just failed to bargain for. They may need to switch industries and start from close to zero.
Unions are supposed to prevent that from happening, but when they overplay their hand, both sides lose.
Talking about GM, the labor cost for building cars in the US is so high, it barely makes sense. Either foreign labor needs to get more expensive (perhaps through tariffs), or domestic labor needs to get cheaper. Otherwise, these jobs will disappear and the unions will become obsolete. It's not a good bargaining position.
Health care costs are a key issue. Ford and GM said that they spend more than $1 billion per year on health care for active UAW workers. Government data for all union workers show that the average cost of health care benefits is more than $6 per hour, the Center for Automotive Research reported. But the report showed the UAW Detroit Three's health care cost is roughly 150% of the U.S. average. The average UAW worker pays about 3% of his or her health care costs compared with 28% paid by the average U.S. worker, CAR said. Note: Some of the money for CAR's research comes from automakers including GM, Ford and FCA.
UAW members are protective of their health care benefits because their jobs are physically demanding and they need health care to function and stay healthy to do the jobs.
Automakers also worry about an economic downturn foreseen by some economists as the car companies face high costs to develop electric vehicles required in China and Europe and to prepare to compete in a future with more shared services and autonomous travel.
The unions don't want Medicare for all, their health insurance is even better than Medicare. They actually fought against ACA until the "Cadillac Plan Tax" was put into place. The govt then pushed out the tax for years.
Think of all the times you have heard "That job only pays $x an hour" and the reply "Yeah but the benefits".
They may also need a solution sooner than it would take Congress to do something like that, given the amount of opposition to it from people who prefer the status quo -- or any of a dozen competing alternative solutions to high healthcare costs.
As for needing a solution sooner... it’s not like this is going to be the end of it. Health care costs were a major point of contention in 2008 as well. I’m pretty sure they were a major problem for GM well before that.
That is consistently the claim, but unless it would also lower outcomes, what thing is it doing to cause that which couldn't be done independently of single payer? It's easy to lower "costs" using price controls, but then you have all the usual problems of price controls. Shortages, rationing, quality reductions necessary to meet the price target, etc. Keep in mind that for people with insurance, the US system has better overall outcomes than most socialized systems.
> and it would also put them on an equal playing field with the other domestic manufacturers, rather than having to compete with other companies who have lower costs due to not having such expensive union health care plans.
That doesn't really matter unless they're competing with those companies, but most of the other auto companies have the same issues with the UAW and US workers, and those companies have the same option to build plants outside of the US as their competitors.
> As for needing a solution sooner... it’s not like this is going to be the end of it. Health care costs were a major point of contention in 2008 as well. I’m pretty sure they were a major problem for GM well before that.
That's the point. 2008 wasn't even the beginning of it, this has been an issue since at least the Clinton administration. GM would likely be bankrupt (again) before Congress does anything meaningful here.
It is a promise that will likely be impossible to keep, but you know politics and all.
If I can go a meta layer above this subthread and explain the 2 different conversations happening:
- the gp (maxerickson) comment was responding to "2008 GM nearly went under", and it's correct (not technicality) that the old_company (with its own assets-liabilities) did go under. Not "nearly", but completely went under. A new_company was created as different legal entity with a clean slate to pick and choose assets-liabilities.
- the other replies (Aloha, wil421) are more philosphical "Ship of Theseus" type of arguments
All 3 (maxerickson, Aloha, wil421) can simultaneously be right because they are all emphasizing different aspects of what "General Motors" means. It can be either "GM the assets&liabilities" or "GM the brand, the public perception".
I was also arguing that the bankruptcy was immaterial to GM's moral obligation to 'share the wealth' when times are good.
It's sort of a technicality, but it's an important one.
Did they rehire everyone and start their plants from scratch when the legal entity changed?
The new company had ~23,000 less people (I think many of those jobs were sold to other companies).
Corporate reorganizations under bankrupcy law do happen, but they are rare, newsworthy, and very disruptive to workers (at a minimum, their pension and health benefits are renegotiated). Shareholders being wiped out is not normal, and retirement funds -- or really, the stock market at all -- would not work if it was.
In 2005 when the company lost $10 billion or in 2007 when they lost $38 billion the union workers didn't get bills in the mail instead of checks. On a personal level, the workers are still making profit regardless of whether or not the company is as well.
In 2008 GM was a $100 billion in debt. The union workers didn't pay that, they didn't take responsibility for that, the taxpayers did.
when they lost $38 billion the union workers didn't get bills in the mail instead of checks.
If management got bills in the mail, they shared in the loss. AFAIK, they did not.
Management only takes losses so far as they have equity stakes in the company, which is to say the extent to which they are owners. When GM lost $38 billion in a year the people who own the company took that hit.
That's why employees usually don't value ownership in a company, because it cuts both ways. A salary only deposits into your account.
 I’m not making a statement about whether this is true or not. Just capturing the context.
Assuming it's true they had their wages reduced in the crisis, it's absolutely disingenious to claim that a return to higher wages post-crisis would be undeserved profiteering. They did share in the losses.
Accepting the risk of losses is why owners have a legitimate claim to the profits. Workers take a guaranteed paycheck which shelters them from losses in bad years and forfeits their claim to profits in good.
It's just great when workers accept pay-cuts in bad times, just for people like you claiming that this is just normal, no loss, and certainly no reason to restore their paycheck when good times are returning.
We had good employee retention.
As with ao many things: it's complicated.
And you're saying that shareholders did get bills in the mail?
They reduced their paychecks and benefits, so they actually shared part of the losses. Which entitle them now for a share of the profits.
These union workers are also taxpayers.
This seems to be the Crux of the issue. A quick look at the financial statements shows positive net income (though not consistently). The statement of cashflows, which is where companies go bankrupt or not, seems much less positive a story.
My accounting training is limited. Any HN'ers with accounting/finance background care to comment?
That seems totally reasonable to me too (and I'm not one of those blindly pro-union people, especially massive unions like UAW)
The UAW shouldn't be striking when under under indictment as they are weak. It's also at a time when auto sales are weakening.
If there aren't customers to buy the products why would the UAW demand that GM keep making cars at those plants?
Can someone help me understand this? I mean, I guess I have to think about this as "factory workers are doing algorithmic tasks" so there's less benefit to being a veteran worker than there would be as a "knowledge worker?"
I don't want that to sound demeaning - it just seems odd to me that you'd be in a union to improve things for workers, but you wouldn't want the most senior people to be making solid money in comparison to new employees. Wouldn't you then lose some of the motivation for those experienced workers to stick around?
The UAW eventually agreed to create two classes of workers - the more senior union people would have their pay and benefits kept intact (mostly), and then it would be the new hires that would see lower wages and reduced benefits.
What they are arguing for now is to bring the new workers up to the level of the senior workers.
> But in 2007, as the Detroit automakers were starting to bleed cash, UAW leaders agreed to create two classes of workers – in effect, protecting current members at the expense of future ones. Those hired after 2007 would be paid as much as 45 percent less and have less generous benefits as well as limited transfer rights.
That's a big gap for people doing the same work.
There can still be benefits for the company to having an experienced workforce - and it comes down to the company and union culture. I've worked in union shops as in industrial engineer. Your experienced press operator can help troubleshoot problems better and faster than a newbie, and they can tell you all the ways a plan you have is wrong before you implement it. Whether they do or not varies. Some individuals have an attitude of "I do what I'm told and go home at the end of the day", some are more than willing to help and collaborate, some hate their job but are holding out for a pension, some literally work harder at not working than if they just did their job.
I had many internships before starting full time. Some places you'd never guess were union - mostly in a good way. Factory #1 I could go out on the line and talk with anyone, and largely everyone was helpful in trying to make the work more efficient, improve the bad parts of their jobs, etc. It felt wrong, but my first day on the job I went to the R&D manufacturing area with my coworkers, they made small talk with the union machinist, then started machining some parts. I was taken aback, and they then explained the union only really cares about normal production.
Also factory #1, as I was making standard work, one worker was 10' and up a ladder from his toolbox when he realized he had the wrong size socket. He'd messed up a few other times for the same kind of thing and was tired of going up and down. He asked me to hand him the right size socket. I "took work from union labor" when I did that, though that factory had the attitude of "if you're making my life easier, it's okay".
Factory #2: I've also worked places where the union workforce pushes for wage increases for every tiny thing that changes. You took added a monitor to the computer they run a machine with, you moved a few buttons on the interface, you change the process to greatly reduce the safety risks and also reduced labor required by a marginal amount. All of those have been brought up as reasons they deserve a raise.
Factory #3: experienced downtime due to a mouse running into a 2' pit on the production line. The workers exited and refused to return to work until they saw the dead mouse come out. Not directly relevant to the conversation, but a fun story to tell.
Workers hired after a certain date have worse pay and benefits, and it takes longer to earn benefits.
The flaw here is that the only thing that matters is how long you've been hired. Not how good you are. Similar to teachers. Higher pay, shift preference, vacation scheduling, overtime availability, it all goes to the senior employees.
There's a cutoff date where everyone before is on one schedule, and everyone after is on a different, lower-paying one. It's a concession the union made when the employer was less profitable that it had been. It's always been a dealbreaker that the two-tier system goes away, even though they could afford it.
Of course, management is doing their damnedest to make sure they don't hire anyone who could possibly join the union.
Which is actually worse, because non-union employees are required to be ~represented by the union without paying for that representation~ treated as though they are represented by the union when in fact they are not. So the employee reaps the reward of the union without contributing.
dammit I want to strikeout something and I can't find the correct markup for HN. I know I've done it before.
"The Truth About GM’s Huge Layoffs and Why You Should Be Mad About It"
Scott Kilmer 2018/12/06
Even if this is only partially true, I don't think labor (striking UAW workers) are going to win this round.
Essentially, they are selling pickup trucks and Escalades to Americans with fantastic margins to prop-up their car business (which is unprofitable in the US and only occasionally profitable elsewhere) and to fuel global expansion.
Basically if the UAW stops making pickup trucks and Escalades, GMs cashflow will turn ugly fast. Doesn't matter where the growth is.
If labor is cheaper elsewhere, can they get them to strike together? Are they trying to connect with them?
The Taft-Hartley Act actually made that illegal. Strikes can only be engaged in between the shop being struck against, and it's respective Union. Network effects are apparently too destructive to be used by anyone except for the people raising money.
In short, no industry blacklisting of Union members/organizers by employers is allowed, and no secondary striking by other shops' laborers are allowed to be organized.
This legislation was enacted due to some rather poorly timed strikes during WWII if I recall correctly. Or at least that's what I've read.