Detroit's Big Three May Gain as UAW Sets Sights on VW in Tennessee

NEW YORK ( TheStreet) -- The United Auto Workers aren't the only ones who stand to gain if the labor union succeeds in organizing employees at Volkswagen AG's Passat plant in Chattanooga, Tennessee. General Motors ( GM), Ford ( F) and Chrysler could be winners too.

The Detroit Three could benefit even if the UAW's seemingly quixotic effort to organize a foreign-owned auto plant in the U.S. South ultimately fails, say industry experts. A victory is likely to reverberate throughout the industry.

GM, Ford or Chrysler could gain were Volkswagen, the world's second-largest automaker to Toyota Motor Corp ( TM), forced to increase wages and benefits for its more than 2,000 employees at a Chattanooga plant, adding costs at the so-called "transplants," the Southern-based, European and Asian automakers that have consistently defeated union organizing since the factories began to locate in the region in the early-1980s.

"Trying to organize the 'transplants' is always good for the Big Three," said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Michigan, in a phone interview. "It usually results in a transplant having to pay a special bonus, raising their wages; it also can cause some confusion in the plant. It's a wonderful tactic by the executives in Detroit."

Among manufacturing executives, it's called the "union threat effect," the possibility a union triumph can be enough to prompt management to attempt to sweeten worker compensation.

Shortly after employees at Nissan Motor Co. rejected a proposal for UAW representation in both 1989 and 2001, the company handed workers bonus checks, McAlinden said, and also raised wages. A bonus hadn't been paid at Smyrna for four years when Nissan workers received their check in 2001, he added. In addition, Nissan pledged to hire an additional 800 workers, with many of those hires coming from current employee referrals, following the 2001 vote, McAlinden said.

Nissan's Smyrna-based spokesman Justin Saia in an e-mail said the automaker operates a "standard compensation" program and that there was "no additional compensation provided outside of this program" at the time of the 2001 certification election. As for the new hires, Saia said "We were actively hiring during both of these periods to support the growth of demand for our products."

UAW organizing efforts at Toyota Motor Corp's plant in Georgetown, Kentucky, have also prompted the Japanese carmaker to raise wages and benefits, say industry monitors.

A UAW local at Chattanooga "might be a positive for the Detroit companies," Ken Elias, an industry consultant for MaryAnn Keller & Associates, which sells its research to fund managers, investment banks and auto manufacturers, said in a phone interview. "That is, it might impose UAW-style contract negotiations on at least one foreign plant, if it gets organized. If the rest of the South got organized, then nobody would have an advantage, at least that's from the UAW perspective."

General Motors spokeswoman Katie McBride in an e-mail said that "we don't comment on organizing efforts of negotiations at other companies." Ford spokeswoman Kristina Adamski wasn't immediately available. Officials at Volkswagen in Chattanooga didn't respond to requests for comment.

For the Detroit-based UAW, which has lost more than three-quarters of its auto employee members since 1985, winning a certification vote at VW's Passat plant in Chattanooga would represent an enormous milestone in the history of U.S. labor. The archipelago of foreign-owned auto plants stretching from Nissan Motor Co. in Tennessee to BMW and Daimler in South Carolina, Hyundai Motor Corp. and Kia Motors Corp. in Georgia, Mercedes-Benz in Alabama and Toyota Motor Corp. in Mississippi have used anti-union state laws and vocal support from local politicians to consistently defeat the auto workers union.

UAW President Bob King met late last month with Volkswagen officials at the company's headquarters in Wolfsburg, Germany. At issue was a UAW proposal to form a German-style "works council," a body commonly used at VW's home plants to involve union representatives in non-financial decisions such as employee scheduling and production standards. Representatives of Germany's powerful metalworkers union IG Metall sit on VW's works council.

"For the UAW, this means a lot," Elias said in a phone interview from Scottsdale, Arizona. "They've been trying to get a beachhead in the plants in the South for God knows how long. The most important thing for the UAW is to get more members, because more members means dues and gives them more political clout."

Tennessee politicians were miffed when Volkswagen, at the urging of the metalworkers union, released a letter on Sept. 12 saying that the automaker "respects the employees' right for an employee representation on plant level at all locations worldwide. This certainly also applies to the Chattanooga plant." The UAW has said that a majority of workers at Chattanooga have signed cards expressing support for union representation.

The UAW's apparent in-road into organizing comes as the wages paid to employees at the newer Southern-based auto plants such as Toyota in Mississippi and Volkswagen in Chattanooga -- trail those of older transplants - Toyota in Georgetown, Kentucky or Nissan in Smyrna -- as well as those in Detroit.

"To remain non-union, the transplants would try be in the ballpark for wages and benefits," Harley Shaiken, a professor of labor relations at the University of California at Berkeley said in a phone interview. "But for some of the transplants, that has ceased to be the case."

Indeed, Volkswagen pays the lowest wages of any U.S. auto plant, according to the Center for Automotive Research, topping out at $19.50 an hour after three years. Wages start at $14 per hour, comparable to so-called 'second-tier' workers in the Detroit Three, where first-year first-tier employees can earn as much as $29.50 an hour. By comparison, the top wage at Toyota and Honda is $24 to $25 an hour. (Comparing wages and benefits across regions is tricky, but the Center estimates that VW's wages and benefits average $40 per hour whereas Toyota is at $55 an hour and the Detroit Three are at $60 to $64 per hour.)

The union drive in Chattanooga comes at a difficult time for VW's ambitious attempt to expand its U.S. sales. Volkswagen CEO Martin Winterkorn has pledged to reach 800,000 to one million units in the U.S. by 2018. Yet, sales of VW-brand vehicles, including the Passat sedan, declined 1.3% to 282,913 in the first eight months of 2013.

Volkswagen's relations with its workers were dealt a blow in April when the automaker announced that 500 temporary workers hired less than a year ago would be fired. As much as 20% of the labor force at the transplants are temporary workers, McAlinden said.

"That's one reason that there might be more interest in a union,'' McAlinden said. "It's very rare to see layoffs at the transplants. We really hadn't ever seen them at the transplants until the crisis of 2009."

Yet wages are not the only issue defining the organizing drive at Chattanooga. In fact, the Chattanooga effort may reflect more about Volkswagen than about worker compensation, says Shaiken.

VW, as opposed to other automakers, has been successful at working with labor unions in ways that might seem unusual for U.S. manufacturers, especially those in the South. VW, the world's second-largest automaker to Toyota, posted $248 billion in global sales in 2012 with 13% profits.

"Volkswagen's whole approach globally to building cars relies on certain ways of organizing work and involving workers," Shaiken said in a phone interview from Berkeley. "VW feels very comfortable dealing with unions. It has turned that into a competitive advantage, and achieved stellar results with 'work councils' in many places."

UAW referred questions to a Sept. 6 statement on talks with Volkswagen management in Germany, which said that "the UAW is committed to engaging with VW in open, fair and respectful dialogue to create an environment where Tennessee workers can participate in VW's global work council system."

Further north, the Detroit Three are doing better than they have in decades thanks to the federally-led reorganization that eliminated excess capacity at its factories, allowing the domestic automakers to match the tight production controls long employed by the transplants.

GM's shares have surged 58% over the past 12 months, bolstered by redesigned full-size pick-ups and success at lowering employee health care costs. Ford's shares have jumped 70% in the past year. As for Chrysler, its majority owner Fiat Spa may agree to an initial public offering for the smallest of the three Detroit automakers though that will likely depend on ongoing negotiation with the UAW's retiree trust, which owns 41.5% of the company not owned by Fiat.

For the UAW, the stakes are huge. The UAW's membership among auto workers and parts manufacturers is about 165,000, far below its membership in 1985 when the union counted 465,000 members at General Motors alone, another 170,000 at Ford and Chrysler and still 200,000 more at suppliers, according to the Center for Automotive Research in Ann Arbor.

What goes on at Chattanooga may influence not only the future survival of the UAW, but the prospects for GM, Ford and Chrysler.

"We are now at a point where instead of the negotiations in Detroit setting the standard for the transplants, the transplants are going to set the standard for Detroit," Shaiken said. "That's why Chattanooga is so very important."

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>News stories and columns by Leon Lazaroff LeonLazaroff.

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