The Washington Post, May 1, 2008, Thursday

The Washington Post

May 1, 2008, Thursday

The Washington Post

For Striking Factory Workers, U.S.-First Pledge Falls Flat

By Michael A. Fletcher
Washington Post Staff Writer
Thursday, May 1, 2008; A01

DETROIT -- American Axle and Manufacturing employees viewed their boss Richard E. Dauch as a hero. He bet against the odds when he led a group of investors who bought five decrepit auto parts plants 14 years ago. An outspoken champion of American manufacturing, he backed his words by pouring $3 billion into modernizing the old factories. The strapping Dauch often walked the assembly line, stopping to arm-wrestle employees or to ask about their children.

But times are changing, and Dauch is reneging on a critical part of the wager. The America-first chief executive says he can no longer afford the $73 an hour his employees cost. Without worker concessions, he said American Axle's five major U.S plants could be forced to close.

His employees aren't buying it. They walked out Feb. 26 after rejecting the company's demands that the union said would cut wages in half. The job action has idled not only the 3,650 striking employees but also tens of thousands of workers in related industries. "This is not a trivial effect," said Brian A. Bethune, an economist with Global Insight.

Beyond the immediate economic impact, the strike raises uncomfortable questions about the future of the best-paying factory jobs in the United States. As high-quality manufacturing is increasingly done more cheaply and efficiently from Mexico to India, the U.S. advantage that Dauch promoted as the main factor justifying higher American wages has eroded, taking salaries with it.

"Mr. Dauch is just doing what he has to do to survive," said Hank Cox, a vice president of the National Association of Manufacturers. "Something's got to give if those jobs are going to stay in the United States."

For years, Dauch told his workers that if they embraced technology and were dedicated to making better axles, they would prosper with the company. By most every measure, American Axle has made good products. It invested substantial sums in worker training and new manufacturing systems. Orders poured in to make parts for sport-utility vehicles and pickup trucks that provide the bulk of its business. Workers did well, too, averaging $28 an hour in wages, with generous benefits.

But as SUV sales have fallen, even Dauch could not continue business the same way in the face of competitors who pay their workers far less for the same work. Two of Dauch's largest U.S. competitors that fell into bankruptcy, Delphi and Dana, have negotiated labor agreements that are less than half as costly as Americans Axle's, according to the company. Meanwhile, foreign firms that operate in the United States, including Bharat Forge, have far cheaper labor deals. Auto parts plants overseas have even lower labor costs.

"Quality is just the price of doing business, a starting point," said Renee Rogers, American Axle's spokeswoman. "We also have to be competitive economically."

The strikers see the job action as a last stand for the kind of factory wages that have supported the middle-class lifestyles of millions of manufacturing workers. Some have lashed out against free trade in response to the company's threat to move work out of the country to save money. If a profitable company refuses to maintain their wages, the workers ask, who will?

"If we accept this offer, it would set a precedent for everyone else," said Karl Schaffer, 39, as he picketed outside the gleaming headquarters the company built next to its refurbished Detroit plant four years ago. "The company is making money."

Officials at the United Auto Workers union said they understood that the auto industry was rapidly changing and that global competition was adding cost pressures. They said they were willing to give back some wages and benefits, as they have in recent contracts with Detroit automakers and the parts factories that supply them. They doubt that workers cost the $73 an hour the company says, and in any case, they said they couldn't go as far in giving up wages as American Axle has proposed.

Four years ago, the UAW negotiated a two-tier wage structure that would pay new American Axle workers far less than veteran workers. But the company said it saved little money with the plan because it has hired few new employees.

Union leaders chafe at granting more givebacks to a firm that remains profitable -- if only marginally. After losing money in 2006, American Axle cleared $37 million in profit in 2007 on $3.25 billion in sales. Dauch, meanwhile, made $10.2 million -- a 9 percent increase over his previous year's salary -- an increase the company said was warranted because of his leadership in returning the firm to profitability in a fiercely competitive business.

"The stakes are our livelihood -- simple as that," Bill Alford Jr., vice president of UAW Local 235, said of the dispute. "We're trying to hold on to a middle-class way of life."

Union officials said the company's demands would eliminate guaranteed pensions in favor of 401(k)s, reduce health benefits and cut wages for current workers to an average of $14 an hour. "I know the auto industry is hard and I am willing to compromise," said Frank Franklin, 33, who started at American Axle shortly after it was launched in 1994. "But $14 an hour? I can't do that. I'll go back to school and start over first."

The company has offered buyouts for those who do not want to work for lower salaries and cash "buy downs" to ease the transition for employees forced to take the deep wage cuts being proposed.

Two months in, the workers are still not biting. Last week, the company issued a statement reiterating its determination to hold out for a "market competitive" contract and again threatening to shutter the plants that workers are striking. The UAW responded with a boisterous rally outside the company's annual meeting last Thursday.

Morgan Stanley analyst Jonathan Steinmetz said the strike was probably not going to be settled until General Motors was drawn in. But, so far, the work stoppage has coincided with a large backlog of GM's SUVs and pickups, easing pressure on the automaker. Yesterday, GM, which has reduced or stopped work in 30 plants, said the strike has cost it $800 million and the production of 100,000 vehicles. Like other automakers, GM reports revenue when a vehicle is shipped from the factory, not when it is sold, so lost production shows up as lost revenue.

Steinmetz said an extended walkout could work to the advantage of American Axle, which has begun hiring lower-wage workers in anticipation that many of its striking employees will take buyouts. "A longer strike could give [American Axle] the leverage necessary to extract a better deal from the UAW, which in the long run, could more than offset the financial impact of the strike," he wrote in a report last month.

American Axle has the ability to move some production to four of its plants in Michigan and Ohio that are not on strike and that operate under less costly labor agreements -- or out of the country altogether. After starting in 1994 with five plants in Michigan and Upstate New York, American Axle now operates in 29 locations in 11 countries.

The firm had 7,500 workers when Dauch started the business. But attrition and two buyouts have reduced American Axle's hourly U.S. workforce to 5,300, even as the company has been expanding overseas, where it has 3,800 employees and far lower labor costs.

Still, many workers view moving work elsewhere as a betrayal. "The feeling among workers is that 'You have all of those international locations because of us here in Buffalo and here in Detroit,' " said Arthur C. Wheaton, a workforce specialist at Cornell University. "Now you say you're paying us too much and you want to get rid of us. Where is the love? Where is the appreciation for all we've done?' "

Employees who once praised Dauch as a self-made man willing to stand up for U.S. manufacturing workers have turned increasingly sour toward him as the strike has worn on. "This company has always been a good company to work for," Alford said. "But now it just seems like Mr. Dauch's lost touch."