OPINION:
The smashmouth victory of the United Auto Workers over GM, Ford and Stellantis conjures up two Wall Street cliches: “Don’t confuse brains with a bull market,” and “pigs get fed, hogs get slaughtered.”
UAW President Shawn Fein is being rightly lauded for the innovative strategy he used to bring the three Detroit automakers to heel. Historically, the UAW struck only one automaker, cut a deal, and then forced that deal on the other automakers. With this “pattern bargaining” approach, however, the UAW steadily lost ground over the last several decades: Wage increases lagged productivity and inflation, plants closed and pension benefits eroded.
This time, the UAW strategically attacked key production and supply chain nodes across the three automakers. These surgical strikes minimized lost wages for striking UAW members while inflicting maximum punishment on the automakers.
The resultant deal dramatically raises wages and restores a cost-of-living adjustment lost in 2009. It also enhances profit sharing, provides two years’ income security and health insurance for laid-off workers, improves pension benefits, provides the right to strike in the event of future plant closings, and incentivizes further unionization at nonunion U.S. plants such as Elon Musk’s Tesla and Japan’s Toyota.
Given the pact’s exorbitant cost, one must ask in an era of intense global competition and a rapid transition to electric vehicles whether the UAW overplayed its hand, whether the automakers capitulated to a foolish deal, and whether between the two warring parties, they have essentially entered a suicide pact.
Enter the Wall Street cliche “don’t confuse brains with the bull market.” Mr. Fein had two bullish things working in his favor that no previous UAW president had ever seen.
First, UAW negotiators benefited from the biggest bull market for workers since the end of World War II. The unemployment rate oscillates around historic lows, labor shortages abound, and any damn fool could negotiate a very good contract in such conditions — Mr. Fein simply stuck the knife in to the hilt.
Second, the automakers themselves are as bullishly flush with profits as they may ever get. These historically high profits gave the automakers perhaps false hope that they could deliver unprecedented wage increases and other benefits. Soaring profits also gave the union the moral high ground argument that fat cat executives needed to share far more company profits with the rank and file.
Here’s the obvious fear: Mr. Fein and the UAW cut such a “hoggish” deal that the UAW rank and file will not get fed over the longer term. Instead, the U.S. auto industry itself, saddled with high costs, will get slaughtered by the heavily subsidized foreign competition from Japan, South Korea, Mexico and China.
Consider here that President Biden’s war on fossil fuels under the twin banners of “fighting climate change” and “advancing environmental justice” has sent the U.S. auto industry hurtling down the path of an all-electric vehicle future. Lost in this transition will be the U.S. manufacture of internal combustion engines — the highest value-added component of any fossil-fueled automobile and a key driver of corporate profits and union wages.
Replacing the manufacture of internal combustion engines will be the production of EV “engines,” otherwise known as batteries. But China has such a huge advantage in EV battery production that no amount of U.S. taxpayer subsidies can overcome that. If the batteries are produced mostly in China, so, too, will most of the EVs themselves — and one big reason will be skyrocketing U.S. labor costs.
Here’s the more subtle fear: Elon Musk continues to move the bulk of his Tesla production to China. He is already engaging in predatory pricing — with the help of illegal Chinese subsidies — designed to put EV production in America out of business. The UAW has just given Mr. Musk yet another leg up.
A second competitive problem U.S. automakers will likely face is a wage-price spiral. The lucrative UAW wage hikes coupled with its COLA will contribute to that spiral. Note here that, in reaction to the UAW settlement and to stave off possible unionization, Toyota has already raised wages at its nonunion U.S. plants.
Any wage-price spiral will mean the Federal Reserve will keep interest rates high, likely for a long time — it took 10 years to wring inflation out of the economy in the 1970s. In the meantime, high interest rates on car loans will directly depress auto sales and indirectly lead to slower economic growth and possible recession. Bye-bye, then, to those historic automaker profits.
The one glimmer of hope the U.S. auto industry has for a robust future may well be the return of former President Donald Trump in 2025. He would eliminate Mr. Biden’s EV mandate and restore the primacy of fossil fuel.
If 2017 past is 2025 prologue, Trumpian policies would also likely bring a far swifter end to the current wage-price spiral and collateral high-interest rates than the profligate spending Democrats and congressional RINOs that collectively constitute the uniparty.
And yes, Mr. Trump would slap stiff tariffs on EVs made in China, starting with Mr. Elon’s slave labor Teslas. As Mr. Trump likes to say, “Let’s see what happens.”
• Peter Navarro served in the Trump White House as manufacturing czar and chief China strategist. This column originally appeared at http://peternavarro.substack.com.
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