Purchasing and Negotiation Training

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Editor’s note:  This four part series of blog posts examines the Win-Win outcome of the 2008 strike at Volvo’s New River Truck Plant.  Parts One and Two deal with the background.  Parts Three and Four dissect the negotiation.

Facts, opinions, quotes, and some commentary were collected from research into local and industry press reports and documents of the two parties.  Some interesting influences in this dispute are analyzed in sections labeled NEGOTIATION ANALYSIS.

Historical background, continued

Economic crashes have entirely predictable results, replicated thousands of times.  Individuals and businesses immediately pare back on purchases.  This action is utterly prudent.

In 2011, I published an online course on How to Buy a New or Used Car.  Research for the course uncovered a startling fact.  Cars on the road then averaged 11.6 years old.  During the economic hard times, drivers were unwilling to risk the expense of new car loans when they were worried about losing their jobs.  They preferred to repair their older vehicles rather than take on a potentially unsupportable financial risk.  This caution applies equally to business.

Businesses, however, tend more to anticipate future trends.  For instance, buying futures contracts  on commodities is a prudent protection against risk.  Hiring or firing of employees is another business decision largely controlled by prospects for the future, as assessed by the business management.

In talking with a Volvo representative in 20013 at the supplier plant visit, he confirmed that Volvo’s judgment in 2008 was that the market was contracting and would continue to do so for an indeterminate time.  Under such constraints, the logical choice was to cut back on employees.

This reduction in force (RIF) occurred in almost every other major industry at the time. It is always unpleasant, but nonetheless a fact of economic reality.  If there is no little for 18 wheelers, purchases of auto steel, tires, glass, motors, transmissions, etc., all fall off and so is the demand for labor to assemble these parts.

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Another important dynamic in the US automobile manufacturing industry at that time was the pending demise of General Motors Corporation, (GM)  This wild card’s full impact was not known at the time of the strike but Volvo undoubtedly factored in the risk potential.

Ultimately, the US government artificially propped up GM.  Ford Motors  another icon of Americana, neither sought nor obtained any such favorable treatment.  What could Volvo, a Swedish owner firm, expect?  GM bond holders went unpaid in favor of GM’s union contracts and pensions.  It was not a promising picture for auto industry manufacturers.

Due to the fall off in business, Volvo anticipated cutting 650 workers permanently near the end of January. However, that figure had nearly doubled by May, when 1,100 employees (38 percent of the Dublin plant’s workforce) were placed on furlough.  The cuts had been planned for earlier in the year, but a February strike delayed the action until mid-May.

As the economy faltered in late 2008, Volvo announced in August that as many as 200 more employees could be laid off in the fourth quarter of the year when production of Mack Trucks, a subsidiary of Volvo, was moved from the Dublin plant to Pennsylvania in a restructuring move.

A Volvo press release cited a plan to increase the efficiency of its North American operations.  Less than two weeks later, Volvo revealed that 973 of the workers laid off in May would be permanently cut as a result of a declining economy and the Mack pullout.  A notification letter from NRV’s human resources department stated “that only bargaining unit employees with UAW Local 2069 would actually suffer a permanent employment loss due to the Mack move.  Volvo no longer projects any of the laid off workers from May (those not affected by the Mack closure) will be recalled … and therefore, (the) temporary layoffs are being extended indefinitely and … should be considered permanent.”  

NEGOTIATION ANALYSIS

As we shall soon learn, little to no recognition of the economic reality of a soft market appeared, at least publicly, in the negotiations.  The issues presented by the UAW related to health and Safety while Volvo cited the high rate of absenteeism.  We cannot know for certain what was spoken at the negotiation table but publicly, neither parties attributed fault to the obvious economic conditions.