Why September will be a momentous month for US industry
It is one of the great set-piece moments in the US industrial calendar.
At the start of pay negotiations, which take place every four years ahead of the expiry of existing contracts in September, the leaders of the big three US carmakers traditionally shake hands in front of the cameras with the leader of the United Auto Workers (UAW) union.
The tradition goes back almost a century: Wayne State University in Detroit, America’s car-making capital, has unearthed photographs dating back to the 1930s showing the UAW leaders of the time shaking hands with a leader from Ford, Chrysler or General Motors.
The then UAW president Ron Gettelfinger and Ford president Alan Mulally take part in the ceremonial handshake in 2007
This was the precursor to another established tradition under which the UAW would select a lead company with which to negotiate. Then, once a deal had been struck, the other carmakers would follow the first company’s lead in a process known as ‘pattern bargaining’.
So it was a seismic moment when, in July this year, the UAW’s new president, Shawn Fain, declined to take part in the handshake.
Instead, he held what were described as a “member’s handshake”, during which he met with workers at the big three (Chrysler is now owned by Stellantis, also the parent company of European carmakers Peugeot and Fiat) as they came off their shifts.
It was intended to lay down a marker to the carmakers that this was a very different UAW leadership.
Mr Fain, 54, was narrowly elected president of the UAW in March this year on a platform of promising a tougher approach to pay negotiations.
His victory, over the existing president Ray Curry, was historic in that it was the first in which the president, and other leading officials, were chosen by a direct ballot of members rather than in a proverbial smoke-filled room in which delegates chose the leadership.
Shawn Fain, pictured in July, shaking hands with members outside a Ford assembly plant in Michigan
Mr Fain, in winning, toppled a faction of the union that had controlled it for decades.
On being elected, Mr Fain – who began his career as an electrician with Chrysler – immediately served notice on the carmakers that he did not intend this to be business as usual, declaring: “We’re here to come together to ready ourselves for the war against our one and only true enemy: multibillion corporations and employers that refuse to give our members their fair share. It’s a new day in the UAW.”
If that didn’t make the carmakers sit up and take note, Mr Fain’s refusal to take part in the traditional handshake did, as he told the union’s 389,000 members on his social media feed: “I’m not shaking hands with any CEOs until they do right by our members, and we fix the broken status quo with the big three. The members have to come first.”
For good measure, he very publicly threw a Stellantis pay offer in a bin.
Mr Fain’s approach is making waves on Wall Street.
There are real concerns that Mr Fain – who carries around with him one of his grandfather’s payslips from Chrysler in 1940 – will bring out his members at all three carmakers if a deal is not reached by the time the existing contracts expire on 14 September. Such action would be unprecedented.
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Members at the three have voted for strike action in the event of negotiations breaking down, by an average of 97%.
Strikes would cause immense disruption at a time when the carmakers are having to invest billions in electrification while trying to cut their costs in response to inflation.
Yet, with Wall Street putting the odds of strike action at the big three as better than events, the two sides look set for collision.
The UAW is not only seeking to restore past benefits lost in previous pay negotiations, but also to cut the working week to 32 hours.
It is also seeking a significant pay rise, the extent of which it has not made public, but which has been reported by the Wall Street Journal as 46%.
That would severely hobble the big three’s competitiveness against foreign rivals, from Germany and Japan – which tend to have less union representation in their workforces, as well as the likes of non-unionised Tesla.
Some 150,000 of the UAW’s members work for Ford, GM and Stellantis but strikes at all three would be huge because the union has traditionally singled out an individual carmaker for strike action rather than attacking several targets at once. It would also be a risk.
The union has a strike fund of $900m (£716m) – half of which would be eaten by a six-week stoppage in which striking members at the big three were each paid $500 (£398) a week.
That is why it has been suggested that Mr Fain may adopt another tactic, bringing out its members at the car parts makers instead, in time depriving the big three of components and forcing them to temporarily close plants while still having to pay workers.
UAW President Shawn Fain
That, though, would also be a risk for the UAW, as it is not nearly as well represented among the parts makers.
Mr Fain’s election is not just rattling Wall Street – but also in Washington. Mr Fain has refused to say whether the union will endorse and provide support to Joe Biden as he seeks re-election to the White House next year.
He told the Boston Globe at the weekend: “I’ve tried to be clear with people: The days of us just freely giving endorsements are over. Our endorsements have to be earned.”
Those comments speak to his unease that, as the Biden administration offers huge subsidies to businesses involved in the transition to net zero, it is not doing so with sufficient protection for carmakers.
He was particularly unhappy at a $9.2bn (£7.3bn) loan awarded by the Biden administration in June to a joint venture between Ford and a South Korean company to build three battery factories in Kentucky and Tennessee.
Mr Fain felt the loan should have come with strings attached on wages and working conditions.
He told the Globe: “We support a green economy. We have to have clean air, clean water, but this transition has to be a just transition. Workers can’t be left behind.”
Mr Fain’s election must also be seen in the context of changing circumstances in America’s unions.
The powerful Teamsters union, like the UAW, has also jettisoned the ruling faction that has run it for decades in favour of more radical leadership. Its aggressive stance is credited with having won it a pay deal with United Parcel Services reckoned to be the most generous in the company’s history.
Part-time workers at UPS were awarded a reported 50% pay rise while other concessions agreed by the company included a promise to instal air conditioning in all of its trucks.
Mr Fain is clearly optimistic that he has the wind to his back and can secure similar wins for his members. If he succeeds, other union leaders will be taking note.
It is why the month of September promises to be a momentous one for US industry.
If you ever fly to Washington DC, look out of the window as you land at Dulles Airport – and you might snatch a glimpse of the single biggest story in economics right now.
There below you, you will see scattered around the fields and woods of the local area a set of vast warehouses that might to the untrained eye look like supermarkets or distribution centres. But no: these are in fact data centres – the biggest concentration of data centres anywhere in the world.
For this area surrounding Dulles Airport has more of these buildings, housing computer servers that do the calculations to train and run artificial intelligence (AI), than anywhere else. And since AI accounts for the vast majority of economic growth in the US so far this year, that makes this place an enormous deal.
Down at ground level you can see the hallmarks as you drive around what is known as “data centre alley”. There are enormous power lines everywhere – a reminder that running these plants is an incredibly energy-intensive task.
This tiny area alone, Loudoun County, consumes roughly 4.9 gigawatts of power – more than the entire consumption of Denmark. That number has already tripled in the past six years, and is due to be catapulted ever higher in the coming years.
Inside ‘data centre alley’
We know as much because we have gained rare access into the heart of “data centre alley”, into two sites run by Digital Realty, one of the biggest datacentre companies in the world. It runs servers that power nearly all the major AI and cloud services in the world. If you send a request to one of those models or search engines there’s a good chance you’ve unknowingly used their machines yourself.
Inside a site run by Digital Realty
Their Digital Dulles site, under construction right now, is due to consume up to a gigawatt in power all told, with six substations to help provide that power. Indeed, it consumes about the same amount of power as a large nuclear power plant.
Walking through the site, a series of large warehouses, some already equipped with rows and rows of backup generators, there to ensure the silicon chips whirring away inside never lose power, is a striking experience – a reminder of the physical underpinnings of the AI age. For all that this technology feels weightless, it has enormous physical demands. It entails the construction of these massive concrete buildings, each of which needs enormous amounts of power and water to keep the servers cool.
Sky’s Ed Conway at the data centre
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We were given access inside one of the company’s existing server centres – behind multiple security cordons into rooms only accessible with fingerprint identification. And there we saw the infrastructure necessary to keep those AI chips running. We saw an Nvidia DGX H100 running away, in a server rack capable of sucking in more power than a small village. We saw the cooling pipes running in and out of the building, as well as the ones which feed coolant into the GPUs (graphic processing units) themselves.
Such things underline that to the extent that AI has brainpower, it is provided not out of thin air, but via very physical amenities and infrastructure. And the availability of that infrastructure is one of the main limiting factors for this economic boom in the coming years.
According to economist Jason Furman, once you subtract AI and related technologies, the US economy barely grew at all in the first half of this year. So much is riding on this. But there are some who question whether the US is going to be able to construct power plants quickly enough to fuel this boom.
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For years, American power consumption remained more or less flat. That has changed rapidly in the past couple of years. Now, AI companies have made grand promises about future computing power, but that depends on being able to plug those chips into the grid.
Last week the International Monetary Fund’s chief economist, Pierre-Olivier Gourinchas, warned AI could indeed be a financial bubble.
He said: “There are echoes in the current tech investment surge of the dot-com boom of the late 1990s. It was the internet then… it is AI now. We’re seeing surging valuations, booming investment and strong consumption on the back of solid capital gains. The risk is that with stronger investment and consumption, a tighter monetary policy will be needed to contain price pressures. This is what happened in the late 1990s.”
‘The terrifying thing is…’
For those inside the AI world, this also feels like uncharted territory.
Helen Toner, executive director of Georgetown’s Center for Security and Emerging Technology, and formerly on the OpenAI board, said: “The terrifying thing is: no one knows how much further AI is going to go, and no one really knows how much economic growth is going to come out of it.
“The trends have certainly been that the AI systems we are developing get more and more sophisticated over time, and I don’t see signs of that stopping. I think they’ll keep getting more advanced. But the question of how much productivity growth will that create? How will that compare to the absolutely gobsmacking investments that are being made today?”
Whether it’s a new industrial revolution or a bubble – or both – there’s no denying AI is a massive economic story with massive implications.
For energy. For materials. For jobs. We just don’t know how massive yet.
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