Editor’s Note: Christopher Douglas is an associate professor of economics at the University of Michigan-Flint and a member of the Board of Scholars at the Mackinac Center for Public Policy. The opinions expressed in this commentary are his own.
On Friday, the United Auto Workers voted to ratify its agreement with General Motors, bringing the nearly five-week-long strike to an end. Although it won some short-term pay increases and job protections for workers, the union failed to get GM to reopen the Lordstown, Ohio assembly plant and transmission plants in Warren, Michigan and Baltimore, Maryland. The union’s inability to win big concessions from GM – even after a prolonged strike – shouldn’t come as that big of a surprise. They were likely never possible in the first place.
In order to win substantial concessions, a union needs to bargain against a firm that has substantial market power and profits. This was GM in the 1950s and ‘60s, when the company by itself controlled nearly half of the US auto market. The GM of today is different.
Despite its $11.8 billion profits in 2018, GM continues to have severe vulnerabilities. GM’s 2018 market share is 16.6%, down from 23.2% in 2007, the last year before the Great Recession. By the time GM entered bankruptcy in 2009, it was already losing ground and its market share was down to nearly 19%. It has continued to fall ever since.
The company’s loss of market share post-bankruptcy has left it with substantial excess production capacity and the fixed costs associated with maintaining those underutilized plants. This explains why the company was unwilling to budge on plant closures, such as the one in Lordstown.
More disconcerting is that GM sold fewer cars in 2018 than it did in 1961, despite the US working age population rising by 103 million people over that time. Total vehicle sales rose nationwide from 6.8 million to 17.7 million over that period. But the vast majority of growth in the US auto market over the last 50-plus years benefited foreign automakers like Toyota, Honda and Nissan. Thus, GM finds itself in a weakened state compared to the heyday of the 1960s, when unions could use prolonged strikes to win generous concessions from the automaker.
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In an effort to boost sales, GM has decided to shift production away from cars like the Chevy Cruze, which was assembled at the Lordstown plant, toward more profitable light trucks such as pickups, sports utility vehicles and crossovers. These are heavier, less fuel-efficient vehicles that are popular with consumers when gasoline is cheap, like it is now. Focusing production on trucks and SUVs is a profitable short-run strategy for GM, but it leaves the company vulnerable to another oil and gas price shock.
It is puzzling why UAW leadership chose to initiate a month-long strike that cost a typical worker thousands in lost wages, if substantial concessions from GM were not possible in the first place. A motivation of the strike may have been to distract attention away from the corruption scandal that has ensnared the upper ranks of UAW leadership and to make the union look relevant to its membership. But any union is going to struggle for relevance when it is bargaining against a company that is a shell of its former self.