Union Talks With Auto Makers to Focus on Tiered Pay – Wall Street Journal

Posted: Monday, July 13, 2015

UAW and Ford negotiators exchanged handshakes at the opening of the last round of talks between the union and the Detroit auto makers in 2011.

Union officials and Detroit auto executives will begin contract talks Monday with a largely ceremonial photo-op known as the “handshake” and a pledge not to speak publicly about the negotiations.

But behind the friendly gestures is a bitter divide over an eight-year-old wage structure that the United Auto Workers argues has enriched General Motors Co.


, Ford Motor Co.


and Fiat Chrysler Automobiles at the expense of employees.

Under the so-called two-tier wage system—widely cited by the industry as a reason U.S. auto makers have added tens of thousands of factory jobs since 2011—new hires are paid a top wage of $19 an hour and longer-tenured workers get $28 an hour. That smacks of inequality, members say. UAW President Dennis Williams says he will work to close the pay gap.

Though it hasn’t done so yet this time around, the UAW typically picks one of the Big Three auto makers to negotiate with first to set a template for all three contracts ahead of a Sept. 14 expiration. While the auto makers each have unique needs, most executives say this so-called pattern bargaining makes sense because health care and wages still demand a degree of uniformity.


Health-care packages are likely to be revised and profit-sharing agreements could be altered, say people familiar with preparations for the negotiations. After nearly a decade without a factory-floor raise for veteran auto workers, the UAW plans to argue that it is time for the companies to pay more.

Fiat Chrysler, the smallest and least profitable of Detroit’s auto makers, could have the most to lose.

The end of the current contract triggers a promise made by GM and Fiat Chrysler to cap their share of entry-level—or Tier 2—workers at 25% of their hourly production staff by September 2015. Ford has a different deal with the UAW, and has begun shifting lower-paid workers to the higher wage tier.

GM, with only 19% of its factory head count classified as Tier 2, wouldn’t be immediately affected by the cap, but it could be a major burden for Fiat Chrysler as the auto maker tries to find a merger partner.

At Fiat Chrysler, which has hired 15,000 hourly workers since its 2009 bankruptcy, 45% of hourly production workers are earning the lower wage. As a result, the company’s all-in hourly compensation—or wages plus the costs of health care, retirement and other employment benefits—is about $47 an hour, according to the Center for Automotive Research in Ann Arbor, Mich., compared with $55 an hour at GM and $57 at Ford.

Giving 20% of its workers raises this autumn would be costly for Fiat Chrysler, which employs nearly 36,000 auto factory workers. CAR estimates the move would boost the company’s labor costs by an average of about $5 an hour per worker, representing a nearly $400 million annual cost increase.

The Treasury Department demanded the 25% cap as part of the auto maker’s government-sponsored bankruptcy, but a Fiat Chrysler spokeswoman said labor negotiators didn’t sign the necessary paperwork in the 2011 contract, and so the deal setting the cap is no longer valid.

The UAW disagrees. The union told Fiat Chrysler’s UAW workers in 2011, before they voted on the current contract, that the auto maker planned to hold up its end of the bargain.

People familiar with Fiat Chrysler’s negotiating strategy say the auto maker is looking to retool the compensation systems altogether. If successful, the effort could defuse the disagreement over the 25% cap. But, with the company apparently on the block, getting the UAW to cooperate is expected to be difficult. Moreover, the company’s top negotiator in the 2011 talks, abruptly retired about a month before the new round of talks was to begin.

“It makes you wonder if they’re going to break up the company,” said Brian Keller a 46-year-old worker at Fiat Chrysler’s parts-distribution center in Center Line, Mich. “We’re pretty much in the dark.”


Chairman John Elkann said last week that Fiat Chrysler isn’t giving up on forging a partnership with GM, despite being rebuffed twice in the past four years.

Fiat Chrysler Chief Executive Sergio Marchionne has said he doesn’t see that a merger would affect the workforce and that he isn’t advocating any brand closures. But in recent months, Mr. Marchionne has disclosed a number of steps that have fueled the union’s concern. In addition to being vocal about a desire to tie up with GM, he has delayed critical product programs—including the next generation Jeep Grand Cherokee, a cash cow for the company.

Mr. Williams, the UAW chief, has played down concerns about any merger involving Fiat Chrysler, but he said he has assembled a team to assess the potential impact of such a deal on union members. “We’re not going to support anything that would hurt our members,” Mr. Williams said.

Richard Bryce, an hourly worker at Fiat Chrysler’s sport-utility-vehicle factory in Detroit, said Mr. Marchionne’s actions aren’t easy to swallow at a time when Fiat Chrysler is racking up monthly sales gains, thanks to its SUVs and trucks.

The company’s pursuit of GM as a potential merger partner is particularly worrisome, Mr. Bryce said. “They would keep Jeep and the minivan and possibly Ram, but there would be too many overlapping products.”

Chrysler has had three different owners since 2007, including Daimler AG


and Cerberus Capital Management, and the ownership changes have hurt its relationship with hourly employees. Even before the latest round of merger talk, workers appeared reluctant to approve the company’s agenda.

Just 54% of the auto maker’s production workers voted to ratify the current contract in 2011, a relatively narrow majority.

Kristin Dziczek, director of CAR’s industry and labor group, said Fiat Chrysler would be the mostly likely target if the union were to strike. “There are contentious issues there, and the narrow ratification last time makes me wonder if they can get to a deal that both sides like without a strike,” she said.

Mr. Bryce, however, said Fiat Chrysler’s pursuit of a merger has already rattled entry-level workers. “Instead of ‘strike talk’, now the concern is whether they should agree to anything offered to save their jobs.”

Write to Christina Rogers at Christina.Rogers@wsj.com


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