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PENSION PROTECTION
PENSION PLANS PENSION FACTS SERVICES |
So you're an auto worker? Whether you’re a long-time union member or a new hire coming in at a lower wage scale, it's almost certain that the automotive unions will play a large role in negotiating and administering your pension plan. And no one has to tell you that pension benefits up and down the line may be in trouble. Pension outcomes affect you and your family. What you need now, to plan and protect yourself, is practical information about your benefits -- what’s happening in the ongoing restructurings and, most important, how it all is going to impact your financial future.
You’ve seen what’s happened to workers and retirees in bankrupt airlines, steel makers and other old-line manufacturing companies. Analysts point to the same forces tearing up auto companies. It’s obvious that management and potential investors are seeking ways to shrink pension and benefit liabilities or to find ways to cap them. And union autoworkers are caught right in the middle of that storm.
It wasn’t always that way.
In the great extended economic boom since World War II, the American automotive industry was, as Walter Reuther once called it, “the heartbeat of America.” America grew prosperous through the automobile and the industries that surrounded the increased mobility of auto travel. Demand seemed almost infinite. American companies dominated U.S. markets and sold profitably all around the world. Gas was plentiful and cheap.
In the great auto production hubs in the United States, wages and benefits soared and the profits were so great that management bought labor peace with contracts that paid handsomely in the present, and guaranteed an ever increasing stream of future benefits. The great net of new American highways drove demand. Automotive stocks became the definition of blue chip investment. American auto companies bought stakes in foreign manufacturers, sold technology around the world, and exploited their base by moving into profitable financial services.
But that prosperity brought its own problems. The Japanese and Europeans saw huge opportunities in the rich American market and set up long-range plans to design and sell cars to Americans. With a combination of subsidies and a lower-cast labor base, the Toyotas, Nissans, Volkswagens and BMWs started to cut into U.S. markets, first by exporting, and later by setting up assembly plants – which remained largely non-union – in the U.S. They learned quality-control lessons well, and their newer plants could even outperform older U.S. facilities as wave after wave of automation swept through the industry.
At the same time, government regulations covering auto safety, emissions and mileage standards began to intrude on the industry and “steer” development and marketing options.
The foreign competitors, by that time well established in the U.S., were nimble and adaptive. From their U.S. bases, they also gained political clout. Fierce competition for market share drove down profit margins across the board and forced manufactures to offer discounts and rebates.
For manufacturers, slight advantages in flexibility, efficiency and base labor costs began to tell. American companies fought back by cutting high-cost jobs, offering worker buyouts and, where they could, automating and outsourcing to lower cost assembly platforms. They unraveled and spun off their supply chains, and pumped up alternative sources of revenue like their credit services. Moreover, they revved up production and sales of lower cost knock off models in foreign markets.
While continuing to “restructure for a comeback,” U.S. management leaders claim their fixed labor and legacy benefit costs in the United States are making them uncompetitive and that concessions from labor are necessary for their very survival.
Soaring gas prices are only the latest blow. The one niche dominated by U.S. manufacturers – big, profitable, gas-guzzling SUVs – are now taking a major hit.
Today American auto companies clearly face major challenges. In 1978, GM had 466,000 GM hourly workers in the United States. In 2006, that number had fallen to 112,000. Over the last five years Detroit’s Big Three have lost 8 percent in market share – down to 58 percent. And even those sales numbers may have been propped up with deep discounts, rebates and credit deals now common across the industry.
Union density in the auto industry overall has fallen from the 60 percent level to 37 percent in 2000. Union leaders are putting their energies into saving the pensions and benefits of their existing – ever smaller -- membership base. Government “guarantees” of pensions – witness the airline industry – are much less than what the companies themselves provide, so the unions are in the increasingly awkward position of providing concessions to keep the companies afloat with pensions mostly intact, or running the risk of corporate collapse when, literally, all bets are off.
Concessions are in the air as negotiations begin for new contracts in the summer of 2007, and private equity firms, stockholders, and other potential angels watching which way the wind blows.
A few auto industry facts:
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