The United Auto Workers strike at U.S. carmakers exposes a conflict at the heart of the Biden administration's economic policy that could be difficult to resolve.
On the one hand, President Biden promotes new investment in clean technology and electric vehicles to bring manufacturing back to U.S. shores. On the other, he celebrates labor unions and supports their demands for higher wages.
Big wage increases will make it harder for the U.S. to build an electric-vehicle industry that
can challenge China's dominance , said Willy Shih, a management professor at Harvard Business School.
"This puts the administration really in a fix," Shih said. "You can take the side of labor and say OK, let's raise everybody's costs. I get that, but then what's the long-term competitiveness of the domestic industry?"
The UAW, some of whose members walked off the job on Friday, wants a pay raise of more than 30% over four years, 32-hour workweeks, an end to the use of temporary workers and a reversal of some concessions made during the 2007-09 recession when General Motors and Chrysler, now part of Stellantis, went bankrupt. Among them: restoring cost-of-living adjustments so that wages rise with inflation.
UAW base wages have risen an average 6% since their last contract in 2019, the union said. Its members have also received lump-sum payments and profit-sharing. In that time, vehicle prices are up almost 23% and overall consumer prices 19%, according to the Labor Department.
The union points to fat profit margins that the Big Three—GM, Ford Motor and Stellantis—earned as a limited supply caused by parts shortages and strong household demand pushed up prices. Companies say those profits are intended to help transition to electric vehicles .
Still, union workers' earnings including benefits of roughly $60 per hour, according to the companies, exceeds the $55 average at nonunion plants and $45 at nonunion Tesla, according to Barclays analysts.
Wages in other countries are lower. The average Mexican auto worker's wage is 18% of its U.S. counterpart, S&P Global estimates. For Japanese workers, it is 80%, according to Wards Intelligence.
The stakes go beyond wages. Both the automakers and the union are trying to set the terms for the industry's reinvention in the age of electric vehicles, a shift the Biden administration has encouraged.
Tesla holds 60% of the U.S. electric-vehicle market , compared with 11% for the Big Three, according to Cox Automotive. Their overall U.S. market share has fallen to 40% from 45% in 2015.
The U.S. lags well behind China in electric vehicles. China started subsidizing EVs more than a decade ago, and now accounts for more than half of all EVs on the road, according to the International Energy Agency. Earlier this year, China edged out Japan as the world's top auto exporter . China's BYD was the world's second biggest seller of EVs, behind Tesla, while China's GAC Aion was third.
Raising labor costs by as much as the UAW wants would make it harder to close the gap with China, said Tu Le, an auto industry consultant with long experience in China.
"If the contract is anywhere close to those numbers, then maybe at least at the below-$50,000 price point we'll be driving a lot of Chinese cars," he said.
It takes less labor to produce an electric than a gasoline-powered vehicle, said Robert Atkinson, president of the Information Technology and Innovation Foundation. In the long run that could also weaken the UAW's influence, he said. "There's no real way around that," Atkinson said. "You could try to slow down the transition to EVs, but the Biden administration doesn't want to do that."
Biden said Friday that the transition to EVs should be a "win-win" for union workers and companies. "Workers deserve a fair share of the benefits they helped create for an enterprise," he said.
Administration officials say it is possible to have both high union wages and competitive automakers, especially now that profits are soaring. Directing some of those profits to wages and enlisting workers to find productivity improvements could help achieve both, said a senior administration official.
Biden's signature economic-policy achievement, the Inflation Reduction Act, enacted last year offers tax credits of up to $7,500 for EV buyers, loans for clean-energy projects, incentives for recycling EV batteries and tax credits for clean-energy technologies such as hydrogen and carbon capture.
An earlier proposal for additional tax credits for union-made electric vehicles didn't make it into the final legislation.
EVs and batteries accounted for roughly 87% of all automaker investment in North America over the past two years, said Alan Amici, president of the Center for Automotive Research, a Michigan think tank.
But much of that has been in the South , where wages are lower and unions weaker. More EV jobs have been announced in Georgia than any other state, according to the Southern Alliance for Clean Energy, an advocacy group.
Moreover, IRA subsidies by themselves won't be enough to build a sustainably competitive EV industry, said Shih. "You cannot run that industry on subsidies for the next 50, 100 years," he said. "At some point you have to be globally competitive."
The UAW, meanwhile, says IRA subsidies have allowed companies to undercut workers. In June, UAW President Shawn Fain expressed outrage at the Biden administration's $9.2 billion loan to a Ford joint venture to build battery plants in Kentucky and Tennessee.
"The switch to electric engine jobs, battery production and other EV manufacturing cannot become a race to the bottom," Fain said. "Not only is the federal government not using its power to turn the tide—they're actively funding the race to the bottom with billions in public money."
Ford spokeswoman Melissa Miller said the plants "will pay competitive wages and benefits." Employees will be able to choose whether to join a union, "a right that Ford fully respects and supports," she said.
The UAW so far hasn't endorsed Biden's re-election. Fain has said Biden would have to earn his backing.