Challenging Times For Unions

Figure 9.1 on p. 277 of Business, 6th Canadian edition, shows that union membership—as a proportion of non-agricultural workers in Canada—has been stable for many years. The text also notes (p. 276) that union membership is concentrated in public sector organizations, which account for 43 percent of all union members, but provide only 19 percent of Canadian jobs. In some industries in the private sector, unions have historically been quite successful, but in recent years they have faced increasing difficulties.

During the last few decades, dramatic changes have taken place in the way business firms operate. Several developments—including the globalization of business, free trade, and intense cost competition—have affected all types of Canadian businesses. As managers try to achieve greater cost efficiencies, they have put increased pressure on unions and the workers they represent. The practical impact of these changes can be clearly seen in the difficulties facing unions and unionized workers in the auto industry.

In 2007, the Canadian Auto Workers (CAW) union struck a deal with Magna International, Canada's largest auto parts manufacturer. It's called the "Framework of Fairness," and it has the following elements:

• the union gets the right to try to unionize workers without interference from Magna management
• the union agrees not to strike if it is certified as the sole bargaining agent for the workers
• union members who want to be appointed as "employee advocates" will be assessed by a "fairness committee," which is made up of both union and management members
• union members are not to view the "employee advocates" as union representatives
• workers do not directly elect their own local leadership

When the Ontario Federation of Labour met late in 2007, this deal generated considerable debate. Not surprisingly, some union supporters are vigorously opposed to the deal and argue that it undermines independent democratic unionism. They are particularly concerned that by giving away the right to strike, the CAW has lost one of the few levers it has to make management pay attention to its demands. Buzz Hargrove, the president of the CAW, has defended the deal on the grounds that the rapidly changing environment of automobile manufacturing in Canada is forcing the union to adopt new and innovative strategies.

Concern about the specifics of the Magna deal is just one of the difficulties that Hargrove has to cope with. More generally, the loss of many high-paying jobs in the automobile industry (auto assembly and auto parts) has become a major concern for the CAW. There has been a rapid decline in the number of Canadians employed in the automobile industry: in 2007, there were 20,000 fewer jobs in the industry than there were in 2002. This is part of a larger trend away from production dominance by North American car makers. For the first time in history, the total number of cars made in the four BRIC economies—Brazil, Russia, India, and China—may exceed the number of cars made in North America. Those four countries will have the capacity to produce about 20 million cars in 2008, compared to the capacity of 17.4 million cars in North America. Large Canadian auto parts makers like Magna International and Linamar Corp. are starting to invest in plants overseas to get some of that business.

Given the large number of job losses that have already occurred, it is not surprising that unionized auto workers are expressing increased concern about job security. In 2007, unionized Chrysler workers in the U.S. rejected a contract proposed by their leadership, because it didn't contain enough assurances about job security. A few weeks earlier, workers at General Motors ratified a new contract that gives them pay and benefits that are very similar to those of workers at non-unionized Toyota. The contract also allows GM to give workers a defined contribution pension plan instead of a defined benefit pension plan. This could mean savings of about $4 billion per year for GM, and it will make the company more competitive with Honda and Nissan. The UAW agreed to the new contract in return for assurances about job security.

For Canadian car makers, two developments have been responsible for the decline in employment in the Canadian automobile industry. First, the dramatic rise in the Canadian dollar to near parity with the U.S. dollar means that Canada's former cost advantage in auto making has all but disappeared. In 2006, for example, labour costs at General Motors' U.S. manufacturing plants were about $73 per hour, and in Canada the costs were about $70 per hour. In fact, Canada is now one of the highest-cost production areas in the world for automobile manufacturing. The new labour contracts the Big Three (Ford, GM, and Chrysler) signed with the UAW have reduced their labour costs in the U.S., and they also want to reduce their Canadian labour costs. Ford Motor Co. is putting its Canadian manufacturing plants on notice that they must become more efficient and competitive.

Second, labour costs at U.S. automakers like General Motors and Ford will decline sharply (perhaps to as little as $45 per hour) as the result of a new collective agreement with the United Auto Workers (UAW). The new agreement sets up a two-tiered wage system, where new hires will get paid about half of what longer-term employees earn. The agreement also allows U.S. car manufacturers to shift the cost of UAW retirees' medical costs off their balance sheets, and this further reduces their labour costs. Because these two aspects of the new agreement will reduce costs for U.S. manufacturers, they will have less incentive to set up manufacturing plants in Canada.

In 2008, the CAW will bargain with Canadian automakers in an attempt to reach a collective agreement that applies to Canadian workers. Hargrove says he will not agree to a two-tiered wage system like the one agreed to by the UAW in the U.S. He points out that while some of Canada's lower-cost advantages have, indeed, been lost due to the rise in the Canadian dollar, Canadian auto plants are still 25% more productive than those in the U.S., and this is an advantage for Canada. He also says that the reduction in labour costs with the new UAW agreement in the U.S. will not be as much as everyone thinks. Sean McAlinden, the chief economist and vice-president of research at the Center for Automotive Research, thinks that Hargrove will have to find ways to help Canadian car makers reduce their costs. He thinks Hargrove will likely accept the two-tiered wage idea and try to call it something else.

Movement toward pay reductions is gaining momentum. In early 2008, workers at a Magna auto parts plant in New York voted on a proposed agreement that would see wages cut by 25 percent, with a promise that the plant would remain in operation. Management made it clear to the UAW that it couldn't continue to operate the plant unless workers' hourly wages were reduced. In Canada, management demands for wage cuts for CAW workers are being made as car manufacturers struggle with significant losses in market share by the Big Three. For example, PPG Industries Inc. wants a 25 percent wage cut and a two-tiered pay system at a glass making plant in Oshawa, Ontario, that supplies GM's big production complex there.

Hargrove is also unhappy about government inaction regarding the problems in the Canadian auto industry. For example, he says that companies like Nissan, Hyundai, Toyota, Kia, and Honda have easy access to the Canadian market, but Canadian manufacturers do not have such easy access to markets in South Korea and Japan. As well, the rise in the Canadian dollar against the South Korean won is also likely to boost the sales of South Korean car makers because it gives them more flexibility to cut the prices of their cars. Hyundai and Kia Motors are both offering imported cars for under $10,000. Hargrove fears that Ford and GM may go bankrupt within a decade if something isn't done to reduce imports of foreign cars. Such bankruptcies would obviously mean massive job losses for Canadian workers who are in the CAW.

Pay and job security are two issues that have historically been very important to unions when they represent their workers. But a more fundamental issue is the consistent failure of unions to organize auto workers at production plants run by companies like Honda, Nissan, and Toyota. Those companies have used a variety of tactics to avoid unionization of their workers. For example, when Honda Motor Co. announced that it was going to build a new assembly plant in Indiana, it also stipulated that only people living within a certain distance of the plant could apply. Since many of the unionized laid-off auto workers from other plants in Indiana didn't live in the stipulated area, they weren't allowed to apply. (Note: companies cannot refuse to hire workers based on union affiliation, but they can do so based on geographical location.) Honda says its approach is not designed to prevent unionization of the plant. Instead, it wants workers to be close to the plant so they can get to work when the weather is bad in the winter. The union doesn't believe this explanation. Wages at the new plant will be $15-$18 per hour, which is noticeably lower than the $26 per hour that unionized workers are paid in other car manufacturing plants in the region.

Foreign car manufacturers have been very successful at keeping unions out of their businesses. As of 2007, there were 33 foreign automobile, engine, and transmission plants in the U.S., and not one of them was unionized by the UAW in spite of repeated attempts. In Canada, foreign car makers have also been successful at fending off organizing attempts by unions. For example, workers at Toyota Motor Corp. have refused to join the CAW on several different occasions. In 2008, another union—the International Association of Machinists—tried to organize workers; but just hours before a vote was to be held, the union withdrew its certification application, and the vote was cancelled. Labour leaders say they will keep trying to organize the workers.

Union attempts to organize workers in other industries have also run into increasing problems. The United Steelworkers, for example, recently tried to organize workers at Dofasco's Hamilton Harbour plant after the CEO sent an email to employees indicating that Dofasco would allow union organizers to come to the plant to talk to workers about joining the union. In spite of that, the union was unable to generate enough interest among workers. In March 2008, the union gave up its organizing attempt.

Questions for Discussion

1. In your own words, explain the problem facing Canadian car makers. What caused this problem to develop?
2. Consider the following statement: "Competitive and cost pressures from non-union automobile makers will force the CAW to accept practices such as the two-tier wage system, because Canadian car makers will be uncompetitive unless they lower their costs. Canadians who work in the automobile industry in the future are going to be paid a lot less than workers are now." Do you agree or disagree with the statement? Explain your reasoning.
3. Why do you think workers who are given the chance to join a union often don't do so?
4. There has been much debate over the years about the pros and cons of unions. In the material above, just one argument critical of unions was presented. Develop a more complete list of arguments (both pro and con) regarding the union movement.

Sources: Nicolas Van Praet, "Loonie Gives Korean Autos an Advantage," Financial Post, April 9, 2008, www.nationalpost.com/todays_paper/story.html?id=431505; Nicolas Van Praet, "Auto Report Wake-Up Call For Canada," Financial Post, March 28, 2008, www.nationalpost.com/todays_paper/story.html?id=405728; "Steelworkers Drop Dofasco Union Bid," Financial Post, March 28, 2008, www.nationalpost.com/todays_paper/story.html?id=405721; Nicolas Van Praet, "Union Vote at Toyota Cancelled," Financial Post, March 20, 2008, www.nationalpost.com/todays_paper/story.html?id=386980; Greg Keenan, "CAW Leader Bucks Trend, Refuses Wage Cuts," The Globe and Mail, February 21, 2008, pp. B1, B8; Omar El Akkad and Greg Keenan, "Hargrove 'Fearful' for Future of GM, Ford," The Globe and Mail, February 13, 2008, pp. B1, B13; Greg Keenan, "Ford Fires Warning Shot at CAW," The Globe and Mail, January 10, 2008, p. B7; Greg Keenan, "CAW Gears Up for Toughest Fight in 2008," The Globe and Mail, December 31, 2007, p. B3; Greg Keenan, "CAW Members Approve Deal," The Globe and Mail, December 8, 2007, p. B10; Nicolas Van Praet, "Buzz Hargrove has Some Very Big Problems," National Post, December 7, 2007, p. FP3; Jason Clemens and Keith Godin, "Unions' Democracy Talk is Hot Air," National Post, November 29, 2007, p. FP15; Wayne Fraser, Sid Ryan, Cec Makowski, Sharleen Stewart, Dave Ritchie, and Warren Thomas, "The Magna Sell-Out," National Post, November 23, 2007, www.nationalpost.com/story-printer.html?id=116046; Jeffrey McCracken, Josee Valcourt, and John D. Stoll, "UAW Shifts its Chrysler Strategy," The Wall Street Journal, October 22, 2007, p. A3; Thomas Watson, "Car Trouble," Canadian Business, October 22, 2007, www.canadianbusiness.com/shared/print.jsp?content=20071017_198710_198710&; John D. Stoll and Josee Valcourt, "Chrysler, UAW Reach Agreement," The Wall Street Journal, October 11, 2007, p. A3; Jeffrey McCracken, "Deal to Help GM Cut Cost Gap with Rivals," The Wall Street Journal, October 11, 2007, p. A3; Neal Boudette, "Honda and UAW Clash Over New Factory Jobs," The Wall Street Journal, October 10, 2007, pp. A1, A19.