The Problem with GM's UAW Deal

[ellives]

http://www.businessweek.com/managing/content/sep2007/ca20070930_668408.htm?chan=careers_managing+index+page_top+stories

The Problem with GM's UAW Deal

The industrial model the pact clings to is already obsolete and ignores what really matters today: what Peter Drucker called "knowledge work"

by Rick Wartzman

In 1946, Peter Drucker's intimate, multiyear examination of General Motors (GM), Concept of the Corporation, was published. GM hated it.

Drucker's take—that the then-wildly-successful automaker might want to reexamine a host of long-standing policies on customer relations, dealer relations, employee relations, and more—was viewed from inside the corporation as hypercritical. GM's revered chairman, Alfred Sloan, was so upset about the book that he "simply treated it as if it did not exist," Drucker later recalled, "never mentioning it and never allowing it to be mentioned in his presence."

The United Auto Workers didn't exactly embrace Drucker's thinking either. Among his specific recommendations was for GM's hourly workers to assume more direct responsibility for what they did, adopting a "managerial aptitude" and operating within a "self-governing plant community." The UAW's powerful president, Walter Reuther, greeted that notion this way: "Managers manage and workers work, and to demand of workers that they take responsibility for what is management's job imposes an intolerable burden on the working man."

Six decades later, were Drucker alive to set down the latest chapter in the GM saga, my guess is that, once again, neither the company nor the union would care much for what he'd have to say. At the least, Drucker would surely be skeptical of how transformational the four-year contract reached last week between GM and the UAW really is.

Obsolete Industrial Model

Yes, the restructuring of GM's massive obligations for UAW retiree health care, along with wage and benefit concessions made by the union, promise to bring the company's cost structure more in line with that of its Asian rivals. That may well allow GM to become consistently profitable, which is no small thing.

Yet on some level, the agreement clings to an industrial model that is already obsolete. And it runs counter to GM Chief Executive Rick Wagoner's previously articulated strategy of designing new vehicles so they can be put together anywhere across the globe.

In particular, according to news reports, GM has pledged to invest billions of dollars to keep making certain cars, trucks and engines in the U.S., providing a boost to facilities in Wisconsin, Michigan, and Indiana and, the UAW hopes, a measure of job security for its 74,000 unionized workers. As the company characterized the contract, it "paves the way for GM to significantly improve its manufacturing competitiveness" while simultaneously "strengthening its core manufacturing base in the U.S."

Shifting Away From Manufacturing

But these two principles—preparing for the future while locking into a made-in-America mindset—are fundamentally at odds.

As Drucker saw it, huge economic and demographic forces have set the U.S. and other developed nations on a course in which manufacturing jobs are destined to play a lesser and lesser role. Much of this work, he said, will invariably keep moving offshore.

To try to thwart this change through what amounts to bargaining-table protectionism is folly. The 21st century shift from traditional lines of manufacturing to what Drucker called "knowledge work"—laboratory analysis, software design, and so on—is as inexorable as the 20th century transition from agriculture to manufacturing.

After World War II, about one in three U.S. workers was employed in manufacturing. Today that figure stands at about 1 in 10 (although manufacturing output, as a share of total economic output, has remained steady, thanks largely to rising productivity).

Education Over Apprenticeship

"Most people continue to believe that when manufacturing jobs decline, the country's manufacturing base is threatened and has to be protected," Drucker wrote in 2001, four years before he died. "They have great difficulty in accepting that, for the first time in history, society and economy are no longer dominated by manual work, and a country can feed, house and clothe itself with only a small minority of its population engaged in such work."

Drucker didn't mean that people would cease using their hands altogether; in fact, in many cases, they might use them more. But their work will be "based on theoretical knowledge that can be acquired only through formal education," he explained, "not through apprenticeship."

All of this suggests that whatever investment GM is making in solidifying its manufacturing presence in the U.S. would be better spent on launching programs to retrain and redeploy its younger workers for a fate that, ultimately, many of them won't be able to escape.

The End of the Assembly Line

This must not be some halfway initiative, either. Indeed, imagine a major corporation creating a lifelong learning curriculum that had as much energy and talent and financial strength behind it as the building of a battery of new factories. Imagine a retraining effort so robust and path-breaking that the union could never dismiss it as some corporate sop.

In 1983, in a new epilogue to Concept of the Corporation, Drucker wrote: "GM may, within a decade, develop into a true transnational company that integrates markets of the developed world and their purchasing power with the labor resources of the Third World.

"And while it is much too early even to guess what GM's labor relations will look like," he added, "the assembly line, that symbol of industry during the first half of the century, will, by the year 1990 or the year 2000, probably have faded into history."

Drucker was, obviously, a little off in terms of timing. But there's no denying the trend—even for those who'd like to pretend, as Alfred Sloan once did, that it just isn't there.

Rick Wartzman is the director of the Drucker Institute at Claremont Graduate University and an Irvine senior fellow at the New America Foundation.

[Camino LS6]

BS

[ZL-1]

The United Auto Workers didn't exactly embrace Drucker's thinking either. Among his specific recommendations was for GM's hourly workers to assume more direct responsibility for what they did, adopting a "managerial aptitude" and operating within a "self-governing plant community." The UAW's powerful president, Walter Reuther, greeted that notion this way: "Managers manage and workers work, and to demand of workers that they take responsibility for what is management's job imposes an intolerable burden on the working man."

I kind of agree with Drucker on this one, but it is management's responsibility to ensure such a culture exists.

Yet on some level, the agreement clings to an industrial model that is already obsolete. And it runs counter to GM Chief Executive Rick Wagoner's previously articulated strategy of designing new vehicles so they can be put together anywhere across the globe.

Not so sure re this one. If the economic benefits of retaining these vehicles' production in the US outweigh the economic costs, keeping them in the US is a positive NPV decision (to put it in capital budgeting / investment language), and positive NPV investments are those that increase the value of a company. The only argument I might see here is that shifting production to the outside of the US might yield higher NPV thsn keeping them there, but to reach that conclusion Mr. Wartzman would have had to see the numbers, and I doubt he has access to them.

[thegriffon]

:rotflmao:

Some people don't live in the real world. People like this are why companies lose money relocating manufacturing to China. It's complete BS. Sure GM is a knowledge company, and a true transnational (as much as any company really can be). But the problem is it isn't efficient to build product in the so called third world and ship it to so called developed markets. A lot of the cost of a vehicle is in design, marketing and sales, but the engineering and design is much more efficiently spread globally than is manufacturing—you can't get around logistics for shipping manufactured and natural goods—GM needs a local manufacturing presence in every major market—but knowledge work is fluid and can flow around the globe freely. Why class entire regions as "manual workers"? Does Wartzman think anyone wanting to be an engineer or designer should move to a "developed" nation instead of contributing to the financialand social commonwealth of his native land? In this era of energy efficiency and global warming does it really make sense to ship everything you consume vast distances? Perhaps like Drucker this guy should make an intimate, multi-year examination of the global auto industry before he labels GM's manufacturing system "obsolete".