SPECIAL REPORT-Crunch Time at America's Richest Union

Thursday, 22 September 2011 09:50 AM

* 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 shows.

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 influence.

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 making.

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 south.

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 strategy."


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 LLP.

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 volatile." It

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* 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 ...
Thursday, 22 September 2011 09:50 AM
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