UAW on GM Board
21 Aug 2014 adminPS
If elected I will propose the following legislation:
“Michigan based auto companies must have either 40% family ownership of class b stock, or 42.8% (6 of 14) of its Board of Directors appointed by the UAW”
Germany industrial companies typically have 50% of their board of directors appointed by the union. This has served Germany very well-it has by far the strongest manufacturing sector in the world. Union appointees are interested in the long-term health of their companies. Manufacturing companies require huge long-term investments and must hold large quantities of cash to weather downturns. They make easy targets for financial engineer CEOs who strip the companies. The financial CEO has become the predominant type of CEO in America.
Henry Ford distrusted Wall Street and kept the company under private control and Chrysler has the protection of Italian ownership. America is the only country in the world which allows its CEO’s to strip its manufacturing companies-foreign CEOs act exactly like American CEOs of 30-40 years ago-they jealously protect their companies’ future.
Significant presence of the UAW on GM’s board accomplishes two things;
(1) Makes GM more profitable by forcing make/buy studies which will in-source UAW labor.
To automotive outsiders it makes logical sense to outsource UAW labor (UAW labor including fringes pays $28 or $38/hour depending on when hired) when outside suppliers typically are paying in the range of $20-$25/hour including fringes. The reality is that outsourcing assembly line labor creates systems which drive cost. Fully costed systems can cost $70/hour for each assembler. It is also exceedingly difficult for purchasing departments to control the cost of big systems.
Note: This same dynamic applies to privatizing public jobs or services. It rarely saves money long-term-it is easy to control costs you can see and hard to control costs you cannot see clearly.
(2) UAW GM board members will insist on automotive Engineer CEO’s and reject Wall Street financial engineers.
What can UAW board members protect GM from?
It is worth taking a look at Boeing and Caterpillar
Boeing decided to teach its tough Machinists union in Seattle a lesson. They outsourced many systems (sound familiar) on its Dreamliner. The Dreamliner is four years late and massively over budget. Not deterred from its Dreamliner disaster, Boeing threatened to build its next plane, the 777, in North Carolina, and first held up the state of Washington for $6 billion in tax breaks, and then went after the Seattle Machinists for more concessions. The CEO made over $30 million last year. Below is a front page Fortune Magazine picture asking if it is good for America that China has kitted together 16 systems from American and European suppliers ( created by the Dreamliner outsourcing) to create its own commercial airplane. It is a certainty that China will devote 1,000 engineer teams to each of those 16 systems so they can learn to manufacture the systems in China. Boeing may eventually be at such a cost disadvantage that it is forced out of the commercial airliner business in 25 years.
This very profitable company recently demanded its CAW plant in Canada take a 50% wage decrease. The union refused and Caterpillar closed the plant. Then it turned on its main union in Peoria, Il. After a long strike it drove a six year wage freeze and increased health care cost on its main plant. Caterpillar management then rewarded itself with a huge bonus. Just recently Caterpillar announced it was cutting R&D significantly in order to free up money to buy back stock. Buying back stock raises short-term share prices and increases the value of Executive stock options. Caterpillar is the largest construction equipment company in the world. Its Chinese, Japanese and German competitors are all increasing R&D because the overall business is growing–the competitors of Caterpillar will take market share and add jobs because they are taking a long-term approach.
The lesson of Boeing and Caterpillar is clear—in Boeing’s case both the company and Seattle would have been far better off with some Machinist union members were on the Boeing board, and the town of Peoria would have been better off with UAW members on Caterpillars board. Germany has the strongest manufacturing in the world and a strong middle class and unions make up 50% of Germany’s companies boards.