The United Auto Workers union is meeting this week in Detroit with its local leaders to set its agenda for future bargaining with General Motors, Ford and Fiat Chrysler.
Among the many issues they are expected to broach during talks with automakers this year include the elimination of the two-tier wage system as well as a raise for employees. The two-tier wage system has been an effective tool to help some makers reduce their labor costs.
However, its caused resentment among many workers and even top executives at the car companies have expressed reservations about retaining the set up.
A new study from the Center Auto Research (CAR) in Ann Arbor shows that FCA has used the two-tier hiring system, which has been in place since 2007, to dramatically lower its labor costs. With more than 40% of Chrysler’s hourly workers coming on board since the last the company’s finished negotiating its current contract with the UAW, FCA’s labor costs total about $48 per hour, according to the estimate prepared by CAR.
The figure underscores why FCA US Chief Executive Officer Sergio Marchionne has been calling for the industry to adopt a new wage scale in the upcoming negotiations. GM and Ford, which have fewer second-tier workers and larger crews of long-term employees, have higher labor costs, the study noted.
Ford also has been forced, under its labor agreement with the UAW, to begin promoting some workers from the second to the first tier and its $28-per-hour wage.
GM’s labor costs total $58 per hour, Ford’s at $57, Honda’s at $49 per hour, FCA’s and Toyota’s total, $48 per hour, while Nissan’s total is $42 per hour. Hyundai’s total is $41 per hour, BMW’s total is $39 per hour and Volkswagen is $38 per hour, according to CAR. While Mercedes-Benz’s plant in Alabama is non-union, its labor cost is the highest at $65 per hour, possibly because of the continuous pressure by the UAW and German unions during the past two decades.
Executives from the domestics also argue that the lower second-tier wages, which are the result of the industry’s difficulties leading up to GM’s and Chrysler’s bankruptcies in 2009, have left them generally more competitive and made it more difficult for Asian carmakers to win additional marketshare. CAR estimated that Honda and Toyota now have a $250 per vehicle cost advantage over their domestic rivals.
GM, Ford and Fiat Chrysler, much to the discomfort of the UAW, have also made greater used of the Mexican operations in recent years.
Nevertheless, the UAW is expected to push for wage increases on the first tier, where pay has been frozen for a decade and to dramatically narrow the difference between the first and second tier.
However, that may not be an easy task. The UAW’s influence is greatly diminished and the union has had to give up on some long-cherished goals, such as an annual cost-of-living adjustments, annual wage increases, defined benefit pensions and retiree health care in the past. All of which were removed from the union’s contracts during the past decade as Detroit’s automakers went through a harrowing financial crisis
But UAW President Dennis Williams has said the union has not abandoned its long-term objective of improving wages and benefits while the industry is prosperous.
Moreover, the dynamics around 2015 negotiations are starkly different. During the past two decades as American carmakers lost marketshare and closed factories, the union’s primary objective was protecting retirement and severance benefits of large cohorts of workers being pushed into retirement or into unemployment.
(Automakers getting ready to pass out profit sharing checks. For more, Click Here.)
Retirement and severance benefits are still important to the union, but Williams and other board members are also under pressure from current membership looking for a pay increase. Older workers haven’t gotten a raise in 10 years while younger workers want the pay gap between first- and second-tier eliminated, according to many union members.
Williams and the union’s bargainers are also prepared to put the concerns about income inequality and pay disparities between workers and executives on the table. The union has taken note of the increasing pay of top executives such as Marchionne, GM CEO Mary Barra and Ford’s Mark Fields and is prepared to make an issue of it this year.
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The union also is look for ways to fatten the profit-sharing checks of employees, Williams said in December.
Based on General Motors North America 2014 financial performance, GM paid the most. On average, the maker’s 48,400 hourly employees collected up to $9,000. The payment was larger than allowed under the contract because GM elected to pay profits based on the company’s earnings before the $3 billion deduction to cover the cost of recalls. The recalls were the fault of GM’s management not GM’s workers, said Barra, who was clearly trying to purchase some goodwill ahead of the negotiations.
(To see more about UAW’s plans to demand an hourly wage increase, Click Here.)
FCA US said profit-sharing checks increased by 10% to $2,750 from $2,500 in 2014.
However, the profit sharing checks at Ford were smaller than they were last year since the company’s North American income dropped last year as it prepared for the launch of the new F-150. Ford’s roughly 50,000 U.S. hourly workers collected, on average, $6,900 March 12. The fell short of the $8,800, on average, hourly workers collected in 2014.
Ford’s profit-sharing formula rewards each hourly worker $1 for every $1 million earned in North America. The formula was developed as part of contract negotiations between Detroit’s automakers and the United Auto Workers in 2011 and simplified a more opaque formula.