Passage of Right-to-Work Bill in Michigan to Have Long-Term Effect on U.S. Automotive Sector

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Researched by Industrial Info Resources (Sugar Land, Texas)--For the last several decades, the labor unions, especially the United Auto Workers (UAW) (Detroit, Michigan), have had the upper hand in the U.S. automotive sector. The Detroit Three--General Motors Company (NYSE:GM) (Detroit, Michigan), Ford Motor Company (NYSE:F) (Dearborn, Michigan) and The Chrysler Group LLC (Auburn Hills, Michigan)--had to negotiate from a weakened position as the power of the unions was on the rise. Much of that changed in the Great Recession, when two of the three automakers were forced into bankruptcy proceedings. The round of negotiations that occurred at that time put things in a more even light, with the automakers forcing the unions into concessions that they really did not want to give up in order to keep the automakers operating. Now things are changing again as the state of Michigan, following in the footsteps of its sister state Indiana, has passed right-to-work legislation that will further weaken the influence of unions.

Indiana passed its legislation earlier in 2012 thanks to Republican dominance of the state legislature, backed by a Republican governor. A similar set of circumstances grew in Michigan, which led to the change despite significant protests from various unions in the state. The movement away from closed-shop status and to move to right-to-work has been spreading in states that are at the heart of the labor movement in the U.S. Ohio may be in a similar situation in 2013, as its circumstances are essentially identical to both Indiana and Michigan, which will open the door to similar legislation.

The Great Lakes region of the country where these three states are located has always been the heart of union territory, and the passage of these laws has ripped into the unions within those states. For many years, the automakers have been moving production away from the union-controlled states and taking up residence in Southern states, where labor is friendlier to business. Unions have been attempting to organize at these new plants, but have not had any luck over the years, as they have no real leverage with workers. With the change in both Indiana and Michigan, it may be that the automakers will feel more comfortable with leaving operations in those states, rather than relocating to the South in the future.

The next round of negotiations between the U.S. automakers and the UAW is not set to happen for a couple of years, as they just renegotiated their contracts in 2011. When they do occur, it is going to be even more difficult for the UAW to wring concessions out of the automakers the next time around, with the changes in the laws in Michigan and Indiana. If Ohio ends up following suit, things could become even more difficult. The concept of the union is a good one, but the problem has been, especially within the automotive sector, the massive swings in who has power. Originally, the union was created to stem the awesome power the automakers had gathered. However, in the last 20-plus years, the pendulum had shifted and the union was the one wielding almost all of the power in negotiations. That all ended with the recession and bankruptcies that resulted.

Currently, Michigan is set to become the 24th state in the U.S. that has right-to-work legislation in place. This trend could certainly continue, as virtually every state in the country is facing significant financial problems and in most of these cases state union pensions and health-care costs are two of the largest problems facing states that are in significant debt. Legislators and governors, especially in those states where the Republican party is in complete control, may decide going right-to-work is the best option to help leverage the unions in negotiations to take some of the cost out of the hands of taxpayers and place it back on the union's shoulders.

It is going to be interesting to see if additional states, especially Ohio, take the next step and go right-to-work. If that change is made in 2013, that would mean that three of the largest and most concentrated automotive-manufacturing states have gone right-to-work, which may encourage additional investment within their borders. Michigan has been pulling out all the stops to attract new business, and with unemployment remaining high and both business and people leaving the state for better climates, the step to right-to-work made sense. The payoff will not be seen immediately, but there should be some positive news in 2013 for Michigan, now that it has made this move to be more business-friendly.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.