Members of the United Auto Workers (UAW) rejected what Caterpillar called its “last, best, and final offer” yesterday. UAW cited insufficient concessions on health care benefits as the reason behind its decision.

“Caterpillar’s UAW-represented employees have failed to ratify an offer that holds substantial gains for all employees and retirees, and one designed to keep our facilities competitive against mounting competition from around the world,” said Chris Glynn, Caterpillar director of labor relations. “Despite the vote, employees remain on the job, and operations continue as usual.”

Before the vote, UAW issued a statement that denounced the labor contract proposal. “We’re disappointed the company didn’t address the extensive co-pays, deductibles and premiums for health care that it previously proposed,” said UAW vp Cal Rapson.

UAW said the proposal “made improvements for some supplemental workers and simply pushed back its major changes in health care coverage until mid-contract.”

Bob Bruno, professor of labor and industrial relations at the University of Illinois at Urbana-Champaign (UIUC), believes that Caterpillar’s move toward softening health-care benefits is a sign of a company-union power struggle.

“Caterpillar doesn’t have a need for a multi-tiered wage packages or to significantly reduce health care to stay competitive,” Bruno told Fleet Owner. “They’ve [Caterpillar] done a great job increasing labor efficiencies. From an international sales and production perspective, they’ve expanded significantly in foreign countries.”

In late July Caterpillar reported a record-breaking second-quarter profit of $552 million, and $7.56 billion in sales. The first half of 2004 also set a record, with a profit of $964 million. “The argument to stay competitive is far more of a bargaining ploy given the profits,” Bruno said.

Victor Devinatz, professor of management specializing in labor relations at Illinois State University (ISU) told Fleet Owner that this represents a classic management-union power struggle, although global competitiveness is a secondary issue. “What is clear is that for the company, if there is a strike, is they want people to cross the picket line because of the experience they [the workers] have. They [the company] are concerned about a strike,” Devinatz said, noting that the average worker with seniority has approximately 20 years of experience.

Although putting health care costs in the hands of workers certainly wouldn’t hurt Caterpillar’s bottom line, there appears to be little indication that its Illinois plant is not competitive, however. “You have to listen to how they [Caterpillar] word it,” Devinatz said. “The company hasn’t made a statement that says they need this— they made a statement saying that they feel it is a fair offer.”

Ed Hertenstein, professor of labor and industrial relations at the University of Illinois at Urbana-Champaign points to rival companies to underscore that Caterpillar is under some global pressure. “Caterpillar is in an industry that is global, out of their major competitors there are a few that are U.S.-based, but most are not— especially heavy equipment end,” Hertenstein told Fleet Owner.

The last strike UAW called against Caterpillar resulted in a defeat that left the union in a weakened state, Devinatz noted. “In 1994, UAW held a strike that lasted 18 months. During that time 13,000 workers struck— 4,000 crossed the picket line— that’s 30% of the work force,” he said.

UAW’s failure to hold the picket line during the last strike may have emboldened Caterpillar’s management this time around, Devinatz said. “They were able to maintain high productivity levels based on the workers that crossed the picket line. Certainly it was a defeat for the union. The union ended the strike because they felt it wasn’t having an effect— the plant was still able to operate.”

Hertenstein said Caterpillar has some tough choices ahead. “Among their options is, in fact, outsourcing. They have factories in other countries and the possibility of moving their work over there exists. There also is the possibility for the contract to declare an impasse in the negotiations. Caterpillar can implement their last offer and put it into effect, at which point the union either works under it or fights it by going on strike,” Hertenstein said.

“It isn’t really essential to squeeze out additional cost savings through health care, but they feel they have the power to get more out of UAW. From my perspective, Caterpillar seems to be holding a lot of cards,” Bruno said.

“If you could get out from under your health care, that’s a lot of capital that could be pushed to reinvestment. It looks better if they can keep more of those assets away from employment-related costs,” Bruno said. “Caterpillar could shift profits to reinvestments and further growth, and that would excite Wall St. more—it excites investors into thinking that there’s money to be made.”

Although UAW is in a weaker position since its last strike, the stakes are high for Caterpillar as well. With its market red-hot from record-high profits and revenues, there’s a lot of money to be made— and lost— should a strike be successful.

“If there is a strike, they will be inviting union members to cross the picket line…that indicates to me they really don't want a strike,” said ISU’s Devinatz. “It’s unclear if another strike would be effective. I think that Caterpillar is in a dominant position but the union has some leverage in that the company doesn’t want to have a strike.”

This was underscored after the union rejected yesterday what was effectively Caterpillar’s second “last, best, and final offer.” Its first offer was issued in April.

“If you can shut down a major facility, it’ll take time to recover from that and competitors will step in,” said UIUC’s Bruno. “If you can hold the line and keep workers from crossing the picket line, that’d be a real blow for the company.”