Exodus of car workers set to burden Midwest

By Bernard Simon in Toronto

"It's about as sad a time as you could ever imagine," says Joe Buckley, president of the United Auto Workers union's Local 696 in Dayton, Ohio.

Over the course of this year, the branch's active membership will dwindle from 1,300 to just a few hundred. Mr Buckley has already shut down a workers' compensation scheme that the union has offered for the past 20 years. Other services will soon be trimmed.

Local 696 is among the casualties of a huge and sudden exodus of workers from the US motor industry prompted by snowballing early retirement and severance packages offered by Detroit's hard-pressed carmakers and their suppliers.

Some 80,000 production-line workers at General Motors and Ford, as well as several of their suppliers, are likely to have voluntarily left their jobs between June 2006 and next September. Thousands of managers and clerical staff are also set to move on.

More than a third of GM's unionised workforce has already accepted voluntary redundancy payments of between $35,000 and $140,000 (€28,000-€112,000, £19,000-£75,000), depending on years of service and retirement eligibility. GM also aims to trim its white-collar payroll by 7 per cent, or about 2,500 people this year.

Local 696 represents workers at Delphi, the parts maker that sought court protection last October.

Delphi expects to cut its blue-collar workforce by more than 20,000, or almost 60 per cent, under deals with the UAW and another union. Another 5,000 workers can choose to "flow back" to GM, the parts maker's former parent.

Several other parts makers have announced forced redundancies in response to production cutbacks by GM, Ford and DaimlerChrysler's Chrysler division. BorgWarner, which specialises in engine, emission-control and vehicle-stability components, is in the throes of making 850 people, or 13 per cent of its North American workforce, redundant.

The mass exodus is sure to have widespread economic and social repercussions, especially in Michigan and other parts of the Midwest.

Michigan's jobless rate has already jumped from 6 per cent in May to 7.1 per cent in August, tying with Mississippi for the highest among the 50 states. The jobless rate in Ohio has grown from 5.3 to 5.8 per cent.

The departures "mark the end of an era of middle-class prosperity when you could get a high-paying job in the auto sector without a college education", says Dana Johnson, chief economist at Detroit-based Comerica Bank. "It's really going to test our ability to see people adjust themselves to a different kind of world."

Robert Chiaravalli, a Detroit labour consultant, cautions that "we should be bracing for a group that has never had to manage such an enormous sum of money. They are going to be asked to make decisions that are going to affect not just their lives but the Midwest economy.

"Will we have transitioned people out of very high-paying jobs to a group of people who may have mismanaged money or even lost it, and still be left with the trauma of unemployment?"

The jitters are already evident in the property market. Many who have accepted redundancy are expected to move to other parts of the country, exacerbating a housing glut.

According to the Michigan Association of Realtors, average house prices in the state were 12.9 per cent lower between January and July than in the same period last year. Summer cottages and other second homes are pouring on to the market.

Departing workers are being offered an array of services to smooth the transition. For instance, 75 employers, franchisers, universities and colleges set up booths this week for a careers fair at a Ford plant in Norfolk, Virginia.

In Ohio, government job centres have offered help with writing CVs. Michigan-based Mainstay Capital, which manages funds for thousands of car workers, has set up financial planning seminars.

The redundancies pose a particular challenge for the UAW. Once known as the aristocrat of the US labour movement, its membership shrank to 557,000 last year, its lowest level since the second world war.

An influx of temporary workers will soften the blow, but their wages – and thus their union dues – are well below those of the workers who are leaving.

The carmakers' labour contracts expire next September. "These are going to be very tough negotiations with very large consequences," says Harley Shaiken, a labour specialist at the University of California in Berkeley.

"The union wants to see competitive companies," he adds, "but it wants to ensure that a competitive company brings gains for its members and the communities in which they live."