special report

DWINDLING NUMBERS: membership plunged from a high of 1.5 million in 1979 to under 377,000 workers by 2010, when Bob King (below) became the union’s 10th president. /REBECCA COOK Crunch time at America’s richest union Unless the United Auto Workers can turn the tide, the next financial crisis in Detroit may not be at one of the automakers but at the union.

By Deepa Seetharaman and Kevin with a turnaround plan still taking shape, Krolicki the next financial crisis in Detroit may not DETROIT, Sept 22 be at one of the automakers but at the UAW itself. ob King, the president of the United That picture of the growing financial Auto Workers, has a problem: the labor pressure on the 76-year-old union emerges unionB that credits itself with creating the from a Reuters analysis of a decade of UAW American middle class has glimpsed the financial filings and interviews with dozens end of the line. of current and former union officials and Two years after the wrenching people close to the union. restructuring of the U.S. auto industry and King, 65, has just wrapped up a round of the bankruptcies that remade General fast-track talks with on a Motors and , the UAW is facing its new contract that includes new job promises own financial reckoning. America’s richest and bonuses of at least $11,500 for each of union has been living beyond its means and the automaker’s 48,500 factory workers. a new and more business-friendly labor running down its savings, an analysis of its Now King has turned to Chrysler and Ford union has emerged from the industry’s near financial records shows. Motor Co to wrap up similar deals on wages collapse. Unless King and other officials succeed and benefits that King hopes will show But winning a new four-year contract

Septemper 2011 uaw September 2011 deal with the Detroit automakers will just clear the way for a battle that King believes U.S. auto industry jobs will determine whether the UAW survives -- organizing plants run by the likes of Since 2005, the auto industry has been losing jobs at more than twice the rate of the wider VW, Toyota, and Hyundai in order manufacturing sector. Non-farm payrolls since January 2005 – percent to reverse a steady slide in the union’s 10 membership and influence. In some ways the union’s situation recalls 0 Total 1.0% the early days of GM’s own slow-motion slide toward bankruptcy. -10 Just as with GM before, the UAW has been Manufacturing, production 17.8% left to carry an outsized bureaucracy. Also -20 like GM, the union’s recovery plans hinge on reversing unfavorable perceptions decades -30 in the making. Manufacturing, autos/parts 36.2% King, who has a law degree and looks more -40 like a college professor than a hardened labor leader, has moved to cut costs at the -50 union’s riverfront Detroit headquarters by 2005 2006 2007 2008 2009 2010 2011 negotiating buyouts with members of the Source: U.S. Bureau of Labor Statistics UAW’s own union. Reuters graphic/Stephen Culp 09/09/11 UAW clerical workers, who are represented dwindling dues from a declining base of practice of relying on the union’s savings will by the OPEIU, have also taken cuts to pay active workers. have to end. and their health care coverage in retirement The union has been slow to trim other “If the UAW continued to sell assets to and agreed to other concessions. UAW staff outlays. Since 2007, the union’s spending operate, how long of a period does it take approved the buyouts earlier this month by a has included promotional items such as before you no longer can sustain that?” UAW vote of 132-to-110. flyswatters emblazoned with the UAW logo Secretary-Treasurer Dennis Williams told The UAW’s 17-member board has also ($5,000), bowling ball buffers and bags Reuters. considered a shift toward a more aggressive ($33,000) as well as spending on golf outings “The answer to that is we don’t want to investment strategy and ways to shed some and at golf resorts ($346,000). The union continue that strategy.” of the empty union halls that have been says it is forced to book meetings at golf dumped back on its books, officials involved resorts because in some areas of the country ‘THE NEXT DETROIT’ in those discussions say. those are the only conference facilities large As the Detroit automakers prepared But fundamentally, King is betting that enough. for contract talks with the UAW this summer, a union forged in Depression-era Detroit The UAW also spent at least $2 million the labor-relations department at one of the can connect with a generation of American on advertising in 2008 to build support companies sent an unusual request to the workers who grew up long after the peak of for the union and the first wave of “bridge” in-house economist. Based on the UAW’s the UAW’s clout in the 1950 and 1960s and loans for General Motors and Chrysler. Both financial statements, how long would it who live in southern states traditionally automakers were spared liquidation by a take before the union ran into trouble? The hostile to labor unions. bailout orchestrated by President Barack answer: the UAW might have three to five That will mean spending big on a campaign Obama in 2009. years before its budget difficulties forced a to attract non-union workers in plants owned UAW officials acknowledge that the financial crunch, absent changes. by foreign automakers in the south. The “hand-grenade” math of the Earlier this year, the UAW considered projection gave the union less than a buying a commercial during the Super five-year window of opportunity to Bowl, the most widely watched event on turn things around by winning new American television. The plan was hatched membership at foreign-run auto by Richard Bensinger, a veteran organizer plants, said the person who saw the hired last year. The idea was to try to turn internal forecast and asked not to be 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 POLITICAL PLAYER: consideration shows the kinds of risks that UAW Secretary-Treasurer King could be willing to take, people familiar Dennis Williams says the with the effort said. union cannot continue a strategy of selling That more aggressive approach threatens assets to fund operations. to push costs higher for the UAW when it has REUTERS/ been forced to sell assets to make up from Rebecca Cook

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“their cost structure is not aligned with the revenue that they’re getting from their rank and file.”

ROOTS IN DETROIT: A bronze statue of a worker called ‘the Builder’ stands in front of the United Auto Workers union Solidarity House in Detroit, . REUTERS/ Rebecca Cook named because of its sensitivity. The assumptions behind that projection UAW, 2005 to 2010 could not be independently reviewed. But the fact that one of the Detroit automakers As membership dropped, union dues also tumbled. commissioned a deep dive on the union’s Membership – ‘000s Dues – $mln Political activities – $mln 600 220 12 finances underscores the seriousness of the situation facing King. 500 10 The UAW remains America’s richest union. 200 The value of assets on its balance sheet top 8 400 $1 billion. Some of that, especially real estate, 180 6 could be worth far less if the union was forced '05 '06 '07 '08 '09 '10 300 160 to sell in a hurry, analysts say. Even so, the Strike fund – $mln 1000 UAW’s reported wealth is almost twice as 200 140 much as that held by the second-richest 900 union, which was the United Brotherhood of 100 Carpenters in 2010. 120 800 Most of the UAW’s wealth sits in its strike 0 100 700 fund, which stood at $763 million at the end 2005 2006 2007 2008 2009 2010 '05 '06 '07 '08 '09 '10 of 2010. But the sheer size of the fund masks a deterioration of the union’s day-to-day Source: UAW, Labor Department filings finances, especially since 2007. Reuters graphic/Stephen Culp 08/09/11 To bridge the gap between spending and who is now a partner-in-charge at accounting Treasuries where it has parked about 60 revenue, the UAW has increasingly relied firm EisnerAmper LLP. percent of its assets. It also does not reflect on selling its investments, which include The UAW reported a $44-million drop in the benefit of any additional cost cutting or U.S. Treasuries and stocks, and a handful of the value of its cash and investments outside dues from organizing new workers or winning properties. From 2000 to 2006, the UAW the strike fund in 2009. If that rate were additional jobs or higher wages at the Detroit sold $7.3 million. That ballooned to nearly sustained, the UAW would run through all of Three. $222 million from 2007 to 2010, government its cash and liquid investments in just over 20 The UAW said the current environment was filings show. years. “challenging with bond yields continuing to “It illustrates to me that their cost structure That simplified projection does not account fall and equities continuing to be so volatile.” is not aligned with the revenue that they’re for additional investment gains the UAW It said it was reviewing its strategy: “We getting from their rank and file,” said Peter might realize by moving money out of U.S. continue to pursue investment opportunities Bible, former chief accounting officer for GM 3 uaw September 2011 with the goal of increasing the expected REUTERS.com As recently as the SUV boom of the late degree of overall risk.” 1990s, some workers could make more than Analysts said it was likely that the UAW $100,000 a year with overtime. Today a new would see changes to its membership rolls, hire starts at about $30,000 per year under a costs and the value of its investments in two-tier pay deal negotiated in 2007. coming years. For that reason, a straight-line King, who concedes the UAW bears some projection based on the UAW’s performance responsibility for the near-collapse of the in 2009 could overstate the pressure on the American auto industry, quickly doubled union. down on a bet made by his predecessor, Ron Kristin Dziczek, an analyst at the Ann Arbor, Gettelfinger. In 2006, UAW delegates voted Michigan-based Center for Automotive Video “What next for the UAW?” at: to move about $110 million from the strike Research, said the years from 2007 to 2010 http://link.reuters.com/cyj83s fund to pay for organizing. In 2010, King were an “anomaly.” Union officials also take went back for an unprecedented double-dip that view. crash, the UAW won a series of ever-richer in the fund and won clearance to spend up to “The auto industry crashed hard and fast, contracts that set the bar for other industries. another $160 million over four years. over 316,000 members left the UAW, and, In the same year Reuther died, King joined “Just like President Obama took a big at the same time, the union’s investment the UAW. He was hired at Ford’s massive risk in betting on us, we’re taking a big risk returns were tanking,” said Dziczek, who has Rouge plant, once the world’s largest on money from our strike fund,” King told worked for both the UAW and GM. industrial complex with over 100,000 workers Reuters. But even a diminished war chest could hurt and its own railroad and electric power. the UAW. A weakened UAW might not be The Dearborn, Michigan plant was also the GOOD COP, BAD COP able to pay for the kinds of campaigns it has scene of the 1937 “Battle of the Overpass” By the spring of 2010, even before he run to bring recalcitrant companies to the where thugs hired by Ford beat up Reuther took over as president, King began putting bargaining table. as he passed out leaflets outside the plant. together his team. That included hiring For example, in 2009, during a bitter fight The images of a bloody Reuther hang in the Bensinger, a veteran organizer known for his with casino operator Caesars Entertainment hall of nearby Local 600, commemorating a out-of-the-box ideas. King had first worked Corp, the UAW spent at least $4.8 million on major step toward organizing Ford, the last with Bensinger in the early 1990s as part of outside consultants and advertising to win Detroit holdout. a task force at the AFL-CIO. The group had the first-ever contracts for about 2,500 UAW- Despite the reputation of the Rouge as a agreed on the need for unions to take bigger represented workers in Atlantic City. UAW hotbed, King emerged as a pragmatist risks in organizing. One UAW billboard urged gamblers with a knack for seeing things from the other Joe Ashton, a Philadelphia-native and to shun casinos without union contracts. side of the bargaining table and admitting UAW official who had organized the 2,500 The company’s rejoinder in a separate ad when the union was wrong. casino workers in Atlantic City, was given showed a forlorn and apparently out-of-work “Many years ago I was in the grievance charge of GM negotiations. The message assembly worker with the caption, “Don’t area,” he said last month. “The Ford was clear: the new UAW would live or die in let the UAW turn Atlantic City into the next representative there said, ‘You know, Bob, organizing battles and that’s where it would Detroit.” facts are stubborn things.’” King paused for draw its leaders. The erosion of the UAW’s wealth could a moment and added, “I think I was trying to Toyota proved the first test for King’s also undercut the union’s power in national argue around the facts.” increased willingness to pick fights outside politics where it remains a key ally of the As King rose up the ranks starting in the the UAW’s comfort zone. The provocation Democratic Party. Williams, for example, is a 1980s, the outlook darkened for the “Big was an announcement that the Japanese veteran political organizer who campaigned Three” as they were rocked by higher oil automaker would close a joint-venture plant for Obama in 2008 and remains close. prices and gains by Japanese competitors it had operated with GM in California. Union officials and experts say the UAW who were held up as the icons for a different The U.S. automaker had pulled out of the has no obligation to make a profit, only to and better model of production and factory Fremont, California plant known as NUMMI safeguard its future. “It’s all about the best teamwork. as part of its bankruptcy. About 4,700 benefits for the members of the UAW,” said UAW membership slowly fell from its workers, most of them UAW members, lost labor historian and UAW archivist Mike peak of 1.5 million in 1979. By the time King their jobs. Those jobs represented the UAW’s Smith. “If there is a secondary goal, it’s became the UAW’s tenth president in 2010, only foothold in a major U.S. auto factory sustaining the UAW.” membership had plunged 75 percent from outside those run by Detroit. At every turn, its high point to under 377,000 workers. Less the UAW had failed to organize Toyota, ‘FACTS ARE STUBBORN THINGS’ than a third of the membership works at the Nissan and Honda plants in efforts going King likes to say he wants to take the Detroit Three. back to 1989. union back to its roots under legendary The decline in active workers cut deeply into “The only luck we’ve had has been bad leader, Walter Reuther. the UAW’s dues, a major source of revenue. luck,” King said last year. Reuther saw the UAW emerge from bare- Union workers still pay dues equivalent to In the early spring of 2010, King traveled knuckled battles with GM and Ford to become two hours of work a month. For a long time, from Washington to Chicago to California a part of the American establishment. From the relatively high wages of auto workers to bring pressure on Toyota. In part because 1946 to 1970, when Reuther died in a plane helped protect the UAW’s coffers. of that increased travel by King and other

4 uaw September 2011 senior UAW officials, compensation recorded for UAW officers increased 24 percent from 2009 to 2010. When Toyota announced a deal allowing electric-car start-up Tesla to take over NUMMI in late May 2010, King eased back on the public pressure. But just a few weeks later, Toyota announced it would make the Corolla at a nonunion plant in Mississippi. King learned about the move shortly before speaking to assembled delegates at the UAW convention in Detroit as he took office. In a rare moment of public anger, he vowed to “pound Toyota.” The UAW equipped workers and retirees with picket signs that included a caricature of the Toyota logo as an ominous skull. The signs, splashed with red to suggest blood, read “Toyota is killing American jobs.” Pickets BATTLE FOR THE SOUTH: Recruiting new members to join the 76-year-old union is a top priority for UAW were assembled outside Toyota dealerships, President Bob King. REUTERS/Rebecca Cook but quickly disbanded when UAW officials judged that the hard-line campaign could factories are in right-to-work states, where said Gary Casteel, director of a UAW region backfire. laws prohibit the companies or the UAW from that includes , South Carolina, In the end, the union spent over $300,000 making membership in the union a condition Alabama and Georgia where most of the in a failed bid to get Toyota to save NUMMI. of employment. transplants are located. That included almost $65,000 paid to a Another problem is that the UAW can no Last August, the union won a small battle Washington, D.C. firm, Free Range Studios, longer point to a record of winning much in that hostile terrain when workers at a for expenses and fees to develop a web higher wages for its members. Johnson Controls battery plant in South site critical of Toyota’s safety policies. UAW Volkswagen AG is paying newly hired Carolina voted for UAW representation. leadership also opted to scrap the site before workers at its Chattanooga, Tennessee plant Even so, in Chicago recently, King it went live. $14.50 per hour. That is almost exactly what delivered a cautionary message to UAW By the fall of 2010, King was done being a second-tier UAW worker would make in officials representing Ford at a room in the the bad cop and banging on Toyota. Now he Detroit. In a sign of demand for jobs at that Fairmont hotel. The hotel was less than a would try a more diplomatic approach as he pay level, the Chattanooga plant had 85,000 block from where Obama greeted thousands began to prepare for the upcoming round of applications for more than 2,000 jobs. of enthusiastic supporters on election night talks with the Detroit automakers. VW workers have been promised $19.50 2008, a major victory for the union. after three years on the job. That is just above For some at the Chicago meeting, the ORGANIZING THE SOUTH the $19.28 per hour maximum that entry- proximity to the election-night celebration King saw the Detroit talks as a way level workers at GM would make over the was a reminder of the hard choices to show that the union finally got it. The term of the four-year contract now before facing the UAW two years after winning a new UAW would not press to saddle the workers for ratification. bailout that spared the union from a more automakers with out-sized costs. It would “You don’t pay dues to make less or the immediate crisis. The UAW believes Obama’s be a partner with management. The subtext same as somebody who isn’t paying those intervention saved more than 1 million was clear: the transplants had nothing to dues,” said Gregg Shotwell, a UAW dissident jobs, even though the auto bailouts remain fear from Bob King. retired from GM and Delphi Corp. controversial. “We’re betting that we can be successful Organizing Chattanooga could cost the King told the UAW officials not to expect with the right program and the right UAW up to $3 million, or some $1,500 per a rollback of concessions at Ford or other approach to organizing,” King told Reuters. worker, according to Chaison’s estimates. Detroit automakers. “If the UAW can show that it makes It would take the union over four years to “We can’t put the companies at a reasonable demands in bargaining, it will recoup its investment based on projected disadvantage by asking for more than the make it easier to organize the transplant dues. transplants are paying,” said Gary Walkowicz, companies by saying we’re not as crazy as you King has been reminding workers at who represents workers at King’s old plant, think,” said Gary Chaison, a labor relations every turn that the UAW has no choice. In the Rouge, and attended the Chicago professor at Clark University in Worcester, 1970, when King joined the union, the UAW meeting. “We have to organize them first.” Massachusetts. “You can live with us.” represented over 80 percent of U.S. auto Union officials say workers at foreign sales. By 2010, the union built only about a (Additional reporting by Bernie Woodall, auto plants feel threatened by their bosses, third of the cars and trucks sold here. Clare Baldwin, Ben Klayman, Meghana though the companies disagree. Another “If the UAW is going to exist as we know it, Keshavan and David Bailey; Editing by Paul obstacle is that many of the “transplant” it’s going to have a strong auto backbone,” Ingrassia and Claudia Parsons)

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SHRINE TO PAST GLORY: Legendary UAW leader Walter Reuther occupies the center of this painting of civil rights leaders in the lobby of the Walter and May Reuther Family Education Center in Onaway, Michigan. REUTERS/Clare Baldwin The Black Hole at Black Lake By Deepa Seetharaman and Bernie Woodall DETROIT, Sept 22

f the United Auto Workers union has a sacred space, this rustic retreat andI golf course known as Black Lake is as close as it gets. But Black Lake has also emerged as a sign of the union’s overreach and looming financial woes. For four decades, the United Auto Workers has maintained a sprawling property in northern Michigan as a shrine to the ambitions of the union’s founder, TIME OFF: The club house of the UAW’s Black Lake Golf Club sells golf clubs, shoes and pullovers Walter Reuther. emblazoned with the UAW Black Lake logo. REUTERS/Clare Baldwin Reuther’s ashes were scattered here after his death in 1970. He is the focal point of a Lake, to keep them open. on the complex represents an investment painting of civil rights leaders in the lobby The bulk of those loans were extended in education for its members. of the education center. There is a “zodiac from 2007 to 2010, when the union made Still, the UAW hopes to boost revenue room” where metal and glass sculptures steep concessions in wages and benefits to by marketing Black Lake as a tourist ring the walls, depicting the position of the the U.S. automakers, records filed with the destination and meeting spot for schools planets at the time the labor leader was U.S. Labor Department show. and other unions. born in West Virginia. The loans are listed on the UAW’s books But the clock is ticking. Black Lake is one Despite a three-decade decline in as assets. In a statement, the UAW said the of the biggest drains on a UAW balance membership, the UAW kept up and funding for Black Lake is only considered sheet already weakened by tumbling expanded the site. It opened an 18-hole to be a loan in accounting terms for the property values and a shift of auto golf course during the SUV boom in 2000. purpose of its filings. production jobs abroad. Over the past decade, the UAW has also “I don’t even know why we call them been forced to provide about $39 million loans,” UAW Secretary-Treasurer Dennis PUTTING TIPS FROM ‘SOLIDARITY’ in loans to the Walter and May Reuther Williams said in an interview in July. “I The UAW bought Black Lake in 1967, a Family Education Center and Black Lake mean, it isn’t like they pay them back.” generation after Lucille Ball and Desi Arnaz Golf Course, known collectively as Black The union says Black Lake was never spent their honeymoon there. intended to make money and its spending The union hosts classes and labor

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Running down its savings Over time, the UAW has come to rely more on investments to fund annual operations.

Find more Reuters special reports at 2003 2007 2010 our blog The Deep End here: http://link.reuters.com/heq72q

retreats there. Workers and their families 15.6% 1.0% 20.2% 19.3% can attend a week-long seminar with free room and board each summer. Total: 6.2% Total: Total: In 2000, former UAW president Stephen $325.1 mln $327.6 mln 51.5% $274.0 mln 43.4% 12.9% 65.9% 22.9% Yokich opened the golf course. At the time, the union’s membership was less than half 23.0% its 1979 peak of about 1.5 million members. 18.1% The union’s bimonthly magazine, Solidarity, began to publish putting tips for members. Revenue from dues Interest on investments Sales of investments and assets Other Black Lake took about $25 million in loans from 2007 to 2010, the UAW’s government NOTE: Percentages may not total 100 due to rounding filings show. Source: UAW Labor Department filings The union says it has made “many Reuters graphic/Stephen Culp 19/09/11 attempts” to sell the golf course without from closed union locals, financial reports production of a pair of vehicles to GM’s success. In early 2010, then-UAW president published in Solidarity magazine show. plant in Spring Hill, Tennessee. Ron Gettelfinger revealed that the UAW That compared to less than $950,000 in The former Saturn assembly plant was had been exploring a sale of Black Lake for property transferred from 2000 to 2004. idled after GM killed the Saturn brand. At several years. The plan was shelved when In some cases, the UAW has resorted to one point, the plant employed more than Bob King became president six months unusual arrangements to unload distressed 8,000 workers, most represented by Local later. properties. Last year, for example, the 1853. “It hasn’t performed as well as it should UAW sold the former Local 235 building in The union local and city officials because, quite frankly, I think we never Hamtramck, Michigan, valued at $345,001, had discussed this spring leasing the looked at it from the revenue side,” Williams to a Detroit-based nonprofit called Making 14,000-square-foot union hall. But the deal said of Black Lake. it to the Finish Line, which supports teenage between the UAW and GM will create about mothers. It sold for just over $27,000 in 1,700 new jobs at the Spring Hill plant, ‘EVERYTHING CHANGES’ cash, and a loan for $205,000 -- provided allowing the local to keep its doors open. More than a tenth of the UAW’s wealth by the UAW. The Local 1853 property sits on nearly 13 on its balance sheet is held in real estate. UAW officials, already concerned about acres with a swimming pool and a banquet This includes Black Lake, valued at nearly the union’s deteriorating finances, plan to hall replete with chandeliers. In 2001, the $34 million, and Solidarity House, the tackle the property issues after finishing city renamed the street the union hall sits UAW’s Detroit headquarters, valued at $17 the current round of contract negotiations on to Stephen P. Yokich Parkway, after the million. with Ford Motor Co, General Motors Co and former UAW president. The UAW owns these properties through Chrysler Group LLC, one person familiar “They’ve put buildings everywhere and its nonprofit real estate arm, Union Building with the matter said. One option could be they have a headquarters, they have Black Corp. UBC also provides mortgages to leasing now-defunct union halls to cities or Lake,” UAW historian Mike Smith said. locals to build union halls. nonprofits. “That’s fine when you have 1.5 million By and large, the halls are owned and It’s a delicate issue for the UAW, which members. operated by the locals themselves. But as in this round of contract talks is hoping “Well, everything changes when you drop auto plants closed over the past four years, to draw more jobs to idled plants, thus in membership and you drop in revenue some union locals forfeited ownership to keeping local halls open. coming in.” the UAW to repay mortgages or late dues. The UAW has already had some success (Reporting by Deepa Seetharaman From 2005 to 2009, more than $4.7 on this front. A deal struck by GM and the and Bernie Woodall; million in property was transferred to UBC union last week includes a proposal to shift Editing by Claudia Parsons)

For more information contact: Deepa Seetharaman michael williams, Claudia Parsons, [email protected] global Enterprise Editor Deputy Enterprise Editor +1 646 223 5462 +1 646 223 6282 Kevin Krolicki [email protected] [email protected] [email protected]

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