General Motors' Spring Hill union employee Mary Beth Gervais walks the picket line near the plant in Spring Hill, Tenn., on Oct. 30.Denny Simmons/The Associated Press
U.S. President Joe Biden did not hesitate to show whose side he was on in September, when he joined union members on the picket line at the beginning of a series of escalating strikes by the United Auto Workers. On Monday, he took a victory lap as General Motors GM-N became the last of the Detroit Three carmakers to reach a tentative deal with the UAW that delivers huge wage gains for workers.
“This historic contract is a testament to the power of unions and collective bargaining to build strong middle-class jobs while helping our most iconic American companies thrive,” Mr. Biden said of the deal, which would raise the top pay rate for GM production workers by 25 per cent to US$42 (C$58.10) an hour by 2028 and boost starting wages by a whopping 70 per cent.
No one can begrudge UAW members in the United States and their Unifor counterparts in Canada, who also achieved rich pay increases at Ford F-N and Stellantis STLA-N factories here, what is by all accounts owed to them. Unionized auto employees took big wage and benefit cuts to keep the Detroit Three alive after their near-death experiences during the Great Recession.
Still, the new contracts will significantly raise production costs just as the Detroit Three face the daunting challenge of transitioning to electric vehicles amid stiff competition from non-unionized rivals, particularly EV leader Tesla TSLA-Q.
GM chief executive officer Mary Barra last week euphemistically called that transition “a bit bumpy,” as the company announced it is abandoning its near-term EV production targets and ending a US$5-billion venture with Honda to develop affordable EVs.
GM’s decision follows Ford’s announcement last week that it will postpone about US$12-billion in planned investments in EV manufacturing capacity, citing slowing EV demand and consumer unwillingness to pay a premium for electric cars over internal combustion engine models.
The Detroit Three all insist they remain fully committed to an all-EV future. Yet, none has figured out how to replicate the hefty profits they currently make on gasoline-powered SUVs and pickups, despite the massive government subsidies being poured into EV assembly and battery plants. As a result, the manufacturers are lobbying the Biden administration to water down rules requiring two-thirds of all passenger cars and one-quarter of pickups sold in the U.S. in 2032 to be electric models.
It is not clear how the Detroit Three will be able to pay their workers 25 per cent more and swallow big losses on EVs at the same time, unless governments are willing to step up with even more subsidies for zero-emission vehicles. Either that, or governments could be forced to bail manufacturers out all over again in a few years’ time.
The pullback on EV investments by the Detroit Three also reflects uncertainty over Mr. Biden’s political future. The President’s decision to take sides in collective bargaining negotiations in the auto sector – a first in modern memory – amounted to a transparent pitch for the votes of UAW members in critical Rust Belt states that Mr. Biden flipped in 2020, but that he could lose in 2024 in another matchup against Donald Trump.
Mr. Trump, the overwhelming front-runner in the race for the 2024 GOP nomination, is no fan of Mr. Biden’s EV mandates. Neither, for that matter, is the UAW, which has so far broken with its tradition of supporting the Democratic candidate by withholding an endorsement for Mr. Biden. EV mandates are likely to be at the centre of the presidential campaign in many swing states, as Mr. Trump and other Republicans warn of major job losses at plants that produce internal combustion vehicles and parts, if Mr. Biden wins.
A Yahoo Finance/Ipsos poll released in October showed that U.S. gasoline prices would need to almost double – to between US$6 and US$8 a gallon – before most Americans would consider buying an EV. The average U.S. gas price stands at US$3.48 a gallon, or C$0.92 a litre, but the price varies considerably by state, from US$5.27 in California to US$2.96 in Texas.
The poll of 1,025 U.S. adults, which had a margin of error of plus or minus 3.3 per cent, also revealed large class divisions, with only 18 per cent of those with a high-school education or less saying they would be likely to purchase an EV the next time they buy a car, compared with 47 per cent of those with a college education.
“Blue states say EVs are great and we need to adopt them as soon as possible for climate reasons,” Ford executive chairman Bill Ford recently told The New York Times. “Some of the red states say this is just like the [COVID-19] vaccine, and it’s being shoved down our throat by the government, and we don’t want it. I never thought I would see the day when our products were so heavily politicized, but they are.”
The UAW settlements will not do anything to depoliticize them.