The revitalization of the domestic auto industry is the product of partnership and strategic negotiations between the companies and the United Auto Workers (UAW), according to a new EPI paper. In The Decline and Resurgence of the U.S. Auto Industry, Joel Cutcher-Gershenfeld, Dan Brooks, and Martin Mulloy illustrate how labor and management worked together to revitalize the industry through a commitment to quality, innovative production and management techniques, and improved relations with suppliers. Drawing on a forthcoming MIT Press book by the same three co-authors that examines the Ford-UAW transformation, this paper features additional analysis across the industry.

“The UAW has been a vital partner to the auto industry when it comes to implementing innovations that have produced great gains in quality and productivity,” said Cutcher-Gershenfeld, professor and former dean of the School of Labor and Employment Relations at the University of Illinois, Urbana-Champaign. “The union has worked with the domestic manufacturers who have adjusted to swings in the marketplace by embracing innovative production methods, building strong relationships with suppliers, and jointly advancing safety, quality, maintenance, and workforce development with the union.”

In the case of Ford, the UAW has been a driving force behind innovations that helped the company move from near last in quality to best-in-class by 2010. Key to this transformation was the implementation of programs that recognized and utilized the distributed knowledge of the entire workforce—from salaried managers to hourly production line workers. Today, UAW-Ford hourly employees serve in quality leadership roles in every plant and can earn a “black belt” in lean/six sigma principles, which requires them to take statistical courses and lead a major process improvement project, typically generating savings of hundreds of thousands of dollars. Harnessing the distributed knowledge and capability of the workforce is part of a larger transformation in the operating assumptions that have long guided the industry. For example, the long-held assumption that quality and safety should be driven by inspection has shifted to the integrated operating assumption that they should be driven by prevention.

“Labor and management have learned to use collective bargaining to systematize past innovations and to sort out current wages, benefits, and working conditions, setting the stage for future innovations,” said Brooks, who served as a union leader with the UAW for 35 years.

The union’s flexibility has enabled the auto industry to maximize innovations and constructively respond to industry setbacks. More flexible work rules and the utilization of worker knowledge, for example, have enabled many plants to produce up to six different vehicles on the same assembly line—to put this in perspective, a few decades ago it would have been a significant achievement for a plant to produce two or three different models. The union’s flexibility in regards to wages has also proved beneficial to the industry. In 2007, the UAW also agreed to a lower entry wage in of $14.20—approximately 60 percent of the regular production starting hourly wage—for up to 20 percent of the workforce.

In the wake of the Great Recession, the UAW and the industry worked together to maintain the financial viability of the industry and to guarantee that workers displaced as a result of the recession could adjust to new economic realities. Following the crisis, Ford’s hourly workforce was cut in half without a single involuntary layoff—instead, Ford worked with the UAW to ensure that all 50,000 workers who lost their jobs did so through voluntary separation packages. Despite losing roughly 50 percent of its hourly workforce and almost 40 percent of its salaried work force, Ford improved quality and did not lose a single unit of production from 2007 to 2009. In fact, in 2008 Ford reported savings of $1.2 billion in warranty costs.

“While the financial industry was still reeling from the recession in 2008, the auto industry was well along on a transformational journey, in large part due to its partnership with the UAW,” said Mulloy, former Vice President of Labor Affairs at Ford. “The UAW played a constructive role in ensuring the financial viability of domestic automakers. For example, the UAW was integral to the establishment of a Voluntary Employee Benefit Association, simultaneously providing workers with more certainty around retiree health care costs while removing a major expense from the company’s books.”