Caterpillar vs. UAW: 1990s Union Negotiations Analysis

Introduction

In the 1990s, America was undergoing a major transformation. Globalization — driven in particular by free trade agreements — made it possible to access numerous markets around the world without worrying about tariffs. This created a transformation in the way many firms operated by giving them the ability to increase their profits and lower their labor costs (Wachter, 2007, pp. 23–29).

In the case of Caterpillar (Cat), the company was dealing with similar challenges during this period. The firm was trying to lower its labor costs and increase its profit margins; however, a major obstacle existed in the contract it had in place with the United Auto Workers (UAW). Caterpillar wanted to move away from its traditional business structure toward one focused on specific product lines and geographic locations. This created an atmosphere of animosity between employees and managers ("Caterpillar," 2001).

At the heart of these issues were the labor contract and the language used in that document. What Caterpillar was doing was pushing for agreements similar to those in place with competitors. If a contract was more favorable to a particular firm, management would unilaterally renegotiate the various provisions. In 1991, the situation began when the firm sought an agreement similar to the one John Deere had — despite having an existing contract with employees. This started a series of labor-related disputes that would set the tone for the challenges facing the organization ("Caterpillar," 2001).

For management, this approach was deemed necessary to ensure the firm remained competitive. At the same time, executives wanted to increase the overall return delivered to shareholders by expanding into new markets and lowering labor costs, while employees were forced to renegotiate contracts that provided fewer incentives than before. The combination of these factors is important in illustrating the atmosphere of contention surrounding labor negotiations during the 1990s. To fully understand what took place requires a functional analysis and a summation of these events ("Caterpillar," 2001).

The Bargaining Environment

To fully understand the environment at Caterpillar during the 1990s requires a functional analysis that emphasizes the atmosphere and impact of events on various stakeholders. The analysis focuses on the negotiating environment, management's strategies and goals, the union's objectives, which party held the most leverage, the influence of different personalities, intra-organizational conflicts, how those conflicts were resolved, and whether both sides acted ethically.

The legal and political environment gave the company more power during the negotiation process. The rights of union members had been consistently declining as many organizations relocated to states with right-to-work laws or moved operations to foreign countries. Right-to-work states gave firms the ability to more easily renegotiate union contracts and break strikes, making it difficult for the UAW to exert influence ("Caterpillar," 2001).

From a political perspective, these dynamics led to major changes in union influence over elected officials. Politicians increasingly sought to help corporations improve profit margins and reduce costs. To achieve these objectives, various free trade agreements were negotiated during this period, notably GATT and NAFTA. The UAW opposed these treaties, arguing they would hurt union workers by sending manufacturing jobs overseas. Once both agreements were fully implemented, management began to demand larger concessions from union employees ("Caterpillar," 2001).

Economically, Caterpillar was undergoing a major transformation in the early 1990s. The company modernized its factories, which increased productivity by 75% and reduced inventories by 60%. Moreover, the company introduced 101 new products between 1991 and 1993. These changes meant that Cat needed to reduce the number of employees working in its plants. At the same time, increased productivity and lower inventories helped the firm post record profits of $11.62 billion in 1993. As a result, executives had to reduce the total number of employees in order to evolve with these transformations ("Caterpillar," 2001).

The social environment was characterized by contention between employees and managers. New policies were introduced that made it difficult for employees to show their support of the union — including prohibitions on wearing union t-shirts or making statements in favor of union activities. Anyone who violated these rules was subject to disciplinary action. This increased the animosity between employees and managers. Together, these elements illustrate how the bargaining environment was toxic and one-sided, to the company's benefit ("Caterpillar," 2001).

Management's Strategies and Goals

The basic strategy management employed was to reorganize the company in a way that would improve its ability to compete. This was accomplished by modernizing plants, focusing on growing markets, introducing new product lines, increasing productivity, and lowering labor costs — all designed to ensure the company could maintain its lead in key segments ("Caterpillar," 2001).

To achieve these objectives, management's goal during negotiations was to force the union to comply with nearly all of its demands. One key tactic was establishing operations in regions where the UAW had no control, including foreign countries. This allowed Cat to grow sales in those areas and focus on specific market segments, improving overall returns ("Caterpillar," 2001).

For heavily unionized facilities, management engaged in a strategy of renegotiating existing contracts and preparing for potential strikes. The company hired non-union workers, had managers fill in on the production line, and worked to divide employees against each other. This made it difficult for the union to shut down production, since only limited numbers of employees supported a strike, which in turn limited the union's leverage over executives. This strategy would eventually force the union to send employees back to work without a contract, at which point managers could impose new work rules and regulations — making it easier to dismiss employees and conduct layoffs when needed ("Caterpillar," 2001).