The recent automaker dog and pony show on Capital Hill shed some light on just how far the organized labor movement has outmaneuvered the auto manufacturing sector of the corporate world. Unfortunately they stayed in the passing lane too long and ran head-on into a foreign built juggernaut. With their hat in their hands, Messrs. Nardelli, Wagoner, and Mulally approached a self-sanctimonious group of free spending politicians asking for billions to simply survive until sometime this spring. That was entertainment in itself.
It seemed overtly pathetic to see the same politicians that can’t grasp the concepts of fiscal responsibility and working together with ideological adversaries lecturing the CEO’s sitting in the same boat. This was made even more incredible with the appearance of Ron Gettelfinger, President of the United Auto Workers appearing side by side with the CEO’s that his group has taken to the compensation and benefits woodshed at every turn.
Now on the verge of extinction because of their own missteps and myopic view of how the free market operates they ask the taxpayer to get involved by lending a helping hand.
Well, now the taxpayer is informed, involved, and they don’t like what they see. Union leadership is paying lip service to restructuring within their respective companies but it has come at great cost to both sides as the old tactics in labor/management negotiations have become a way of life over the last 40 years. It’s a perfect storm where years of malfeasance at the highest executive level of management delivering cars that don’t meet the changing consumer standards being set by Germany, Japan, and Korea meets the astronomical labor costs imposed by a labor group that foments a mob mentality when it comes to deserving an artificially conceived level of compensation and benefits.
As a result of sweet contract deals over the years, the UAW has better than a 3:1 ratio of retired employees and surviving spouses being paid benefits versus active employees. While the UAW disputes the claim that the average worker is paid in excess of $70 per hour, they do contend that when retirement benefits and pension costs are added in, the actual figure isn’t much less. It’s no wonder that foreign auto makers have no problem relocating to the 22 ‘right to work’ states in the U.S. and enjoy competing with a noncompetitive Detroit.
This narrative sets the stage to make some salient comparisons with another industry that has been in the same position and has taken a different route toward change and renewed profitability.
For all the grousing about the airline industry and their degree of dysfunction, it is useful to compare what is happening at Atlanta based Delta Air Lines with events in the auto industry. This is a success story in the making.
In the post 9/11 years the landscape of the airline industry changed dramatically. The legacy carriers had become too large and unwieldy to quickly change their business plan to fight off the newer, sexier low cost upstarts. Many legacies filed for Chapter 11 bankruptcy protection where labor contracts, operating expenses, business plans, vendor contracts, loan agreements, etc. were restructured. The bankruptcy laws were designed to set financial and legal procedures in an attempt to make the distressed company whole again. Delta followed suit and restructured. The reorganization was so successful that, following a thwarted hostile takeover attempt by a hedge fund group in 2006, they made a bold move to acquire Northwest Air Lines; another legacy carrier that underwent Chapter 11 proceedings. This has also proven very successful in terms of how the process has been completed and the potential gain for both companies and labor groups in the newly formed Delta Air Lines.
Other than the fact that the undertaking was complex and massive during a difficult time in each company’s history, why is this important news in the context of the UAW and Detroit’s Big 3? Both Northwest and Delta, to one degree or another, are unionized and none of this could have been done without management and labor drawing on new strategies to forge a new paradigm.
Three leaders are to be recognized in this journey; Former Delta CEO Gerald Grinstein, current CEO Richard Anderson, and Donald Lee Moak, Master Executive Committee Chairman of Delta’s pilot union, ALPA.
Grinstein took over from the previous failed executive leadership tenure and was forced to enter into bankruptcy protection. He led a restructuring campaign that took the company out of Chapter 11. Richard Anderson subsequently embarked on the drive to acquire a valuable asset in the form of Northwest Air Lines in order to create a premier global airline. MEC Chairman Lee Moak was a pivotal power broker that successfully directed the debate with his constituents and brought his group of 7000+ pilots to the table in terms of renegotiating pilot labor contracts under bankruptcy protection and the highly contentious integration of two diverse pilot seniority lists during the acquisition of Northwest.
Both of these business exercises have the ability to bring an airline to its knees as the potential for job action on the pilots’ part is always a risk. One needs only to witness the debacle that continues at the new US Airways following its ‘completed’ merger with America West in 2005. Labor strife continues with a hotly disputed pilot seniority list leaving in its wake the decertification of ALPA as pilot labor representation and workforce morale at an all time low.
Moak, a former Marine aviator led the pilot group with a new set of organized labor tools; a firm grasp of the consequence of failure, a reasoned and thoughtful approach to negotiation where the goose became more important than the golden egg, and a team of surrogates that never yielded to the emotion that has become a benchmark of crisis management during labor negotiations. The message of survival was always communicated in a business like fashion where job security in achieved only through success in a tough industry. Rumors were displaced with facts, confidentiality was honored, difficult truths were not abandoned to gain consensus, and never did union leadership publicly utter disparaging remarks about the management team.
This did not come without incredible sacrifice on the pilots’ part; lost pensions and salary cuts in excess of 42% to name just a few. This however is where Grinstein and Anderson step to the forefront. A mutual relationship of respect and trust was earned in short order as the labor group was called on to be functioning leaders as part of the solution. As such they were transparently included as major stakeholders where future rewards became well defined as compensation for partnership. Too often in the past, management fostered a perception, which labor adopted, as simply a necessary cost of doing business with little imputed value outside of what they were hired to do. Grinstein and Anderson changed the paradigm, Moak accepted the challenge, and the pilot group responded in a positive way.
UAW President Gettlefinger would be wise to learn from the journey that MEC Chairman Moak, and CEO’s Grinstein and Anderson took enroute to their destination. Labor Needs a New Set of Tools isn’t just a catchy phrase but one that may save one, two or all three of Detroit’s titans. The results achieved thus far by Lee Moak, Gerald Grinstein, and Richard Anderson are an example of the adage that a …“rising tide raises all boats…”