* Historic Detroit auto union faces financial reckoning
* UAW has been selling assets and dipping into strike fund
* Erosion of wealth could diminish union's political power
* Route to survival lies through southern auto plants
By Deepa Seetharaman and Kevin Krolicki
DETROIT, Sept 22 (Reuters) - Bob King, the president of the
United Auto Workers, has a problem: the labor union that credits
itself with creating the American middle class has glimpsed the
end of the line.
Two years after the wrenching restructuring of the U.S. auto
industry and the bankruptcies that remade General Motors and
Chrysler, the UAW is facing its own financial reckoning.
America's richest union has been living beyond its means and
running down its savings, an analysis of its financial records
Unless King and other officials succeed with a turnaround
plan still taking shape, the next financial crisis in Detroit
may not be at one of the automakers but at the UAW itself.
That picture of the growing financial pressure on the
76-year-old union emerges from a Reuters analysis of a decade of
UAW financial filings and interviews with dozens of current and
former union officials and people close to the union.
King, 65, has just wrapped up a round of fast-track talks
with General Motors on a new contract that includes new
job promises and bonuses of at least $11,500 for each of the
automaker's 48,500 factory workers.
Now King has turned to Chrysler and Ford Motor Co
to wrap up similar deals on wages and benefits that King
hopes will show a new and more business-friendly labor union has
emerged from the industry's near collapse.
But winning a new four-year contract deal with the Detroit
automakers will just clear the way for a battle that King
believes will determine whether the UAW survives - organizing
plants run by the likes of VW, Toyota, Nissan and Hyundai in
order to reverse a steady slide in the union's membership and
In some ways the union's situation recalls the early days of
GM's own slow-motion slide toward bankruptcy.
Just as with GM before, the UAW has been left to carry an
outsized bureaucracy. Also like GM, the union's recovery plans
hinge on reversing unfavorable perceptions decades in the
King, who has a law degree and looks more like a college
professor than a hardened labor leader, has moved to cut costs
at the union's riverfront Detroit headquarters by negotiating
buyouts with members of the UAW's own union.
UAW clerical workers, who are represented by the OPEIU, have
also taken cuts to pay and their health care coverage in
retirement and agreed to other concessions. UAW staff approved
the buyouts earlier this month by a vote of 132-to-110.
The UAW's 17-member board has also considered a shift toward
a more aggressive investment strategy and ways to shed some of
the empty union halls that have been dumped back on its books,
officials involved in those discussions say.
But fundamentally, King is betting that a union forged in
Depression-era Detroit can connect with a generation of American
workers who grew up long after the peak of the UAW's clout in
the 1950 and 1960s and who live in southern states traditionally
hostile to labor unions.
That will mean spending big on a campaign to attract
non-union workers in plants owned by foreign automakers in the
Earlier this year, the UAW considered buying a commercial
during the Super Bowl, the most widely watched event on American
television. The plan was hatched by Richard Bensinger, a veteran
organizer hired last year. The idea was to try to turn public
opinion against foreign automakers that have spurned the UAW's
advances. It would have cost over $3 million.
The plan was scrapped but its consideration shows the kinds
of risks that King could be willing to take, people familiar
with the effort said.
That more aggressive approach threatens to push costs higher
for the UAW when it has been forced to sell assets to make up
from dwindling dues from a declining base of active workers.
The union has been slow to trim other outlays. Since 2007,
the union's spending has included promotional items such as
flyswatters emblazoned with the UAW logo ($5,000), bowling ball
buffers and bags ($33,000) as well as spending on golf outings
and at golf resorts ($346,000). The union says it is forced to
book meetings at golf resorts because in some areas of the
country those are the only conference facilities large enough.
The UAW also spent at least $2 million on advertising in
2008 to build support for the union and the first wave of
"bridge" loans for General Motors and Chrysler. Both automakers
were spared liquidation by a bailout orchestrated by President
Barack Obama in 2009.
UAW officials acknowledge that the practice of relying on
the union's savings will have to end.
"If the UAW continued to sell assets to operate, how long of
a period does it take before you no longer can sustain that?"
UAW Secretary-Treasurer Dennis Williams told Reuters.
"The answer to that is we don't want to continue that
'THE NEXT DETROIT'
As the Detroit automakers prepared for contract talks with
the UAW this summer, the labor-relations department at one of
the companies sent an unusual request to the in-house economist.
Based on the UAW's financial statements, how long would it take
before the union ran into trouble? The answer: the UAW might
have three to five years before its budget difficulties forced a
financial crunch, absent changes.
The "hand-grenade" math of the projection gave the union
less than a five-year window of opportunity to turn things
around by winning new membership at foreign-run auto plants,
said the person who saw the internal forecast and asked not to
be named because of its sensitivity.
The assumptions behind that projection could not be
independently reviewed. But the fact that one of the Detroit
automakers commissioned a deep dive on the union's finances
underscores the seriousness of the situation facing King.
The UAW remains America's richest union. The value of assets
on its balance sheet top $1 billion. Some of that, especially
real estate, could be worth far less if the union was forced to
sell in a hurry, analysts say. Even so, the UAW's reported
wealth is almost twice as much as that held by the
second-richest union, which was the United Brotherhood of
Carpenters in 2010.
Most of the UAW's wealth sits in its strike fund, which
stood at $763 million at the end of 2010. But the sheer size of
the fund masks a deterioration of the union's day-to-day
finances, especially since 2007.
To bridge the gap between spending and revenue, the UAW has
increasingly relied on selling its investments, which include
U.S. Treasuries and stocks, and a handful of properties. From
2000 to 2006, the UAW sold $7.3 million. That ballooned to
nearly $222 million from 2007 to 2009, government filings show.
"It illustrates to me that their cost structure is not
aligned with the revenue that they're getting from their rank
and file," said Peter Bible, former chief accounting officer for
GM who is now a partner-in-charge at accounting firm EisnerAmper
The UAW reported a $44-million drop in the value of its cash
and investments outside the strike fund in 2009. If that rate
were sustained, the UAW would run through all of its cash and
liquid investments in just over 20 years.
That simplified projection does not account for additional
investment gains the UAW might realize by moving money out of
U.S. Treasuries where it has parked about 60 percent of its
assets. It also does not reflect the benefit of any additional
cost cutting or dues from organizing new workers or winning
additional jobs or higher wages at the Detroit Three.
The UAW said the current environment was "challenging with
bond yields continuing to fall and equities continuing to be so
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