VW caves to union; will workers come to regret it?

Two weeks ago, workers at Volkswagen's Chattanooga, Tennessee, factory voted for United Auto Workers representation. Much has been written about how "historic" this decision is. The Chattanooga plant makes VW the frst foreign-owned car manufacturer in the South to unionize.

What isn't being discussed: How big government and big labor colluded to sway the vote and why VW employees are likely to regret it.

The union successfully organized Volkswagen’s Pennsylvania facility in 1978. Years of labor unrest followed, with VW eventually shuttering the plant in 1987.

Crucial to UAW's campaign was the promise that VW workers would receive the same rich $108,000 annual pay package (equivalent to a Silicon Valley software developer’s income) that the union won for Detroit Three blue-collar workers last fall.

But there was a stick to go along with the carrot. In a not-so-subtle threat to all 13 non-union auto companies being targeted by the UAW, 33 Democratic Party senators sent a letter earlier this year demanding that they remain neutral in the union’s campaign.

“We believe a neutrality agreement is the bare minimum standard manufacturers should meet in respecting workers’ rights,” wrote the senators, before getting to the point. “Especially as companies receive and benefit from federal funds related to the electric vehicle transition.”

Translation: Unionize, or pay the consequences.

All part of the (five-year) plan

These are dramatically different times in the U.S. auto industry since the UAW last tried to organize VW’s Chattanooga plant in 2019. Today’s industry is being forced by U.S. governments — at both the federal and state levels — to manufacture electric vehicles to solve the manufactured climate crisis.

Failure to meet government sales mandates will be met with massive fines that increase by leaps and bounds after 2026. California, the nation’s biggest auto market, will, for example, require that 35% of automaker sales be of battery-powered vehicles by 2026.

Failure to meet that number will cost them $20,000 per vehicle for every vehicle below the threshold. The percentage jumps to 43% in 2027, 51% in 2028, 59% in 2029, and 68% in 2030 on the way to outlawing the sales of gasoline cars in 2035. Federal penalties are similarly harsh.

Tesla aside (as an EV-only seller, it is not only exempt from penalties but also receives generous subsidies), just 5% of sales today are electric, with 50% of EV buyers returning to a gas car when they go back to market.

To help automakers meet the arbitrary sales goals, the U.S. government is greasing the “EV transition” skids with billions in federal aid under the Inflation Reduction Act to construct battery plants and sweeten each EV purchase with $7,500. To gain that subsidy, the Biden administration prefers that EVs be domestically produced — preferably with UAW labor that ultimately fills Democratic election fund coffers.

An admirer of Communist Chinese industrial policy, Energy Secretary Jennifer Granholm is determined to follow in China's EV footsteps. “China ... has adopted 14 five-year plans that are focused on dominating supply chains and manufacturing products that we used to excel in. They’re producing huge volumes of solar panels and EVs,” she told media allies at the National Press Club in February. “But we are fighting back.”

Stuck in neutral

VW got the message. In 2019 it played a part in the union's narrow defeat by actively discouraged unionization, creating a website touting the benefits of a non-union shop and linking to anti-UAW editorials and articles about UAW corruption, while warning that overly expensive labor could be replaced by automation.

VW was notably neutral in its handling of this year’s UAW campaign and will pay the price for the union victory. VW’s non-union labor costs on the popular VW Atlas SUV and VW ID.4 electric vehicle are 30% less than its U.S. competitors.

With a UAW shop, VW will lose its competitive cost advantage over Detroit automakers — a big reason it located its sprawling 350,000-square-foot facility in right-to-work Tennessee in 2011 — and be forced to submit to inefficient UAW work rules.

But the cost equation may be changing as governments dictate product planning.

Ford lost over $4 billion on its EV operations last year, and VW EV sales have cratered in Europe, where EVs are also mandated.

VW has dealt with unions for years in Europe; the company may feel the cost of unionization is a necessary price to stay in the good graces of Democrats who control the subsidy spigot. “VW is accustomed to a union environment in Germany,” said veteran industry analyst and Seeking Alpha columnist Doron Levin. “But the UAW is likely to be more adversarial and militant than Germany’s metal workers union.”

It’s the second time VW’s U.S. facilities have opened their doors to the UAW. The union successfully organized Volkswagen’s Pennsylvania facility in 1978. Years of labor unrest followed, with VW eventually shuttering the plant in 1987. Let’s see what happens in Tennessee.

Great leap backward

“Every autoworker in this country deserves their fair share of the auto industry’s record profits, whether at the Big Three or the Non-Union Thirteen,” UAW president Shawn Fain said in response to the senators’ February letter. “It’s time for the auto companies to stop breaking the law and take their boot off the neck of the American autoworker, whether they’re at Volkswagen, Toyota, Tesla, or any other corporation doing business in this country.”

Fain says he plans to unionize all of the non-union auto plants. His next target? Mercedes-Benz's Alabama plant.

What's missing in Fain's triumphant bluster is any sense that unionization could have serious downsides for workers.

Big Three automakers are accelerating robotic automation in their plants to replace expensive worker jobs. In union-heavy Europe, meanwhile, the high costs and low demand for EVs have led to thousands of layoffs in the last year as carmakers and their suppliers struggle to meet governments’ socialist EV vision

The EV mandates should remind us of when the heavy hand of government forced bankers to give mortgages to uncreditworthy borrowers in the 1990s. That turned out well, didn't it? Now the government wants control of the auto industry. The United Kingdom tried this decades ago. It ended up selling off domestic automakers and more or less destroying the once-proud British car industry,

If Granholm really wants to beat China, she should consider the effect that top-down increases in labor costs will have on America's ability to compete. In the short term, consumers will have to bear higher prices; in the long term, workers may endure decreased job security. Sounds like a great leap backward to us.