General Motors and the UAW Introduce the COLA Clause Summary

  • Last updated on November 10, 2022

The 1948 labor contract between General Motors and the United Auto Workers introduced a cost-of-living allowance (COLA) as a trade-off for labor peace and management’s right to control the company.

Summary of Event

The 1948 labor contract between General Motors (GM) and the United Auto Workers (UAW) ended a period of strife between the company and the union that had been engendered as the U.S. economy retooled for peacetime. The contract, which was to run for five years, granted labor a hedge against inflation while giving management a longer period of peace than would a one-year contract, as well as the right to control the business. [kw]General Motors and the UAW Introduce the COLA Clause (May 25, 1948) [kw]UAW Introduce the COLA Clause, General Motors and the (May 25, 1948) [kw]COLA Clause, General Motors and the UAW Introduce the (May 25, 1948) COLA General Motors United Auto Workers Labor unions;United Auto Workers COLA General Motors United Auto Workers Labor unions;United Auto Workers [g]North America;May 25, 1948: General Motors and the UAW Introduce the COLA Clause[02510] [g]United States;May 25, 1948: General Motors and the UAW Introduce the COLA Clause[02510] [c]Business and labor;May 25, 1948: General Motors and the UAW Introduce the COLA Clause[02510] [c]Manufacturing and industry;May 25, 1948: General Motors and the UAW Introduce the COLA Clause[02510] Reuther, Walter P. Wilson, Charles E. (1890-1961) Sloan, Alfred P.

As World War II concluded, labor and management had girded for battle. Each side believed that the wartime freeze on industrial relations had been to its deficit and that the inequities thus generated should now be redressed. For labor’s part, during the conflict it had largely abided by a no-strike pledge that had been made so that labor would not hinder the nation’s military effort. Unable to force wages up with a strike threat, workers had watched inflation eat into their earnings, despite the price controls instituted to prevent wartime inflation from running amok. Labor had, however, enjoyed an economy with nearly full employment and a high level of union enrollment. In 1945, with the country facing a difficult conversion to peace, the unions prepared to demand a bigger share of the pie while hoping to hold on to the influential role they had been playing in helping to direct production through participation on wartime government boards.

Businesses had also been doing well. Massive needs for expendable military equipment had ushered in full plant utilization, while cost-plus contracts ensured large profits. Ever since the government had guaranteed workers the right to organize during the 1930’s, mass production industries had been forced to accept unionization, but they still objected to the roles union leaders had taken in the government’s interventions in the economy. With the war winding down, business looked for a rollback of union incursions on management prerogatives.

With this background, it was to be expected that each side would be wary as the war ended in 1945. The UAW made the first move. The union demanded a 30 percent raise for members at GM. When the company balked, the UAW called a strike on November 21, 1945.

GM had been singled out by the UAW as the first target for several reasons. Walter P. Reuther, at the time a UAW vice president in charge of the GM division, argued to other union leaders for a “one-at-a-time” strategy, which entailed striking one of the larger auto producers while the company’s rivals were allowed to continue production. The fact that these competitors would be stealing market share while struck plants remained idle would, presumably, put pressure on the firm to settle quickly. Further, as Reuther told the press, GM, the industry’s leading firm, had the “ability to pay.” That is, it could raise wages without increasing prices.

The previous August, President Harry S. Truman Truman, Harry S. [p]Truman, Harry S.;economic policy had requested that there be no immediate price increases after the war, while at the same time saying that labor should be allowed modest wage hikes. Reuther’s statements about GM’s capabilities were made in the light of this presidential directive. The company shot back that its financial picture was not as rosy as the union thought. Reuther countered with the demand that the firm “open the books” and allow the union to examine the company’s accounting. This demand, flatly refused by GM, represented an even greater attempt at encroachment on the company’s autonomy than the union had made previously.

The strike was drawn out, ending on March 11, 1946. It finished with relative success for the union, which obtained an 18.5 percent raise for its membership. The victory greatly advanced the fortunes of Reuther, who, stressing his militant handling of the strike, unseated the incumbent president of the union, Rolland J. Thomas Thomas, Rolland J. , at the 1946 UAW annual convention. The GM agreement, however, was not the beginning of a period of conquest for the UAW. The next important confrontation for the group began in April, 1946, with the Allis-Chalmers Allis-Chalmers Company[Allis Chalmers Company] agricultural implement company. A strike the union conducted against this firm was defeated after fights broke out between the union locals and the union’s central executives and after effective “red-baiting” (accusation of communist sympathy) against the autoworkers by the company.

Thus, by the time of the 1948 labor negotiation between GM and the UAW, both sides had tasted defeat and were willing to compromise. GM, in this case, took the initiative by offering a novel set of contract proposals. These proposals were the brainchild of Charles Erwin Wilson, president of the firm. Some years before, while laid up in the hospital with a broken leg, Wilson had mulled over ways to dampen industrial antagonism by making a unique pact between labor and management. His plan was embraced by Alfred P. Sloan, GM’s chairman, who was already noted for his innovative methods. It was Sloan who first developed the policy of yearly car model changes. The end result of this policy, as far as it was effective, would be to ensure a stable consumer demand. Sloan saw that Wilson’s ideas would offer the same stability for the company’s relationship with the UAW.

The plan, as presented to the UAW, had three main components. First, automatic wage adjustments were to be carried out for the life of the contract. Each time the Bureau of Labor Statistics’ Cost of Living Index rose 1.14 percent, hourly wages would be increased by one cent. The opposite would hold if the index declined, but wages could drop no farther than five cents per hour below the rate in effect on May 29, 1948. Although the base pay raise offered in this contract was lower than expected, workers would never have to see, as they often had, their gains on a new contract whittled away by inflation.

Second, the contract was to extend for five years. This was a marked change from previous practice, in which labor/management agreements had been for one- or two-year periods. Such a long-term compact would be invaluable to management, since it would allow company planners to make calculations of labor costs well in advance. The third point was that further wage increases, beyond cost-of-living adjustments, would be tied to productivity gains. Such gains would be linked to the introduction of labor-saving methods; in agreeing to this provision, the union gave management considerable control over the organization of work.

Both sides stood to gain stability. The company would neither have to fight the union over changes at the workplace nor worry about the frequent strikes that threatened when contracts had shorter lives. The union would not have to wonder, when it came to the bargaining table, whether the wage hike it had negotiated would be lost to inflation. It was with this last factor in mind that Emil Mazey Mazey, Emil , acting as temporary head of the union while Reuther was in the hospital recovering from an assassination attempt, accepted GM’s terms and put this historic compromise into effect.

Significance

Both General Motors and the United Auto Workers had something to gain from the 1948 contract, particularly if things went well, but it was the union that would lose if the economy weakened. For this reason, there was not wholehearted acceptance of the cost-of-living adjustment (COLA), or “escalator” clause, in the new contract. The benefits to be derived from the escalator depended on price rises, and these were linked to an expanding economy. Various UAW dissidents objected to what would happen if the economy contracted. Consumer prices would fall, and the membership’s wages would be lowered. This was not a groundless worry. In February, 1949, the Cost of Living Index did drop, and GM employees took a pay cut of two cents per hour.

On the whole, the calculations of Wilson and Sloan were well founded. The economy and the auto industry were to embark on a time of expansion. With labor peace guaranteed, the Big Three automakers—Ford, Chrysler, and General Motors—wiped out or absorbed the smaller firms, such as Studebaker and Kaiser-Fraser, and came to share 90 percent of the U.S. car market. Throughout the 1950’s, the demand for cars seemed insatiable, fueled by incessant model changes and the transformation of what had been extras, such as power steering, into standard features. Bigger cars were called for, and more highways were built to accommodate them.

This is not to say that the provisions of the 1948 agreement alone kept the peace between the auto industry and its unions. The agreement set the ground rules by establishing what both sides could anticipate in future contracts. Unions consistently agreed to longer-term contracts and automation, receiving in exchange increased pay and benefits. Key new benefits, first worked out with Ford and then accepted by the other companies, included a guaranteed minimum retirement income for those who had worked a certain number of years—established in 1949—and, in 1955, a supplement to unemployment benefits.

The cozy relationship of labor and management would endure as long as prosperity reigned. Postwar boom conditions were based both on the robustness of the American economy and on the place of the United States in the world. After the war, the United States’ former main industrial competitors in Europe and Japan were prostrate. As the European and Japanese economies were repaired and healed, however, they began to offer a serious threat. The gradual weakening of the U.S. automobile industry in the face of global competition, first felt in the late 1960’s, also gradually weakened labor-management cooperation and introduced a new round of conflict in the 1970’s and 1980’s. COLA General Motors United Auto Workers Labor unions;United Auto Workers

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Cutler, Jonathan. Labor’s Time: Shorter Hours, the UAW, and the Struggle for the American Unionism. Philadelphia: Temple University Press, 2004. Details the desires of the rank and file for a shorter work week, and the role of Reuther and the national UAW leadership in suppressing those demands. Bibliographic references and index.
  • citation-type="booksimple"

    xlink:type="simple">Howe, Irving, and B. J. Widick. The UAW and Walter Reuther. New York: Random House, 1949. Gives an opinionated and colorful but well-argued treatment of leaders of the United Auto Workers and of the automobile industry in the 1930’s and 1940’s. Of special importance is the authors’ examination of the 1948 labor contract, which they show was a matter of controversy within the union.
  • citation-type="booksimple"

    xlink:type="simple">Katz, Harry C. Shifting Gears: Changing Labor Relations in the U.S. Automobile Industry. Cambridge, Mass.: MIT Press, 1985. Chapter 2, which examines collective bargaining contracts in the auto industry from 1948 to 1979, is valuable in noting the issues put on the bargaining table, such as wages, and those that were not, such as workers’ input into control of the labor process. The examination begins with the 1948 contract, since the author sees it as primary in setting the pattern for later formulations.
  • citation-type="booksimple"

    xlink:type="simple">Mann, Eric. Taking on General Motors: A Case Study of the Campaign to Keep GM Van Nuys Open. Los Angeles: Institute of Industrial Relations, University of California, 1987. Although this work is largely concerned with an attempt to forestall the closing of a California General Motors plant in the 1980’s, the first hundred pages provide a careful exploration of the history of the GM/UAW relationships. The 1948 contract is evaluated from the points of view of labor and management, as well as situated within a history of the gradually growing accommodation of the two groups.
  • citation-type="booksimple"

    xlink:type="simple">Rae, John B. The American Automobile Industry. Boston: Twayne, 1984. A succinct but complete history of the automobile business. Points out how the industry’s postwar successes were fostered by the 1948 agreement, which provided a pattern to regularize labor relations.
  • citation-type="booksimple"

    xlink:type="simple">Sloan, Alfred P., Jr. My Years with General Motors. Garden City, N.Y.: Doubleday, 1964. Offers the human side of relations between labor and management and gives a detailed explanation of why General Motors made the decisions it did at the time. The book is an autobiography, not an objective history, and should be treated as such regarding various facts and descriptions.

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