In the early hours of yesterday morning, history was made in Detroit. The labour unions and the carmakers agreed a deal that not only brought to a close the first mass strike in 31 years in the US auto industry but, more importantly, marks the beginning of the end of one of the most damaging and mutually destructive relationships in modern business.

The agreement between General Motors and the United Auto Workers will see the company set up an independent fund to meet the roughly $50 billion needed to ensure that union members get paid their retirement and healthcare benefits.

In return, the union has agreed that GM can start hiring workers who are not union members. This provides a template for Ford and Chrysler to get out from under its obligations to the UAW and, therefore, have a hope of competing in a world where companies like Toyota are paying their staff in the US $25 to $30 less per hour.

This is, therefore, a watershed for the American labour movement and a cautionary tale about industrial relations in the modern, globalising economy. For the deal unravels three decades of strife between workers and owners in Detroit, underlining the dangers to business when the interest of the unions and the management diverge.

The massive health care liabilities of the UAW membership at GM had, over time, ballooned in size to be worth more than double the market capitalisation of the car company itself. GM has now moved those long-term obligations off its books, albeit at a long-term cost to the company of potentially as much as $35 billion. That may prove a small price to pay for the UAW concession, namely that GM can replace existing production workers with lower-wage hires.

For a union to accept that its members should lose their jobs to workers earning less money seems like a shattering defeat, an acceptance that its bargaining power is virtually nil. In reality, it has been a creeping erosion of power for both GM and its biggest union as the company's share of the US market shrinks from 40 per cent in the mid1980s to about a quarter. The fact is that the UAW is dying. Its membership peaked at 1.5 million in the 1970s and since then it has lost almost a million members. In GM alone, the UAW's representation has fallen from about 450,000 in 1985 to 74,000 as the payroll in Motown diminishes in a never-ending ebb tide of early retirements and job attrition. Like a fungus that destroys the tree that gives it life, the auto union has been so successful in extracting cash from the company that it has virtually bankrupted the company that was once emblematic of America and its affluent motorised lifestyle.

GM has, for too long, failed to grapple with its labour problem. More than that, the company’s management failed to precipitate the changes that must now take place. The company had too many factories, making too many models. It became a cumbersome, inefficient juggernaut of a company. Expensively produced cars were sold at a discount in an attempt to keep market share from Asian interlopers. Over the past two years it has been selling cars at a loss of between $1,000 and $2,000 per vehicle.

Much too late and very expensively, GM has been given a chance to recover. The UAW is now looking for a new role, having survived near death with GM. The auto workers union is recruiting dealers in casinos, a somewhat embarrassing move for an organisation that once prided itself on representing the aristocracy of American labour. Perhaps this union has finally recognised that the world of work has changed.

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