Auto Workers Give Up Notorious Featherbed

Auto workers will suspend a program that paid workers for no work, and will let companies delay health-care payments

On the eve of Detroit's latest date with fate in Washington, the United Auto Workers have surrendered the union's version of corporate jets.

The union is suspending its most ridiculed perk, called the JOBS bank. That program, set up as part of a contract agreement reached between Detroit's Big Three and the union decades ago, pays auto workers 85% of their pay while furloughed. Some workers reported for years to meeting rooms where they would sit and wait for an assignment or be sent to clean public parks. All the while, they would get paid most of their wages.

The union also agreed to defer payments that the Big Three will make to a union-led health-care trust that is to take responsibility to pay medical benefits to auto workers starting in 2010.

The JOBS bank was costly in more ways than one for General Motors (GM), Ford (F), and Chrysler. By making labor a fixed cost, it altered their manufacturing strategy. For most of the past 10 years, the car companies preferred to discount models with big rebates rather than cut production, because they had to pay workers no matter what.

so long, entitlements

The provision also became an emblem of union abuse and what industry outsiders call Detroit's entitlement culture. "The JOBS bank became a sound bite that people used to beat us up," said UAW President Ron Gettelfinger. "It became a lightning rod."

The JOBS bank has become less of a financial burden since the union has accepted tens of thousands of job cuts over the past two years, though. In 2006, GM had as many as 7,000 workers in the bank. Today, the three carmakers combined have just half that number awaiting a new assignment.

On Dec. 4, the CEOs of Detroit's Big Three and Gettelfinger will take another stab at convincing Congress that the government should lend the automakers big bucks to stay afloat. Their request has climbed to $34 billion from $25 billion (BusinessWeek.com, 12/2/08) since last month's hearings, when the CEOs were turned away after being lambasted for not adequately explaining how the money would make their companies competitive with Japanese rivals. They didn't help their case by flying in on company planes. Members of Congress derided the auto execs for failing to display proper willingness to sacrifice. The UAW came in for criticism of its own, some of it focused on the JOBS bank.

Getting rid of the program will be painful for the union. The UAW will have to work out a way for laid-off workers to get buyouts or severance from their companies. Otherwise, they will simply be cut loose. Right now, laid-off workers still get most of their pay during the first 48 weeks of furlough from a combination of state unemployment benefits and company-funded supplemental unemployment benefits, or SUB pay. After those 48 weeks, they go to the JOBS bank and get most of their pay from the automakers.

"These are painful sacrifices," says Harley Shaiken, labor economist at the University of California at Berkeley. "It symbolizes job security that has been built up over decades."

health-care liability funds

Now, workers may still get SUB pay. But the JOBS bank is suspended. The union will have to deal with more than 3,500 workers who are now in the JOBS bank at Ford, GM, and Chrysler. That's about the same number of people who are employed at a large car plant. One GM source said they may get buyouts. Gettelfinger wasn't specific, either.

"We will work out the mechanics of it," Gettelfinger said. "We're going to think outside the box."

All of the automakers have set aside cash to seed the UAW health-care fund, which will pay unionized worker and retiree health-care benefits at all three companies. But they still have to put more cash in. GM, for example, has to give the UAW $32 billion to start a fund that will be invested to cover a long-term health-care liability of $47 billion. The automaker has to put $7 billion by early 2010, a sum that company President and COO Frederick A. "Fritz" Henderson (BusinessWeek, 11/20/08) said will be difficult to pay.

"Ford" and "Chrysler" also owe future payments. Gettelfinger said the union will let the companies defer them, but he didn't say by how much. The union has hired investment bank Lazard to figure that out.

parity with toyota labor costs?

The union also said it will make adjustments to its current labor contract. Gettelfinger said he doesn't know what those changes will entail, since they will have to be negotiated with the companies. But the moves are aimed at helping GM attain parity with Toyota's labor costs by 2012. UAW workers make $29 an hour; most are older and have reached the top of the wage scale. Toyota workers average about $25 an hour. Including benefits and retiree costs, UAW workers cost $76 an hour, about $18 more than Toyota staffers.

Those contract changes could include cutting wages or making UAW members pay more for health-care benefits. But that would require a vote of members. The union may also agree to cut staffing levels, which GM signaled as well in its proposal to Congress.

Whatever GM gets, Ford and Chrysler will probably receive from the UAW, too.

Gettelfinger conceded that increasing pressure from global automakers and the nation's economic crisis have hurt the unions' ability to bargain. "Because of the environment we're in, we face difficult challenges," Gettelfinger said. "I use to cringe from the word 'concessions.' But that's what we did. The important thing is to secure these jobs."

The union hopes that its latest concessions—along with some financial help from Washington—will do just that. But it's all in the hands of Congress now.

The auto and union executives go before the Senate Banking Committee on Thursday at 10 a.m.; they appear in the House on Friday.

Welch is BusinessWeek's Detroit bureau chief.