The GM Strike is Over… for Now.
While GM and workers breathed a sigh of relief, this is only a band-aid against the deluge of change coming from globalization & innovation.
At the end of 2018, when General Motors (GM) announced massive layoffs as they switched their innovation strategy to focus on electric, I wrote a blog post detailing the implications for the workforce, car manufacturers and the electric vehicle market: What GM’s Layoffs Tell Us About Disruption in the Automotive Sector.
Last week, GM finally struck a deal with the United Auto Workers (UAW) union, approved by its members, to end the longest auto workers strike in 50 years. The work stoppage lasted six weeks, involving 50,000 workers, costing GM an estimated $2 billion in lost production and striking employees nearly $1 billion in lost wages.
On the other hand, in the same week, Tesla announces its first profitable quarter of $143M following a cumulative loss of $1.1B in the first half of the year, sending their stock price shooting up 30%.
What do the tea leaves say?
Who Won the Strike?
Usually, in the aftermath of a strike, opinions race to determine who “won” the deal. While workers received a slew of small immediate wins, including a slight pay increase, a $3B investment in the Detroit-Hamtramck factory to build electric trucks and vans, a new process for temp workers to become permanent, and a promise to leave healthcare plans the same as is, GM is still moving a significant portion of its car production from the US to Mexico.
Because, the unfortunate truth is that the only winner is globalization and innovation.
When GM announced plans in May to close a factory in Lordstown, Ohio, a follow-up from their large layoff announcement in Nov. ’18, Trump demanded via Twitter that GM reverse the move. They didn’t. As a concession in the strike negotiations, GM executives have promised to open an electric car battery factory near the Lordstown plant, but this will only create a few hundred lower-paying jobs, a small token against the thousands of well-paying jobs lost with the initial factory closure.
Essentially, the crux of the strike was the UAW asked GM to shift some of its production from Mexico, where the company built more than 800,000 cars and trucks last year, back to US plants, but essentially GM refused and held their initial position, given the lower labor costs in Mexico.
As I mentioned in my previous blog post:
By increasing the efficiency of its current business, it can continue to generate cash to feed the exploration and development of their new business, i.e. fleet-based mobility via autonomous and electric vehicles. For GM, this is no longer an optional move, rather it is the only way that they will be able to survive.
While GM could concede small points on wages or health benefits, they could not shift the tide of globalization and innovation, despite the 50,000 striking workers or sporadic Twitter rants from the president. Because the issue is more than just about lowering costs; it is about freeing up capital to invest in tomorrow’s business model of autonomous and electric vehicles.
It is adapt or die. But labor still doesn’t seem to get it.
At the conclusion of the GM strike, with this victory in hand, UAW has also announced it will now focus on reaching a new labor deal for workers at Ford. The union had put negotiations with Ford and Fiat Chrysler on a back-burner while it sought the deal with GM.
Ready for round 2… 3… 4…?
The Burden of Legacy Systems
The plight of legacy IT systems is one of the main barriers in the digital transformation of established sectors, where the interdependence built on old infrastructures prevent companies from being able to quickly adopt new technologies or approaches. This leaves room for new entrants to quickly step in and, with a more flexible technology architecture, meet the evolving needs of different customer segments.
But in the case of GM and other auto manufacturers, it is more than just legacy IT systems, it is legacy operations systems, HR systems that is weighing them down and preventing them from change.
While the past successes of GM, Ford and other American auto manufacturers were built on the backs of its local blue-collar workforce, its future successes (or the ability to even hope for future successes) will not be. It will be built on automated systems and artificial intelligence; it will be built on the great race toward autonomous driving, and who can adapt it the fastest to modern infrastructures and systems. However, the delicate partnership auto manufacturers had struck with the unions to enable those past successes has become the heavy yoke around its neck, slowing them down from adapting quickly to evolving market needs.
In order to compete in today’s and tomorrow’s competitive environment, GM must seek out every efficiency in its manufacturing operations, including sending jobs overseas and increasing automation, while also investing every last dime in new autonomous and electric vehicle technologies and new business model approaches. Neither of these two concepts benefits the UAW and its blue-collar members. And thus, we will continue to see strike after strike after strike as labor butts heads not only with GM and other auto manufacturers, but globalization and innovation itself.
This reminds of the situation described in The Box by Marc Levinson as the role of longshoremen were slowly replaced by the shipping container. Specifically, the protective trade unions that fought so hard for their dock workers in places such as New York and London and Liverpool in the UK lost out to ports built specifically for containers that had no prior agreements with longshoremen. Labor was phased out.
Globalization and innovation doesn’t stop for anyone.
As part of its earnings call last week, Tesla described its “gigafactory” assembling the Model 3 in Shanghai “was built in 10 months and is ready for production”, at a cost that was 65% less expensive than its production system for the vehicle in the US. Tesla’s workers are still not unionized.
In Short…
I’m not railing against unions as a barrier to progress. They are simply doing what they were designed to do, to protect the rights of its members. However, unfortunately, at the same time, in that fight, they are also trying to preserve an out-dated system which will drag down their members and the auto manufacturers themselves.
Instead of focusing on wages and preserving current jobs, unions should explore how to transform their members to adapt to changing work conditions and demands. Rather than collecting food, diapers, and baby formula to help striking workers get by, the unions should be investing in skills training and new career education.
Because the gap is only going to get larger.
The strike is over today, but it is only beginning for tomorrow.
The main products of the twenty-first centuries will be bodies, brains and minds, and the gap between those who know how to engineer bodies and brains and those who do not… will be far bigger than the gap between Sapiens and Neanderthals. In the twenty-first century, those who ride the train of progress will acquire divine abilities of creation and destruction, while those left behind will face extinction.
Homo Deus: A Brief History of Tomorrow, by Yuval Noah Harari
