December 25, 2024

On March 20, 2024, the employee parking lot at the Volkswagen Assembly Plant in Chattanooga, Tennessee, was filled with Volkswagen vehicles.

Elijah Novelage | Elijah Novelage Getty Images

DETROIT — The United Auto Workers scored a major victory this weekend.

Volkswagen Workers in Chattanooga, Tenn., voted overwhelmingly to join the United Auto Workers, marking the Detroit union’s first victory at a foreign-owned auto manufacturing plant in the South. The vote could have broad consequences for other automakers, organized labor and the U.S. auto industry as a whole.

“This is a truly profound victory for the UAW and the entire labor movement,” said Alex Hertel-Fernandez, a former U.S. Labor Department official and associate professor at Columbia University. “It was also a really decisive win.”

The union group backed the UAW with 73 percent of the vote, or 2,628 workers, according to the National Labor Relations Board, which monitored the vote from Wednesday to Friday.

Barring any challenges to the vote, the German carmaker and unions are expected to negotiate contracts for some 4,300 workers within the voting area. The NLRB still needs to verify the results.

Here’s what investors should know about the UAW vote and next steps:

UAW momentum

Kelsey Smith displays the UAW button on April 10, 2024 in Chattanooga, Tennessee.

Kevin Worm | The Washington Post | Getty Images

The union’s next target is 5,200 Mercedes-Benz workers at an SUV plant in Vance, Alabama. Earlier this month, workers at the plant filed paperwork with the NLRB for a formal election scheduled for May 13-17.

“We will take this fight to Mercedes and elsewhere,” Fein told VW workers after Friday night’s historic vote. “So thank you, everyone, for your struggle and your work. Let’s get started. Let’s go to work. Let’s win more for the working class across this country.”

Impact on labor costs

The first likely impact of Volkswagen’s organizational efforts is labor costs.

UAW organizers leveraged record contracts with Detroit automakers to gain support from the Chattanooga union. UBS said in an investor note that Volkswagen’s operating profit margins in the United States are relatively low and “significant wage increases may harm the profit prospects of the local U.S. business.”

But for the Detroit Three automakers and their shareholders, VW’s organizing campaign could be a positive.

The overall labor costs of General Motors, Ford and Stellantis are higher than those of unorganized automakers like Volkswagen. Depending on the details of the contract, labor will push Volkswagen and other companies to level the playing field to some extent.

United Auto Workers President Sean Fein cheers on U.S. President Joe Biden during his State of the Union address in the House chamber at the U.S. Capitol in Washington, U.S., March 7, 2024.

Evelyn Hochstein | Reuters

UBS said: “Overall, given the large wage gap between UAW union workers (Detroit-3) and non-union workers in southern states, it can be argued that this vote will have an impact on Volkswagen over time. There will be greater pressure for wage increases.

Before reaching out to the Detroit automakers last year, all-in labor costs for Ford, General Motors and Stellantis ranged from $63 to $67 an hour, according to industry experts. By comparison, workers at non-domestic automakers such as Volkswagen earn $55 an hour. These fees include all benefits and health care costs.

Still, there’s no guarantee that Volkswagen – a much smaller U.S. automaker – will agree to the same terms as traditional domestic automakers.

“The real battle begins now,” Fein said on Friday, referring to expected negotiations between the unions and Volkswagen.

union jobs

The Volkswagen vote is widely expected to be the easiest of the UAW’s organizing plans, as the union already has an established presence there after narrowly failing at votes in 2019 and 2014.

Sharon Block, a Chattanooga professor, said Chattanooga’s success bodes well for other automakers’ UAW efforts. Harvard Law School and former DOL and NLRB officials.

“I think it’s hard to overestimate the importance of this moment and how strategic the UAW was in this campaign, and I think it shows that this is not the last time we’re going to talk about a UAW victory at an auto plant in the South,” Bullock said.

While there was little opposition during the Volkswagen vote, the most high-profile example came the day before the election when six Republican governors wrote a letter condemning the United Auto Workers’ efforts to organize auto plants in the South and Warning of possible layoffs.

“We work tirelessly on behalf of our constituents to bring good-paying jobs to our state. These jobs are already part of the fabric of the auto manufacturing industry. Unionization will certainly put jobs in our state at risk — in fact, in the process Statements signed by the governors of Alabama, Georgia, Mississippi, South Carolina, Tennessee and Texas said that all UAW automakers have announced layoffs this year.

Bullock called the letter an “empty threat” and a “cynical ploy,” but noted that rising labor costs could lead to fewer jobs.

Fewer jobs in the U.S. auto industry also mean fewer workers are eligible for union membership.

UAW membership at Detroit automakers has plummeted in recent decades as free trade deals have allowed automakers to build cars more cheaply elsewhere.

UAW membership, which consists primarily of autoworkers but also includes workers in agriculture and aerospace, peaked at 1.5 million in 1979. As of last year, the union’s membership stood at 370,239 workers, down 3.3% from 2022, This is a 75% reduction from the peak. By 2023, workers from Detroit automakers will account for only about 150,000 of the total.

– CNBC Michael Bloom contributed to this report.

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