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Cat v UAW:
pattern bargaining at issue

Every three years, Peoria-based Caterpillar Inc. and the United Auto Workers engage in what are technically known as central contract talks. Over the years, that has been a polite euphemism for what amounts to all-out war between Big Yellow and Big Labor. The current dispute between the company and the union, which has idled 9,750 workers in the Peoria area, Decatur, Pontiac, Aurora, Joliet and York, Pa., is a sober reminder that relations between Cat and its blue-collar work force have improved little over the four decades the company has been bargaining with the UAW.

After back-to-back contracts were settled in 1986 and 1988 without work stoppages, it seemed the company and the union had left the raucous past behind and entered a new era of cooperation. Folks in Peoria and other Caterpillar plant cities that routinely suffered from strikes heaved a sigh of relief. Now they're holding their breaths again.

A UAW tactic known as "pattern bargaining" is at the heart of the current dispute. The tactic, which the UAW and other industrial unions have employed since the late 1940s, requires that labor agreements at similar corporations be as equivalent as possible. It binds the economic fortunes of UAW members and is the traditional source of union solidarity.

For decades, the UAW has bound Caterpillar and Moline-based John Deere & Co. through patterned contracts. Last year, the union signed a labor agreement with Deere and promptly demanded that Cat adopt most of its provisions. But Caterpillar has said, "Enough." It's determined to break the pattern, saying Deere-type contracts hobble its ability to compete in foreign markets, which account for half of Cat's total sales. "We would like to have an agreement that makes Caterpillar competitive," said company spokesman Bill Lane. "To do that, we're going to have to start departing from this notion of pattern bargaining."

The struggle has ramifications beyond the earth-moving and agricultural equipment industries. Some analysts believe that if Caterpillar succeeds in breaking the pattern, the Big Three automakers will follow suit. "It takes a long time to get a pattern established, and it takes a long time to break one down," said Ronald Seeber, a labor relations expert at Cornell University. "It's history that the UAW clings to and seeks to duplicate. If the UAW loses, it'll encourage other manufacturing firms to take on the union."

"There is no question that the agriculture and construction equipment pattern is the big issue with Cat and the UAW," said Karl Mantyla, a spokesman for the UAW International. "We're firmly, firmly wedded to pattern bargaining."

Cat v UAW

Photo by John Freidah

Members of the United Auto Workers (UAW) Local 974 were manning the picket line outside Caterpillar Inc. Building MM2 in East Peoria at Christmas-time. From left are Richard Chambliss of Tremont, Jerry Hipp of Washington, Paul Gourley of Washington and Robert Bamett of Peoria.

The strike is moving into its fourth month. Attempts to settle again failed February 19, when the UAW rejected a new Cat offer. Caterpillar has made rumbles about moving some plants to states where unions are weaker. Politicians and economic development strategists in the strike-bound cities (in particular Peoria and Decatur, where Cat is the largest employer) are watching helplessly as their economies begin to founder.

"It's causing people not to spend the kind of disposable income they otherwise would," said Martin Mini, senior vice president of the Economic Development Council for the Peoria Area. The labor strife also has long-term ramifications for the area's struggle to wean itself from dependence on Caterpillar. "Most of our manufacturing prospects have stopped talking to us," Mini said "Whenever there's a lack of labor-management cooperation, that definitely has an effect on how outside companies looking to expand view us. People talk about how we've diversified economically, but the present Cat situation is making us realize we still have a long way to go."

Clouds started forming a full year before the 1991 contract talks were set to begin. In October 1990, officials at UAW Local 974,

March 1992/Illinois Issues/15

which represents more than 9,000 workers in the Peoria area, warned that a strike was possible and advised members to start fattening their savings accounts. (Earlier that year, Caterpillar Chairman Donald Fites announced the company would try to impose deductibles and co-payments for health insurance on its blue-collar work force. The UAW quickly labeled the move a strike issue.)

Caterpillar responded to the hard line by trying out some unconventional tactics. It took out ads in local newspapers outlining various bargaining issues and attacking pattern bargaining. The company appealed for worker and community support for a settlement without a strike. The UAW responded with ads of its own, criticizing big pay hikes given to Caterpillar executives.

'I just wish
they'd come together
so we can get
it all behind us'

The two sides next clashed over where to hold the talks. Caterpillar insisted that the negotiations be conducted in Peoria instead of in suburban St. Louis, where they had been held for many years. Sending bargaining teams 180 miles away and putting them up in hotel rooms for months were unjustifiable expenses, company officials said. But the union said the company's ads had poisoned the atmosphere in Peoria and insisted on a "neutral" site.

As the site dispute dragged on. Caterpillar took the unprecidented step of delivering a contract proposal to UAW officials in Detroit, Peoria and other locations. The union promptly sent it back, unopened, saying the bargaining had not yet begun. Cat then circumvented the union, sending summaries of the proposal directly to the rank-and-file. The offer called for a multitiered wage increase keyed to the company's six pay grades: a 4 percent raise for workers in the top two grades, 3 percent for workers in the middle two grades and none for those in the bottom two grades. It limited cost-of-living wage increases, asked workers to contribute 1 percent of their annual salary to health care costs, and offered six years of job security to current employees. The company said the package would boost overall wages and benefits to $35.35 an hour, a $3-per-hour improvement over the previous contract.

The union was forced to respond to the offer. It rejected it out of hand, calling it a "take-away" proposal that would lower wages and benefits by an average of $3.50 an hour. "Virtually every UAW-Caterpillar member and family would be impacted negatively by severe cutbacks in Caterpillar Inc.'s so-called proposal," the union said in a memo to the rank-and-file.

The bickering over the site and the company's bargaining tactics delayed the start of talks for six weeks. When the two sides finally began meeting face to face in Bloomington-Normal in October, the atmosphere was crackling with hostility. With the two sides meeting only about three days a week, it was clear little progress was being made. The company complained to the media daily about the union's refusal to discuss wages, benefits and other economic issues. The union responded stoically, saying there were many other matters to discuss first. But it was clear UAW officials were stalling until they reached a contract agreement with Deere, which had been chosen as the pattern setter several months earlier.

Deere workers ratified a contract on October 13. Even then, the union bided its time with Caterpillar. UAW Secretary-Treasurer Bill Casstevens, the man in charge of the union's agriculture implement division and the lead bargainer with Deere and Cat, flew to Bloomington-Normal, briefed the union negotiating team on the Deere contract, then went back to Detroit. When the UAW finally presented its proposal, it was written on Deere stationery, angering and embarrassing Caterpillar bargainers. The Deere agreement provided a 3 percent raise the first year of the three-year contract and lump-sum payments worth 3 percent of the average plant wage in the last two years. It also improved unemployment and retirement benefits, provided regular cost-of-living salary adjustments, increased profit sharing and contained call-back provisions for laid off workers.

The UAW's proposal to Caterpillar reportedly went slightly beyond the Deere contract. Cat negotiators quickly labeled it unaffordable. The company said the proposal would boost labor costs 46 percent, or $15 an hour per worker, over three years. The union disputed that analysis but declined to offer its own or divulge details of the offer. "We've tried to avoid engaging in public discussion of issues at the bargaining table," Mantyla, the union spokesman, said. "We're going to continue to focus our efforts at the bargaining table rather than in the press." But, he added, "Caterpillar enjoys lower labor costs than Deere, and their ability to afford a pattern settlement is a good ability."

The clash over pattern bargaining was reaching a crescendo. Casstevens took his seat at the bargaining table on October 29. He immediately notified the company that the union would unilaterally cancel the contract extension both sides were observing unless a patterned agreement was reached in five days. The strike countdown began.

Three days later, Caterpillar made another offer to the union. It restored cost-of-living adjustments, exempted current retirees from paying health insurance premiums and altered several other provisions of the original offer. The company claimed the new package would boost labor costs by 16 percent and said it had "gone about as far as it can." The union called the new proposal eyewash, rejecting it just four minutes after it was put on the table. "We feel it's basically a rearranging of their earlier economic proposals," Mantyla said. "It doesn't begin to approach the Deere proposal."

At 6:05 p.m. on November 3, Casstevens called a selective strike at Caterpillar plants in East Peoria and Decatur. At midnight, 2,400 workers walked off their jobs, vowing not to return until Caterpillar agreed to pattern bargain. Caterpillar responded several days later with lockouts and layoffs throughout the company.

Caterpillar is not breaking new ground by trying to destroy pattern bargaining. Since 1967, when the UAW set its first industrywide pattern at Caterpillar, various attempts have been made to break it. Cat, Deere and International Harvester, the Big Three of off-road equipment manufacturing then, would from

16/March 1992/Illinois Issues

time to time try to free themselves from the yoke. A strike would be called and eventually the maverick would return to the fold.

The pattern has been disrupted only once, and then only with the UAWs blessing. In 1982, International Harvester, reeling from a 172-day strike and the collapse of the farm economy, pleaded for mercy. It opened its ledgers to union officials who "saw that there was a real plight and agreed to recommend some concessions," Mantyla said. The company ultimately went bankrupt anyway.

The UAW and other unions cling to the tactic because they believe it shields workers in similar industries from cuts in labor costs. If they are locked in to similar labor contracts, the theory goes, companies must compete through innovation developing new product lines, improving old models, aggressive sales and marketing rather than by slashing labor costs.

But Caterpillar says the tactic doesn't take account of changing market realities. Cat competes with Deere on fewer product lines than it did two or three decades ago, company officials say. Only six types of Cat and Deere tractors produced domestically by UAW members compete head to head, they say. Caterpillar's main competition now comes from overseas, particularly Japan, where labor unions are weak. (Caterpillar estimates that its main rival, Komatsu of Japan, enjoys labor costs that are 30 percent below Caterpillar's. UAW economists dispute that figure.) Company officials also grumble that the UAW doesn't apply the pattern to other, more formidable domestic competitors, such as engine maker Detroit Diesel.

Industry analysts generally support Caterpillar's arguments. They say pattern bargaining is as outmoded as featherbedding. "Deere is largely an agriculture equipment company," said Larry Hollis of Robert W. Baird & Co. in Milwaukee. "While some Cat sales do go to the agriculture market, its product lines serve many other markets."

Both the UAW and Caterpillar view the current strike as a watershed that will determine the future of pattern bargaining and, quite possibly, seal the fate of either the company or the union. Local 974 President Jerry Brown says breaking the pattern would be tantamount to breaking the union. Caterpillar says the tactic could ultimately break the company. That being the case, the strike is expected to last as long or longer than the seven-month strike of 1982. That has Peoria Mayor Jim Maloof and others blanching. The '82 strike crippled the Peoria area's economy, resulting in the loss of thousands of high-paying manufacturing jobs and causing other businesses to shun the area.

"I just wish they'd come together so we can get it all behind us," Maloof said. Still, he notes, "This is an unusual strike in that only half the UAW is on strike. The others are working." Indeed, products are continuing to roll off the assembly line, though the company won't quantify the volume. Even at plants where strikes or lockouts are in force, work is continuing. "There is some work taking place at all of the [affected] plants by our salaried and management employees" said Caterpillar spokesman Lane. "We're doing what it takes to keep Caterpillar customers from buying competing products."

The company won't say how much the strike has cost. It posted a $404 million loss in 1991, but attributed most of the red ink to slack demand. It also slashed its dividends in half, to 15 cents a share from 30 cents, to conserve cash. Analysts are at a loss to determine how much the strike is hurting Cat. "We really don't know. I don't think it's really that quantifiable," said Milwaukee analyst Hollis. The strike might not be too painful because "demand has not been all that robust," he added.

The UAW has never used selective strikes against Caterpillar. That may indicate that the union wasn't prepared to call a full-scale walkout in the midst of a recession. UAW Secretary-Treasurer Casstevens said he decided to strike only two plants to lessen the impact on workers and Caterpillar plant cities. But many observers believe the tactic will backfire. Having some workers on the picket line earning $100 a week in strike pay, while others are on the assembly line earning $680 a week may erode union solidarity.

Chinks already have begun to appear. "The consensus ... is neither pro-company nor pro-union," Richard A. Robinson, a striking worker, said in a letter to the editor published in the Peoria Journal Star. "The attitude that I saw [on the picket line] was contempt for both. In short, we the workers and union members feel betrayed and entrapped by both sides in the dispute." Another striking worker. Bill Harmon, told the Associated Press: "Most guys feel the same way. They want to be working. We're a little concerned about being replaced or about Caterpillar moving factories south." Union officials say that such complaints are inevitable and do not reflect general disenchantment. "The membership has been very supportive," Mantyla said. "There's been a great deal of solidarity."

Some Caterpillar officials have made not-so-veiled threats about moving plants to right-to-work states in the southern United States if the dispute with the UAW drags on. "We have a very serious competitive cost problem," Jim Baldwin, manager of Caterpillar's parts distribution and warehouse services, told the Associated Press. "Our customers are telling us we're not cost competitive .... We have to do something to lower our costs." Referring to the transfer of a Komatsu Dresser Co. parts warehouse from Broadview, Ill., to Ripley, Tenn., Baldwin warned, "The same kind of thing can happen here."

The union doesn't appear to be shaken by such comments, dismissing them as scare tactics. "We've interpreted a good deal of what Caterpillar's done to date as part of a strategy of divide and conquer," Mantyla said. Caterpillar's Lane said it is too early to discuss whether the company is considering plant transfers. "Right now, our focus is to get an acceptable agreement with the United Auto Workers," he said.

Plant movements would be a disaster for everyone involved: the workers, the union, the plant cities. The number of manufacturing jobs in the Peoria area has declined sharply since 1982, from 49,000 to 33,000. Most of that loss has been at Caterpillar. Ten years ago, the UAW represented about 23,000 Peoria-area Cat workers. Today, it represents 9,700. Still, Caterpillar pumps about $1 billion into the local economy every year. It's no wonder, then, that Mayor Maloof has literally been imploring God to bring the company and the union back to the bargaining table.

Toby Eckert is a Springfield correspondent for the Peoria Journal Star. He covered the central contract talks between Caterpillar and the UAW and the early stages of the strike.

March 1992/Illinois Issues/17

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