GM’s “Unallocation” of 14,000 Jobs: A Credible Threat to United Auto Workers
General Motors announced last week that it planned to halt production at five factories and cut 14,000 jobs in an effort to trim costs and adjust to changing consumer tastes. The cuts represent more than ten percent of GM’s North American work force of 124,000 and can be traced to a variety of factors including a slowdown in new-car sales, changing preferences towards pickup trucks and sport utility vehicles as a result of low gas prices, new tariffs enacted by the Trump administration, and rising interest rates. For further discussion on how tariffs meant to protect American jobs do exactly the opposite, you can read the post linked HERE.
An unmentioned factor is the upcoming renegotiations with the United Auto Works (UAW) which represents about 52,000 GM employees. Union Vice President, Terry Dittes, stated that the move “will not go unchallenged” and is “profoundly damaging to the American work foce.” In advance of the negotiations, GM has made a credible commitment to counteract overemployment and its associated inefficiencies, a threat to the UAW.
This could be the first shot over the bow of the UAW.
Charlie Chesbrough, Senior Economist at Cox Automotive
Because GM made the move prior to the 2019 expiration, it has used the shutdown as a commitment device. This makes the threats much more credible than if GM had threatened the cuts during negotiations. Now, for GM to agree to bring back jobs in the factories it closed down, the union must respond by cutting labor costs in the form of wages or other guarantees to offset the added cost of restoring their factories. In addition, plants that build low-margin cars such as the Cruze, Volt and Impala, being unallocated in 2019 increases GM’s ability to retool the plants and produce higher margin vehicles following the negotiation.
Conversely, the UAW has made similar credible threats using a commitment device in the past. In this case, the threat had three stages, each more credible and costly than the last: establishment of the strike fund, announcement of the target firm, and the strike itself. In 1973, prior to negotiation with Chrysler before their contracts expired on September 14 it established a strike fund of 55 million dollars, or 313 million in today’s dollars. Since the fund could not support strikes with multiple firms at once, the UAW then chose Chrysler as its target on August 21 when the negotiations began in earnest. After the two sides had not come to an agreement by midnight of September 14, 110 thousand Chrysler workers went on strike. Only ten days later, Chrysler had completed ratification of the new agreement and returned to work on September 24.
This historical example illustrates the importance of a credible threat to the effectiveness of negotiations.
We can also expect GM’s commitment to escalate similarly as its planned shut downs come to fruition. As the negotiations progress, GM will be able to use the shutdown as leverage to negotiate lower wages for its workers than it would be able to without the commitment device.
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