The "Reality Clause" in union contracts

There’s a lesson here for NWA and the mechanic’s union.

Chicago Tribune columnist Jim Mateja offers this observation on a rash of bankruptcy filings among United Auto Workers.

After months of U.S. automakers crying that they are reeling from the cost of health-care and pension benefits for the United Auto Workers comes word that union members are crying poor, too.

Up to their ears in debt, about 10 percent of United Auto Workers members are filing for bankruptcy.

With so many tears being shed, you may want to wear boots the next time you visit Detroit.

While the cash-rich automakers complain that more money is going out for health care and pensions than coming in from vehicle sales, the affected UAW members say they can't cover the payments on their vacation houses, second or third cars, bass boats and/or snowmobiles with their overtime pay. Overtime pay has been scaled back because plants have cut production to reduce inventory or prevent its buildup with sales slumping.

The Detroit News has reported that one worker lost $16,000 in overtime pay, had to survive on only $87,000 in wages, and now is in debt for $469,000. The typical UAW member earns about $54,000 a year in straight time, though pay rises based on job classification.

Another found himself more than $300,000 in debt when his overtime stopped but the bills didn't for his satellite dish, vacation cottage and two pickup trucks.

The Detroit News said union members have lost five hours of overtime each week, or $10,000 each year, since 1997.

Though union members get 95 percent of pay when a plant is idled and they are laid off, their contract doesn't provide them with overtime pay when a plant operates on a regular eight-hour shift.

Besides the loss of overtime, bonuses have shriveled because they are based on automakers' declining earnings. For a typical Ford employee, the Detroit News said, his annual cash bonus went from $6,700 in 2000 to $600 in 2004.

Little wonder the UAW resists suggestions that its members, who under the current contract don't have to come up with a co-pay on prescription drugs, volunteer to make that contribution in the next contract.

You probably won't find many folks outside Detroit sympathizing with those forced to give up the dish or boat to make ends meet. Just as few outside Detroit will feel bad for management that has given the union so many perks it has difficulty paying health-care and pension costs.

But there's some good news in all of this. UAW members, retirees and their immediate families get free legal aid in filing for bankruptcy. That was one of the contract perks awarded by the automakers, who cry that the UAW has too many perks.

Perhaps when the next contract is negotiated next September, the UAW should demand free classes in Economics 101--for the hourly workers and management.

Like the situation for the auto industry, NWA specifically, and legacy airlines in general, face real challenges in the marketplace. The symptoms are many, but the singular cause is legacy airline business models are simply no longer viable and haven't been for some time. NWA is no exception, but rather than risk the bet-the-company changes necessary to compete in a changing business climate, it has sought survival by preserving its existing system. Rather than change, NWA has sought cost relief from labor and regulation exemption from government.

But big labor is not fault free. It has a different angle, but it's just as resistant to change as the management it opposes. Just like management, it has fostered the notion that the gravy train of high wages and benefits could go on forever. A strike or a settlement will cost jobs, but labor unnecessary in one area frees capital to provide real value elsewhere. That is bad news for a Northwest mechanic, but good news for a new hire at a business paying lower airfares on business travel.

Either Northwest — management and labor — recognizes the need for change, or it suffers the consequences. Neither the government nor the flying public should subsidize delaying the inevitable.