Editor’s Note: Christopher Douglas is an associate professor of economics at the University of Michigan-Flint and a member of the Board of Scholars at the Mackinac Center for Public Policy. The opinions expressed in this commentary are his own.
The United Auto Workers and General Motors have finally reached a tentative agreement, though the strike continues. Prolonged work stoppages are uncommon in the modern economy, which makes this long strike an anomaly. It’s also abnormal because the tentative agreement seems very similar to earlier GM offers that the UAW rejected. The whole ordeal has cost hundreds of millions of dollars in lost wages for workers and lost profits for the company, and neither side really has gained much.
In fact, the UAW’s members appear to have lost this fight. It’s difficult to calculate the exact impact on the typical GM employee, but it’s possible that many of them will only net a small financial gain from the new deal.
Consider that employees had to go without a paycheck for more than four weeks. The differences in pay that they’ll receive in the tentative agreement compared to what they would have gotten without a strike may only be enough to backfill what they’ve already sacrificed.
GM, meanwhile, reportedly lost over $1.5 billion in profits due to the work stoppage, but the losses may be a lot less. GM increased its vehicle inventory at dealerships prior to the strike and reportedly had an 80-day inventory of profitable pickups and SUVs on-hand. Because of this, it is unlikely the company lost many sales due to the strike.
The tentative agreement does not look to be dramatically different from the one GM put on the table – and UAW leadership rejected – over a month ago. GM will keep union members’ health care contributions at 3% – a great deal for workers. But GM was reportedly already willing to maintain this benefit on the eve of the strike. GM workers are also said to be in line for 3% base-wage increases in the second and fourth years of the contract and 4% lump sum bonuses in the first and third years, and permanent employees will receive an estimated $11,000 bonus if the tentative agreement is ratified. GM offered pay raises and lump-sum bonuses and an $8,000 ratification bonus before the strike.
Other provisions in the latest agreement include a reported $1,000 in worker profit-sharing per $1 billion in company pre-tax profits. GM’s original offer capped this at $12,000, but the tentative agreement removes the cap. Last year, GM workers made $10,750 through this arrangement, which existed in the previous contract.
The UAW also wanted a plan to restore production at idled plants, specifically in Lordstown, Ohio, and Hamtramck, Michigan. GM idled these plants during its previous contract, declaring the plants “unallocated,” meaning the plant would have no product to build, instead of outright closing them in order to avoid having to negotiate their closure with the union. The UAW wanted a plan to reopen these plants. The tentative agreement appears to keep the Hamtramck plant open to build a new electric pickup, but the Lordstown plant will remain closed.
The tentative agreement also includes additional investment in US plants and job protections. GM originally offered to invest $7 billion in the United States and create or protect 5,400 jobs. The tentative agreement is reported to have increased this to 9,000 jobs and $8.3 billion in investment. Putting temporary workers on a path to full-time employment was also a union demand, but it’s unclear how this played out in the tentative agreement.
More Markets & Economy Perspectives
The market seems to agree that GM won this fight. The company’s stock price over the last year shows a noticeable decline due to the strike, but it is relatively small — only about 7%. Contrast this to the devastating 54-day strike in mid-1998 that cost the company 500,000 in lost vehicle sales and more than $2 billion in net losses.
There is always a risk that a new contract will increase the company’s costs and put it on a path toward bankruptcy. However, the details of the contract that have emerged so far suggest that this won’t be the case. It is too early to declare a winner from the strike, but early indications suggest that workers may have gained little while GM, in turn, sacrificed little.
