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Car deals

UAW’s stake in GM and Chrysler
|Written By Henry Dinsdale and Jeff Goodman

General Motors, Chrysler, and the United Auto Workers were hit hard by the global economic crisis. To confront bankruptcy, the car companies reached agreement with the UAW for wage and other concessions. In return, the UAW’s Voluntary Employee Benefits Association agreed to exchange billions in unpaid contributions for 17.5 per cent of GM’s shares and 67 per cent of Chrysler’s.  

Some estimates say the deal nets VEBA less than half of what it was owed, but provides the UAW with representation at the board of directors level. The agreement was too late and became part of the restructuring plan for two of the largest bankruptcies in U.S. history.

The restructuring plan was decried as unfairly prejudicial to creditors, but little has been said of the prospect of a union ownership stake. The UAW’s stake raises the spectre of fundamental conflicts between inherent interests in the role of investor and the role of bargaining agent. The UAW agreement seeks to address these conflicts by requiring the VEBA to hold the UAW’s shares and appoint members to the board. While this may address overt union bias on the part of union-nominated board representatives, it does not address the underlying conflict inherent in the UAW’s dual roles.

The UAW needs GM and Chrysler to thrive to recoup the billions in contributions foregone and to realize a gain from other concessions. Most analysts agree to do so they must have fewer employees, lower wages, less generous benefits, and fewer plants. UAW opposition risks the viability of GM and Chrysler, and the possible recovery of their investment. Acquiescence risks charges of co-option and scapegoating in the event of future union concessions.

The potential conflict of interest runs deep. The right to strike, although constrained by the deal until 2015, is a good example. The conflicts of interest inherent in union ownership become most apparent during collective bargaining. As an investor, the UAW is interested in lower labour costs and enhanced competitiveness. As a union representative, the UAW seeks more jobs, higher wages, and job security. Reconciliation of these competing interests is not an easy task. The North American labour relations structure encourages unions and companies to settle their differences through the use of economic clout: for the union, the right to strike. For the company, the wherewithal to withstand a strike. It is no surprise the right to strike has been suspended as part of the deal seeing the UAW in the dual roles.

The conflicts in UAW’s agreement mirror those of unions participating on the boards of companies whose workers they represented in the 1980s. United Air Lines, Inc., experienced difficulties when two of its unions achieved ownership interests in the airline, including seats on the board, in exchange for wage concessions. Union-nominated directors struggled to balance their fiduciary duties to shareholders with their ongoing obligations to the union.

Hyatt Clark Industries, a former bearing manufacturing division of GM slated for shutdown, was resurrected in the 1980s as an employee-owned corporation. Employees, represented by the UAW, accepted a 25-per-cent pay cut and invested millions of dollars to finance the corporation. In exchange, the union received three seats on the board of directors. Initial wage sacrifices by workers early on led to modest operating profits. By 1985, however, the conflict between ownership and bargaining agent surfaced. Management sought to reinvest profits rather than increasing employee compensation. Workers began a work slowdown that, combined with increased competition, resulted in Hyatt Clark’s declaration of bankruptcy, placing the union-nominated members of the board in an impossible situation.

When properly structured, union input at the board and ownership level can result in a positive contribution to organizational success. But under our system of labour relations the balance between ownership and employee representation is simply not sustainable over the long term.

There is nothing in the UAW/GM/Chrysler agreement that effectively circumvents this inevitability. Unlike the experience of the 1980s, the UAW is not drunk with the prospect of influence at the board and ownership level. The deal was one driven not by ideology but rather by the practical reality of a disastrous alternative. The suspension of the right to strike until 2015 is revealing. The deal between the car companies and their union is a short-term survival strategy with a five-year window. The union’s ownership interest is fleeting. The UAW will no doubt jump at the first lucrative opportunity to sell its stake and quickly and comfortably slip back into its traditional role of representing people rather than running corporations.

Henry Dinsdale and Jeff Goodman are labour and employment law partners with Heenan Blaikie LLP in Toronto.

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