Lessons Learned from the UAW Strikes: A Game of Chicken
A C-Suite Quick Take
The tentative agreements that the UAW reached with the Detroit 3 (D3) accomplished an astonishing number of the UAW’s goals, though ratification remains a risk, particularly at GM. Whether or not ratification is successful, there are important lessons from this year’s UAW negotiations, strikes, and contracts for the D3 and the UAW. There are also lessons for other companies and unions inside and outside the automotive industry, which I will discuss in the next Quick Take.
Fain and his advisers played the 2023 negotiation games with strategic and tactical skill, including adopting the winning strategy from the game of “chicken”, winning a novel credibility game, and provoking a bidding war in a strike.
The D3 appear to have been surprised by the UAW strategy – though it was predictable with game theory analysis – and made some strategic and tactical errors.
However, a record contract for the UAW was inevitable given the highly favorable conditions and UAW leadership incentives in 2023.
This year’s success comes with medium- and long-term risks for the UAW, including heightened member expectations, damaged Detroit 3 relationships, and a massive labor-cost gap with suppliers, non-union companies, and plants in other countries.
The Detroit 3 will need to revisit strategic decisions on their product plans, footprint, make vs. buy, sourcing, automation, and supply chain in the aftermath of the agreements in the US and Canada and with the likelihood of a hostile and aggressive UAW for the foreseeable future.
In the wake of the tentative agreements, the D3 have key objectives in common with UAW leaders in the short- and medium-term.
The Detroit 3 should rethink their negotiating strategy for the next contract in 2028 – including better coordination among the companies – and plan for a lengthy strike.
One of the most famous games discussed in classrooms is the game of “chicken”. Two drivers, trying to impress a potential romantic partner, try to show their courage by aiming their speeding vehicles directly at each other. The first one to swerve loses the game and the partner. In the classic analysis, both should swerve at the last second, avoiding disaster and tying the game. But the winning strategy is for one driver to remove the steering wheel and – in full view of the other driver – throw it away!
Fain did the labor negotiation equivalent of throwing away the steering wheel. He loudly and repeatedly listed a massive list of “audacious” demands. He refused to back off any demands throughout the negotiations. He bargained mostly in public, announcing any concessions that any of the D3 made while insisting that they had to meet the rest of the demands. Fain could convincingly tell the companies that unless they met most of his demands, the members would not ratify any tentative agreement and he would lose his job.
But “chicken” was not the only game being played! Fain was also playing a credibility game with the UAW members and his union rivals. Internal credibility was vital to Fain as an untested insurgent barely elected in the first-ever direct election of a UAW President. He played this game effectively as well. The unprecedented steps that he took in this negotiation – bargaining publicly, avoiding naming a single company as target, striking all D3 at once, not showing up for a meeting with Ford’s Chairman – built his credibility as a new thinker different from his corrupt predecessors and as a tough and aggressive bargainer.
Fain also starting a bidding game in the middle of the strikes, provoking the D3 to compete with each other to offer unilateral concessions. In order to preserve the strike fund, he struck only a few initial plants and then escalated. Fain deliberately chose not to target the profit centers of the D3 at first. This allowed him to keep the strikes in the news with gradual escalation without provoking the D3 to make a “last, best, and final” offer before enough time had passed to be able to persuade the members to ratify a deal that did not satisfy every demand. But he escalated selectively, offering a temporary reprieve in return for concessions. Each of the D3 made offers on some issues that Fain would then announce. After four weeks, he finally shut a key plant at Ford, using that to pressure Ford – his target – to make further concessions until he got the deal he wanted.
The D3 seemed – at least to an outsider – surprised by Fain’s strategy in each of these games, though each game was predictable, at least after Fain’s election and early actions. They did not prepare strategically for a lengthy strike or for the loss of lower-tier wages and benefits. They may have been too eager to make early offers for a quick settlement, even though that was impossible given the dynamics of the UAW game. While they clearly communicated with each other – the companies made identical offers for wages even before the Ford agreement – there does not seem to have been true coordination.
It was always clear that the UAW would make substantial gains in 2023 D3 negotiations. The D3 were all making record profits. UAW members were angry at the multi-tier wage structure that the union had agreed to protect or add jobs starting in 2007, as well as the lengthy progression to the top wage. All D3 were making extensive use of “temporary” workers, frequently employing them for years. Wages had not kept up with inflation. The members were also angry about the multiple UAW corruption scandals. Government incentives were driving the D3 to source their EV batteries from joint ventures based in the US, but the D3 and their JV partners were planning to pay “supplier-level” wages and benefits at the battery plants. Even though labor costs were much higher at the D3 than at non-union auto manufacturers, the D3 knew they would have to make significant concessions and boost wages.
But the UAW strategies in the different games got concessions and raises that no one would have thought possible six months ago. Lower-tier wages have been eliminated and cost-of-living adjustments restored. Temporary workers will become full-time. Pensioners will get additional checks and younger workers will get larger contributions to their 401Ks. JV battery plant workers will be part of the D3 at assembly plant wages and benefits.
Yet these remarkable gains come with risks; Fain’s wins may not help the UAW longer term. Fain’s public demands raised expectations, while the “slow boil” strike did not cause most members any pain, so even this agreement may not be ratified. The public gains and the tactics used against the D3 will cause the UAW pain at the suppliers it represents, as the next Quick Take will analyze. The agreement will open an enormous gap between the labor costs of the D3 and those at non-union companies like Tesla and Toyota. While the D3 are making enough on the full-size trucks and SUVs in this robust economy to cover these extra costs, they will be at a cost-disadvantage on EVs – the technology of the future – and may be stressed in a severe downturn.
In addition, the UAW has set up a very challenging problem for the next D3 negotiation in 2028. Members will expect similar aggressive tactics, public bargaining, and outsize gains. The UAW leadership has badly damaged relationships with the D3 and the D3 will be better prepared for UAW strategy and tactics. There are limits to the labor cost gap that the D3 can and will tolerate. A 2028 follow-on win seems very hard for the UAW to achieve, at least without severe damage to its future.
Meanwhile, Fain himself seems certain to win reelection, assuming the agreement is ratified. He clearly hopes to lead a revitalized labor movement, starting with unionizing one or more of the non-union auto manufacturers. He changed the D3 contract expiration date to April 30, 2028, clearly intending to call a strike on International Labor Day, May 1. He has called on other unions to align their contracts to that date, hoping to lead a general strike unprecedented in the US. He may also intend to become a political power broker, like his predecessor Walter Reuther was in the 1960s. In an early sign of his political ambitions, Fain leveraged Trump’s announcement of a visit to Michigan to get Biden to march with him on the picket line while exiling Trump to a speech at a non-union supplier.
What about the Detroit 3? The labor cost gap this agreement opens could change the economics of many decisions. The D3 also signed expensive agreements in Canada, though the labor costs there are less. Moreover, there is no prospect of relief as older workers retire, since the younger workers will be earning almost the same wages and benefits; lower-tier wages are never coming back. Moreover, given the UAW’s aggressiveness and hostility, the gap is likely to grow further in 2028. While the D3 made substantial investment commitments in their tentative agreements, many other strategic decisions will need to be revisited. Changes to product plans, footprint, make vs. buy, sourcing, automation, and supply chain might make sense given the new labor reality.
The D3 actually have important common interests with the UAW over the short- and medium-term. They want Fain to get successful ratification. They want Fain to manage member expectations at suppliers, avoiding strikes and a further loss of competitiveness. They want the UAW to successfully organize non-union assembly plants, particularly those of Toyota and Tesla.
The D3 should learn from the UAW’s negotiating strategy and tactics this time and rethink their strategy for the next contract in 2028. They need credible sticks and carrots that depend on avoiding further widening of the cost gap. They need a better communication strategy with workers, the government, and the public. They need to coordinate much better among themselves to prevent a bidding war and to increase the risk to the UAW. They need to be fully prepared for a lengthy strike.
2023 has changed the landscape for the D3 and the UAW with long-lasting implications. But that changed landscape affects many other companies inside and outside the industry, as the next Quick Take will analyze.