Gaming the Aftermath of the UAW-VW Vote

A C-Suite Quick Take

While not exactly a surprise, the UAW’s recent win at Volkswagen’s Chattanooga plant still represents a watershed moment in the U.S. automotive industry. Why? It was not just the UAW’s first victory at a major foreign automaker, but also its first success in the historically union-resistant South. Moreover, an overwhelming 73% of employees voted in favor of unionization, at the same plant where the UAW had failed twice before, and despite strong opposition from local officials.  Remarkably, Volkswagen decided to stay neutral this time, even allowing voter education sessions inside the plant itself.

The UAW’s success is partially a sign of the times, as organized labor has regained lost relevance in the wake of globalization, technological disruption, rising inequality, and the COVID-19 pandemic. Public attitudes and the political climate have changed markedly, enabling union wins at several high-visibility employers, including Amazon and Starbucks. But the UAW has also managed to change itself in the wake of corruption scandals that imprisoned several of its leaders. Last year, it elected a new President, Shawn Fain, who re-energized the organization and gained important concessions from the three Detroit automakers (D3) in a landmark agreement that gained widespread national media attention.

It made sense for Fain and the UAW to capitalize on their historic victory and immediately expand their unionization efforts from Detroit to Chattanooga. Volkswagen’s workers are already represented by unions in every country outside the U.S., while the German union – IG Metall – occupies half the seats on Volkswagen’s Supervisory Board, as required by German law. Moreover, the Lower Saxony government is a major Volkswagen shareholder, with two seats on its Supervisory Board, including a leader of the Social Democrat Party (SPD).

Nevertheless, Fain did take a significant personal risk as well.  In fact, there was strong internal pushback within the UAW itself – a union leader was demoted for resisting. If the Chattanooga vote had failed yet again, there would’ve been little hope of success elsewhere. Fain’s internal critics would’ve been vindicated and his presidency likely at risk. In addition, he surely would’ve been the target of personal attacks in the national media, given his enhanced profile after the D3 strikes. Instead, Fain has now cemented his position as America’s leading union leader and returned the UAW to a prominent role in the Democratic party, cheered on by the President he has openly endorsed.    

What happens next is not yet clear. The unexpectedly large margin of victory in Chattanooga certainly provides additional momentum for the UAW’s next unionization drive that is already underway at two Mercedes plants in Alabama. However, its long-term impact on the U.S. auto industry, economy, regional and national politics will be a function of a more complex set of moves and countermoves by the UAW, automakers, and other stakeholders.  After the Mercedes vote, Fain and the UAW will have to decide which of two distinct, but intertwined, “games” to prioritize: pursue further unionization and maintain the current momentum (the Dominos Game) or try to reach an initial contract at Volkswagen to demonstrate the value of unionization to still skeptical non-union workers (the Contract Game).   

The Dominos Game

Of necessity, the UAW’s future unionization efforts must proceed plant by plant, automaker by automaker, like a set of domino tiles toppling one after another. A single failure could break the chain and derail the entire unionization effort, which is why the UAW typically avoids asking for a vote unless at least 70% of the workers have signed union cards.  For the UAW, therefore, it’ll be crucial to determine the optimal sequence of target automakers and individual plants.  For example, Nissan’s plant in Tennessee may well become a target again.  Hyundai/Kia plants may also represent interesting targets, in part due to differences in American and Korean management styles.  And Tesla just announced major layoffs, which could trigger union activity at their plants in California and Texas. Alternatively, the UAW may choose to shift its focus to suppliers instead.   

In response, the automakers will employ various tried-and-true counterstrategies. For example, some have already offered substantial raises after last year’s D3 contracts to reduce the wage gap to union competitors. Many will communicate extensively with workers about the risks and costs of unionization. They’ll try to apply public pressure for a No vote, and will no doubt carefully monitor organizer behavior to assure that they are following the letter of the law, with possible termination if they go too far. Finally, automakers may delay negotiating a contract even after a Yes vote, as Amazon and Starbucks have done.

The Contract Game

The Contract game is far more complex than the Dominos Game, with the UAW, workers, automakers, governments, and perhaps unions elsewhere all having meaningful roles and controlling various levers. It is also important: a Volkswagen contract will become a precedent for contracts with other automakers and that precedent will go beyond merely wages and benefits to work rules, layoff provisions, and many other details. In addition, the contract terms will influence worker interest and the fierceness of management resistance and preemptive moves at other automakers. Both will also be sensitive to the tone of the Volkswagen-UAW negotiations and the timing of a new contract. For example, if reaching a new contract takes years, worker interest and the UAW’s momentum would surely dissipate. If negotiations turn angry, or if Volkswagen and/or UAW leaders publicly attack each other, unionization efforts at other automakers would become far more difficult.

The potential spillover effects further complicate the already complex challenge of negotiating an initial UAW-Volkswagen contract. Volkswagen faces little incentive to reach a quick agreement, particularly since it is vital for the UAW that Volkswagen workers, and the outside world, perceive a large benefit from joining the union. Calling a strike would be quite risky for the UAW, and even a public pressure campaign could backfire. The UAW still has insufficient leverage to close the massive gap with the D3 contracts, so it might focus on getting high-visibility improvements in benefits as well as a hefty wage increase.  As for working conditions and work rules, it might try to merely codify existing practices as a baseline for future improvements.

It will be challenging for Fain and the UAW to determine their contract priorities as well as the aggressiveness of their demands and negotiation tactics with Volkswagen. Fain must also pay attention to his standing with the broader union, his national agenda, and the spillover effects of a Volkswagen contract. These external factors create a clear gap between his own personal interests and those of Volkswagen workers, though the broad objective of a contract with substantial gains is, of course, shared by both.

One potential opportunity for the UAW is to expand the decision-making importance of the Works Council in Chattanooga, which would enhance its power in general, and perhaps be a model for future negotiations with the D3 and other automakers, such as Mercedes.  A critical wild card is IG Metall, which has a de facto majority on VW’s Supervisory Board and could potentially pressure Volkswagen to negotiate seriously and make concessions, particularly on benefits. Whether and how they weigh in may depend on UAW decisions and on the relationship that the UAW leadership is able to establish with the leadership of IG Metall.

Conclusion

There are a wide range of scenarios for how the Dominos and Contract games will play out over time, ranging from a fizzling out of unionization efforts after multiple defeats to a transformation of labor relations in the U.S. auto industry, with spillover effects to other industries.  The eventual outcome will be a function of the priorities and choices of the various players, which will require careful analysis, as none of the major players - the UAW, automakers, suppliers, workers, and governments - will remain unaffected.