The United Auto Workers strikes that began on Friday are unprecedented:
- Never has the UAW struck all three Detroit automakers at once
- Never has the UAW used selective strikes at individual plants in national bargaining
- Never has so much of the bargaining been in public
Yet this was highly predictable—perhaps even inevitable. Why is this happening in 2023, and why could the strikes have been predicted from public information? The answer lies in applying a game-theory lens to the players involved in the negotiations (whether or not they are at the table), their options and their priorities and history. Game theory is a branch of mathematical economics that predicts behavior. A practical version has been developed that can analyze complex issues with five to seven players and up to 30 options.
Shawn Fain was narrowly elected president of the UAW earlier this year, in the first election open to the general union membership. The election procedures were part of a settlement with the federal government following a series of corruption scandals that put two of Fain’s predecessors and other senior UAW leaders in prison.
The UAW had made concessions between 2005 and 2009 under pressure:
- Lack of competitiveness of the Detroit 3 (GM, Ford, and Chrysler [now Stellantis])
- The Great Recession
- The bankruptcy of two of the companies (GM and Chrysler) and their rescue by the federal government
All three companies are now solidly profitable, despite labor costs that are higher than non-union competitors. The industry is in the midst of an uncertain and expensive technological transformation, with electric vehicles (EVs) as the most important element. While making internal combustion engines employs many UAW members, batteries will be made by suppliers, often in joint ventures or strategic supplier relationships with the Detroit 3 but not covered by the national agreements.
Shawn Fain was elected promising to aggressively claw back the prior concessions and win large increases in wages and benefits while protecting UAW jobs. He also pledged to bargain differently and more democratically than his predecessors. The UAW demands are enormous – 40% wage increase, elimination of the lower-tier wage rates, restoration of cost-of-living-adjustments (COLA) and defined benefit pensions, and many others.
Understanding Shawn Fain’s motivations and incentives drives the predictions around bargaining and is an essential piece of the game theory analysis. Since he could not possibly get the Detroit 3 to agree to such enormous demands, a strike was inevitable. He has to show the UAW membership that he has extracted the absolute most that is possible from the companies and—given his inexperience and rhetoric—the only credible means to do so is a strike.
There was a 40-day strike against General Motors in 2019. Fain has to show that he is different. The best way to do that is to avoid selecting a “target” company and instead go after all three at once. But a national strike against all three companies at once would cost the UAW about $90 million per week for strike pay and benefits and be devastating as well to UAW members at suppliers. Selective strikes can impose substantial costs on companies while reducing the pressure on UAW finances and leaders. These dramatic choices have made Shawn Fain the most famous labor leader in America and the most well-known UAW leader since Walter Reuther died in 1970.
The unprecedented situation was actually predictable. This was not the first time that has been true for UAW negotiations. The GM strike in 2019 was predictable more than a year in advance. In 2015 bargaining, UAW members at Stellantis rejected a national agreement recommended by UAW leaders – something that had never happened.
Instead of going on strike, UAW leaders resumed bargaining and shortly got a much richer contract. Then the UAW took the richer pattern to GM, with members barely ratifying it, but the skilled trades voted against the deal. Without a strike, the trades got some concessions. Later that fall, 97%(!) of UAW members at a major supplier rejected an agreement recommended by leadership. After a one-day strike, they got a better deal.
These failed ratification votes were truly disastrous for both UAW leaders and the companies. The leaders were both humiliated and shown to be incompetent; members had done better just by saying no. It also threatened to destroy bargaining; if the leaders cannot sell a tentative agreement to members, how can companies come up with their best offer?
In 2019, the UAW leadership’s top priority had to be avoiding a failed ratification after the members had been trained to say no and amid an expanding corruption scandal. The only game-theory solution to the UAW leader/UAW membership dynamic was a long strike, even though a long national strike had not happened in almost 50 years. The strike would both demonstrate toughness and create pressure from members to settle. After a mishandled plant-closing announcement in 2018 – including the one in Lordstown, Ohio, that also provoked the Trump Administration – GM was the inevitable target of that strike.
The game-theory crystal ball is cloudier about how long the 2023 strikes will last. Ford and Stellantis have not had to deal with painful strikes in more than a generation; indeed, Ford has long viewed its friendlier labor relations as a significant competitive advantage over GM. They will be actively searching for a solution at the bargaining table, as shown by public statements by Ford CEO Jim Farley, including a statement about eliminating lower tiers, which seems to assure that the final agreement will echo that.
But simultaneous three-way negotiations are extremely difficult to bring to closure. Selective strikes will not be as painful for companies or members as complete shutdowns. Shawn Fain may well feel that the strike needs to expand to additional plants and needs to be longer than the 40-day 2019 strike to be sure that every possible concession has been extracted and that he has truly raised the bar for UAW leadership; that would be the game-theory strategic advice I would offer. It could be a very long autumn for the U.S. auto industry and the Biden administration!
Game theory is a powerful tool not only for predicting outcomes of complex multi-party issues, but for guiding strategy and tactics. It requires careful consideration of who is involved, what they can do, and what they want – which can usually be determined by company decision-makers and subject-matter experts. A structured analysis using game theory science provides clarity and drives action. Negotiations are only one application.
Marc S. Robinson, Ph.D., principal of MSR Strategy, is an economist and strategist with more than 30 years of experience advising leaders in multi-national companies, governments, and non-profit organizations. He spent most of his career as an internal consultant for General Motors. He also served in the White House on the President’s Council of Economic Advisors and taught at UCLA and Stanford University. He and his colleague John Jullens publish the applied business strategy newsletter C-Suite, where this article originally ran.