By on July 25, 2011

Withe the Detroit Free Press reporting that combined Q2 profits for the Detroit automakers could hit $4b, the quadrennial negotiations with the UAW which opened today with a meeting between Chrysler and the union could be a tough slog. And because the profit outlook is mixed, with GM and Chrysler likely to improve profitability and Ford likely to see a drop in net takings, the long-standing tradition of “pattern bargaining” could come to an end. Ford currently pays about a dollar more per hour than GM and about $2 per hour more than Chrysler (which is partially owned by the UAW’s VEBA trust fund), and Ford also shoulders more of workers’ health care costs than its cross-town rivals. And UAW president Bob King admits

Being really blunt about it, when you don’t represent the overwhelming majority of an industry, which we don’t any more, then you can’t do pattern bargaining

Already unfairly disadvantaged by the UAW (Ford is the only Detroit-based automaker without a no-strike contract) and facing falling profitability, Ford is telling the union not to expect wage increases. But does that mean the union’s only choice is to bring GM and Chrysler up to Ford’s pay and benefit levels?

Ford’s certainly got plenty of arguments for not increasing its pay. Even though main-line Ford-UAW workers haven’t seen a base pay increase since 2003, Ford had to hold a lottery for 1,800 new second-tier jobs (earning about half the Tier One base wage, at $15.50 per hour) at its Louisville plant, to select from the 16,837 applicants for the positions. In short, plenty of workers are happy to earn half what the union used to guarantee new hires, meaning Ford has every incentive to deny increases to Tier One workers and simply replace them with the abundant Tier Two job applicants. Ford is even signaling hesitation at the idea of UAW representation on its board, conceding only that salaried workers deserve more incentive pay bonuses, tied to the firm’s profitability.

But if Ford’s only concession is increased incentive pay, which would deliver nothing if the company doesn’t turn a profit, the UAW may be painted into a corner in its negotiations with GM and Chrysler. King tells Bloomberg that

We’re not going to advantage or disadvantage one company versus another. We want them to be competing on the basis of product and design and quality

Which means that if Ford holds strong, the union can seek only about $1 per hour from GM and $2 per hour from Chrysler. But Chrysler won’t concede even that for the sake of the withering “pattern bargaining” system, as Bloomberg reports

Chrysler doesn’t want to see an increase in its hourly labor costs and is interested in creating a better profit- sharing equation for hourly workers, according to a person familiar with the company’s thinking.

Chrysler’s current profit-sharing system is complex and not aligned with the company’s goals, according to this person, who was not authorized to speak about the issue publicly. Some new metrics may include attendance, quality, productivity and a more transparent measure of profit, the person said.

The automaker sees active health-care costs as a way to find savings, possibly to pay for increases in variable pay, the person said.

The union sees complex healthcare systems, which cost the automakers over $1.5b per year, as one of the few opportunities to reduce costs by improving efficiency, creating a win-win for the manufacturers and workers. But the OEMs are looking for even more relief from healthcare costs than are likely to be won with mere efficiency reforms, as Reuters reports

Union members pay far less of their healthcare costs than most Americans or even their salaried counterparts.

Ford’s UAW workers cover 5 percent of their healthcare costs. At GM, they pay between 5 percent and 7 percent, while at Chrysler it is between 7 percent and 8 percent.

Salaried employees at the companies pay in the range of 30 percent to 35 percent of those costs. At companies with 500 or more employees, the average American worker with a family covered 31 percent, according to consulting firm Mercer.

The automakers want relief from carrying the majority of the costs. Last year GM spent $665 million, Ford about $533 million and Chrysler about $339 million for their UAW-represented workers and families.

“Who picks up what percentage of that cost pool? That’s where the negotiation starts. That is always the motherload issue,” said former GM executive Bible, who helped GM negotiate healthcare deals with the UAW in the past. He is now head of accounting firm EisnerAmper’s public companies practice.

He said given the UAW’s desire for jobs, one possibility would be a deal whereby the union accepts higher healthcare costs in return for a guarantee by the automakers for increased production and new products in the United States.

Jobs for healthcare could be one avenue for compromise, although King’s “no concessions” stance indicates that even this opportunity may not be easy. But one thing is certain: everyone wants to come to an agreement. Because GM and Chrysler have “no strike’ policies, any failure to reach an agreement would see an arbitrator entering the talks to forge a compromise. And, reports Reuters, that’s an outcome that nobody wants to see, least of all King who says

If arbitration happens, if anything like that happens, then I’d say we haven’t done our job. We don’t want some third-party outsider who doesn’t know the industry as well as we know the industry making decisions that impact our long-term viability.

Besides, at least in the case of Chrysler, the UAW has a strong incentive to not push to hard, as King admits

Our goal is to help Chrysler be as successful as possible so we can get the maximum value for the stock we hold

But can King accomplish that while still winning concessions from the profitable Ford and treating all three manufacturers equitably? It seems that something in that list of promises will have to give… and we’ll be keeping a close eye on negotiations to see where the union’s various promises end up.


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17 Comments on “Profits, Pattern Bargaining, Performance Pay On The Docket As UAW Negotiations Begin...”

  • avatar

    Proofreader asleep at the wheel? :) One instead of won, a instead of all, missing punctuation, etc.

  • avatar

    Pattern bargaining is history. Good to see that Bob has that much figured.

    Negotiations with the former big three will cetainly be complicated, when you consider all the different circumstances X three.

    That being said. With all of Mr Kings bluster, and threats, and promises. The real challenge will come when he has to sell it, or spin it,to the rank and file.

  • avatar

    I’m feeling good about these negotiations. UAW is screwed. There IS no bargaining room. The rank and file know it, the mgmt knows it and it’s only Bob King who won’t admit it. When the companies return a reasonable package it will be accepted over King’s objections. No unrest.

    • 0 avatar

      I dunno. Some UAW locals can headscratchingly vote against their own interests. In any case, I think Gettelfinger had more credibility with the rank & file than King. King’s first full time job in the auto industry was at Ford, in 1972 where his dad headed labor relations on management’s side. I think we can figure out how he got his job. After working in a parts depot for a couple of years he got bumped up to skilled trades, an electrician at the Rouge plant. That’s when he joined the UAW. He went to law school at night, getting his JD in 1973. He moved up in Local 600 of the UAW, making VP of the 17,000 member local by ’81 and president by ’84. With that resume, the last time he probably actually did any labor for Ford was in the mid ’70s. In a local that big, by the time you’re shop steward or higher I’m guessing that you’re working for the union, even if you get a check from Ford. Mikey or one of the other factory rats can correct me if I’m wrong.

      The funny thing is that as American labor unions go, the UAW is fiscally responsible. The resort up north notwithstanding, the UAW is the only one of the 20 largest US unions that doesn’t pay anyone more than $200K a year. They’ve also historically not been nearly as left wing as some other unions like John Lewis’ United Mine Workers. Also, for all the faults of the UAW and their counter productive work rules, more than many unions they work in partnership with management, presenting a more or less unified voice in Washington (which we saw in that letter from the Michigan congressional delegation about the proposed CAFE rules).

      I’m no fan of organized labor, particularly in the public sector, but the UAW is far from America’s worst labor union.

      • 0 avatar

        The UAW represents a lot of aerospace workers out here on the West Coast. Compared to the IAM, the UAW seems a lot more reasonable in this industry. UAW represented workers built the Space Shuttle orbiter and currently build the C-17.

  • avatar

    How much of Chrysler does the UAW still own? 30-40 percent, isn’t it? So they are negotiating with themselves? Being partial owners, they have to know there isn’t anything to negotiate.

  • avatar

    One thing jumped out at me in the quotes, “former GM executive Bible” seemingly went from bargaining benefits packages against the UAW to the head of an acounting firms public companies practices. Ok, he did a crappy job at that so he gets a better job with another company, who ever said failure wasn’t rewarded in corporate America.

  • avatar

    As far as greedy Ford is concerned…if they want their blue collar workers to be compensated on par with the “transplants”…..then their inept CEO should have compensation that is inline with the transplants.

    • 0 avatar

      @ Z71_Silvy….During late 2008, when GM was getting desperate. They asked the hourly employees for suggestions on how to compete with Honda/Toyota.

      More than one person mentioned bringing management compensation, and mangement head count in line with Toyotas.

      We all know how that went over eh?

    • 0 avatar

      Inept CEO, surely you are talking about Akerson, he’s at GM. What is it with you? Your irrational hatred of Ford controls everything. I’ve seen about two of your posts that made sense, the rest are just rabid anti-Ford. Why is that?

      • 0 avatar

        @MikeAR….I think Silvy might have an issue with Ford. I’m not trying to justify the dude, but you may have noticed, thier might be a couple rabid-anti GM folks here.

        Oh yeah,and some guys arn’t real big UAW suporters either.

        Just saying.

      • 0 avatar

        Like you said, now and then he makes some sense, but he’s got to be about the only person in the world who thinks badly of Alan Mullaly. Mullaly may not be the savior that Ford fans paint him to be, but it’s comments like this that make me think that Silvy’s either irrational or playing some kind of game.

      • 0 avatar

        Well, I’m rabid anti-Daimler, but for good reason :)

    • 0 avatar

      I don’t think Ford’s CEO is considered inept by any means.

    • 0 avatar

      Or Ford could simply hire Donald Trump to save money.

  • avatar

    Hopefully the Detroit 3 band together and push something hard on the UAW as a whole. The healthcare numbers are ridiculous. That has to change and fast.

    I also found it funny how at GM plants the 2 tier wages are a problem, but at Ford, they are fine because they have so many people that want them because they want a job. GM is in the same boat there. So many people want a job that a tier 2 wage isn’t going to matter to them. When the tier 1 workers retire, it will be much better for the Detroit 3 and much worse for the UAW.

  • avatar

    I wonder if the UAW decides to strike at Ford if the tier two workers will leave the union form thier own (they aren’t represented in the VEBA or pension) and then ford will be free to hire all tier two workers in the new union and let go of the rest because there is no contract, King isn’t dumb he knows he’s walking a fine zig zagging line.

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