By on September 15, 2011

The United Auto Workers and the Detroit automakers have been locked in negotiations for months now, as both sides seek to redefine their relationship in the post-bailout era. And though all sides have stressed the importance of avoiding intractable disputes in an alleged new spirit of cooperation, it seems that the prospects of a quick, painless conclusion to negotiations remains elusive. The UAW’s contracts with Chrysler and GM both blew past their deadlines at midnight last night, and Ford, the only manufacturer at theoretical risk of a strike, extended negotiations earlier this week. TTAC has not covered these negotiations in much depth for the simple reason that little information leaks out of them. But with contracts expiring and optimistic rhetoric crashing on the rocks of reality, the frustration is clearly starting to boil over. And who is surprised that Fiat-Chrysler CEO Sergio Marchionne is the first to let his frustration show?

Though Marchionne is probably the most blunt and candid of Detroit’s CEOs, he’s also had the most union-related headaches of late. Wearing his Fiat CEO hat, Marchionne has been battling Italy’s fractious unions for years, as he’s fought to rationalize a deeply broken Italian production base. Whether that experience has given him insight into union negotiating tactics or simply raised his baseline frustration level isn’t clear, but he has broken ranks to publicize a letter [PDF, tip of the hat to the Detroit News] sharply rebuking UAW President Bob King for allowing the negotiating deadline to expire. Marchionne writes

I flew back from the Frankfurt Motor Show late last night to be here today to finalize the dialogue that has been started by our teams but that required your presence and mine to conclude. You, unfortunately, could not be here, I am told, due to competing engagements.

We have known about this expiration for a long time.

It was discussed at length during an incredibly painful period in 2009 when we argued and pleaded, together, to be given a second chance to put Chrysler right. And we even agreed that were we still around in 2011, we would not go back to the old adversarial and confrontational ways of the past to resolve unsettled matters: that we would have someone else arbitrate our differences.

And so as I sit at my desk now, I am thinking of our 26,000 employees who tomorrow will be working without a new contract, without even an understanding between Chrysler and the UAW that the old one is extended. We have not even agreed on the procedures for arbitration.

Until now, there have been encouraging signs of a new paradigm governing the relationship between us.

After reminding King of his various commitments to a kinder, gentler UAW, his professions of shared interests, and the progress already made through Fiat’s “World Class Manufacturing” program, Marchionne concludes

These are the reasons why we have continued our investment programs in the US, committing more than 4 billion dollars without knowing the outcome of these labor negotiations.

You and I failed them today.

We did not accomplish what leaders who have been tasked with the turning of a new page for this industry should have done.

We did not manage to agree to a set of simple conditions that would have given certainty and peace of mind to the lives of more than 110,000 actives and retirees.

I know that we are the smallest of the three automakers here in Detroit, but that does not make us less relevant. Our people are no less relevant.

The Freep’s Tom Walsh figures that this last line is the most indicative of the trouble brewing. Though he admits Marchionne is prone to outbursts and public theater, Walsh reckons

For example, if the UAW strikes a deal first with GM on key economic issues such as wages and benefits, that could hurt Chrysler’s leverage if it were to threaten taking a key economic issue such as health care co-pays to arbitration.

Another known issue in the UAW-Chrysler breakdown: Shift policies at the Pentastar V6 plant in Trenton South [via DetN]. But it seems that health care is the big issue, and one where thre appears to be daylight between GM and Chrysler. The DetN reported a week ago

A sort of shuttle diplomacy developed between the two automakers and the UAW. As agreements were reached on key issues, union negotiators would take the tentative language over to Auburn Hills. In some cases, Chrysler simply signed off on it; in others, it would negotiate changes that then went back to GM for approval.

GM CEO Dan Akerson met with UAW President Bob King Tuesday, a source close to the talks said, and negotiations are proceeding smoothly between the company and the union. But talks appear to have hit a snag at Chrysler.

“We are nowhere near an agreement,” one person familiar with the situation in Auburn Hills told The News Wednesday.

Nonetheless, all sides remain optimistic that an agreement can be reached between the union, GM and Chrysler by the time the contract expires Sept. 14.

The insider said Chrysler and the union disagree about an approach King is proposing on certain issues.

The UAW president has said he wants to look at creative ways to cut health care costs without reducing workers’ benefits. Chrysler believes workers should shoulder more of the cost of their own health insurance.

Chrysler’s hourly employees are responsible for about 7 percent of their own heath care costs, compared to 33 percent by salaried workers. The average American worker pays about 30 percent. The gap is narrower at GM.

Meanwhile, though Ford has the most to lose as the only automaker without a no-strike clause from the union and the highest recent profits, it “almost has to go last” according to labor analyst Kristin Dziczek. Ford’s union rank-and-file has been considerably more aggressive in recent years, as the firm has not been humbled by bankruptcy and bailout, and they appear to be waiting for GM and Chrysler deals in order to know where to open the bidding. Another possible snag: an arbitration hearing scheduled for today to resolve a UAW complaint over Ford’s reinstatement of white collar bonuses.

Ultimately, the move to extra innings, the public outbursts, and the obvious tensions put all of the last several years of bailout-inspired union-management Kumbaya rhetoric into some serious context. Though the UAW has the most to prove in the eyes of the public, all sides have indulged in the fantasy that “a new era” in Detroit’s labor relations is dawning and all sides are now locked in the same old gamesmanship. As in any negotiation, it’s unfair to blame any one side completely, but in terms of public perception, the UAW clearly has the most to lose. Having utterly failed to make progress in its attempts to organize transplant automakers, the UAW simply can’t afford for these negotiations to get any uglier than they already have. Standing up Sergio was pretty clearly a horrible PR move.

But the great irony of all this is, as Automotive News’s James Treece puts it [via AW], that the negotiations don’t even “matter” all that much. With labor making up only about 15% of the cost of each car, the low-hanging fruit for the OEMs is, he argues, is in rationalizing product development spending,and  improving speed to market and supplier relations. In fact, the importance of this negotiating session, argues Treece, is almost entirely symbolic. Which is why the developments of the last 24 hours show that Sergio Marchionne is absolutely correct. Both sides have absolutely failed to reinforce their message that things are different in Detroit.

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28 Comments on “UAW Contract Negotiations Blow Past Deadline, Marchionne Lashes Out...”


  • avatar
    Robert.Walter

    I started reading the letter and then got bored with it… the high-minded sob-story is great for the press, but that is not how life works (and Marchionne knows it); his letter, at least what I read of it, is for show.

    The UAW works off the pattern-bargining principle… each Department (Ford, GM, Chrysler) negotiates separately to test the waters … then the pick a strike-target (this year Ford), and they put the screws to it. After an agreement is finalized at the target, the union moves on to the other 2 Detroit OEMS.

    Unless Marchionne is prepared to pre-emptively offer-up something that will put the hurt on Ford, or GM, he will have to wait for a resolution at Ford, and possibly at GM, before he gets his turn.

    Marchionne is a pretty smart guy, and he knows the game despite what his letter says. And unlike Italy, he is not yet positioned to whipsaw the union into shape with threats to move all production to Mexico (italian unions are usually brought to heel with threats to move more production to Poland or other points East.)

  • avatar
    gator marco

    I cannot imagine that labor strife at the major US automakers is going to play very well with Mr and Mrs Average Taxpayer.

    Regardless of your political persuasion, the campaign ads against the current administration almost write themselves: “Americans are struggling to pay the rent and keep the lights on, and after major bailouts paid out of taxpayer’s pockets, these guys are bickering over their health insurance co-pay?”

    • 0 avatar
      psarhjinian

      I cannot imagine that labor strife at the major US automakers is going to play very well with Mr and Mrs Average Taxpayer.

      If the unions had anything remotely resembling strategic thought, they’d be asking why the “stimulus” consisted in no small portion of tax cuts for the rich, while mortgage relief, social safety supports and jobs programs were thin or non-existent.

      Or, to put it bluntly, why the west on the whole sees socialism for the well to do and austerity for everyone else.

      Instead, they’re pretty much handing the ammunition to the very people who will shoot them in the head.

      • 0 avatar
        Pch101

        Instead, they’re pretty much handing the ammunition to the very people who will shoot them in the head.

        Like any other group of politicians, the union leadership is playing to its base. Its base is the rank-and-file old timers who are members of the union, not the average citizen who is not.

        I don’t follow their machinations closely enough to interpret exactly what this means, but I suspect that it ultimately means little. The union leadership feels the need to put on a good, loud show for its troops, but then it doesn’t necessarily follow through with actions to match. On the whole, they seem to get played for suckers — just look at VEBA for one example — as their numbers shrink and their influence wanes.

        The union is in worse shape than is any of the automakers, and I suspect that they know it (even if they would deny it if confronted.) The right loves to hate them, but in the real world, they’re becoming more irrelevant by the day.

      • 0 avatar
        psarhjinian

        Like any other group of politicians, the union leadership is playing to its base. Its base is the rank-and-file old timers who are members of the union, not the average citizen who is not.

        This is an interesting statement.

        In the case of, eg, the Democratic Party in the US, that would imply that the “base” is, well, corporate America. That makes some sense when you realize what the Democrats figured out that third-way neoliberalism gets you a lot more campaign money than trade unions and poor people.

        The union(s) needs to come to a similar realization. Playing to your base makes not a lot of sense when your base is not sustainable. They have a window that popular discontent and trans-national frustration, but that is closing fast, what with the Right more or less dictating the message.

      • 0 avatar
        Pch101

        In the case of, eg, the Democratic Party in the US, that would imply that the “base” is, well, corporate America.

        The implication for American politics is that politicians ultimately play to their districts. Those few who aspire to be president have to cater to the whole country, but the rest can take a more narrow focus and stick to a particular jurisdiction.

        Those politicians who are particularly wacky are usually saying something that plays well in their locality. It may sound bizarre to everyone else, but if gets their voters to reelect then, then they won’t care.

      • 0 avatar
        jhott997

        It is interesting how some of the dialogue on the site, recently, has referenced “west” compared to “east”. Implying “west” ideals have somehow “failed”. In stark contrast to the amazing socially equitable places like Iran, Syria, India or China.
        Tell us, psarhjinian, since you brought it, how is social justice, or economic justice, distributed equitably and without bias in the “east”; for example in Iran or China or Malaysia?

      • 0 avatar
        windswords

        I’m interested in how Obama’s stimulus included tax cuts for the “rich”. To my knowledge income tax rates stayed unchanged. Did he change cap gains rates or something else?

        Forget Iran or China or Malaysia. Let’s talk real socialist democracies like Greece, Portugal, and Spain. They are as about as bankrupt as GM and Chrysler were.

      • 0 avatar
        psarhjinian

        I’m interested in how Obama’s stimulus included tax cuts for the “rich”. To my knowledge income tax rates stayed unchanged. Did he change cap gains rates or something else?

        I don’t have the micro details, but fully one third (a little under 300b of the 800b) of the stimulus package was straight tax cuts, much of it in income. I suppose it depends how you define “rich” as well. There are a lot of people in the US who don’t pay income tax because, frankly, it’d be like trying to get blood from a stone as they don’t make very much.

        The Democrats universally sucked at getting this message across. Personally, I think they were foolish to cut revenues I the maw of a recession, but I realize that foolishness in this sense is practically religion among many economists.

      • 0 avatar
        geeber

        Allowing people to keep more of their own money – which is what tax cuts do – does not constitute “socialism,” unless we torture the meaning of the word beyond recognition.

      • 0 avatar
        psarhjinian

        Forget Iran or China or Malaysia. Let’s talk real socialist democracies like Greece, Portugal, and Spain. They are as about as bankrupt as GM and Chrysler were

        By that measure, a lot of countries are bankrupt, and a lot of the problem isn’t particularly socialist in nature.

        Greece uniformly failed to collect revenue, while Spain, Portugal, Ireland and Iceland (in a big way), Italy (to a lesser degree) and France aren’t suffering from socialism-spawned malaise as they are from overexposure to debt, especially among banks (not socialist, not by a country mile).

        Socialist economic problems look like Venezuela, which has seen subpar growth in good times despite being resource-rich. That’s not what’s wrong in Europe. Not at all.

      • 0 avatar
        psarhjinian

        Tell us, psarhjinian, since you brought it, how is social justice, or economic justice, distributed equitably and without bias in the “east”; for example in Iran or China or Malaysia?

        Yes, because those are the only two options: what the erstwhile west does, and what Iran does.

        Nice strawman.

        I use “the west” because it’s easier than enumerating countries and classifying them with all sorts of commentary about relative social and economic freedoms and policies, and, frankly, most people who aren’t pedants know what I mean, but if you really want me to be pedantic I can list which countries aren’t going down the road of “ramming through austerity packages on the failed assumption that the problem is one of debt rather than one of consumer demand and making the problem worse”.

        Of course, chances are you wouldn’t listen because there’s no room in a black-and-white worldview for, eg, Norway, Sweden, Finland, South Korea, Canada or Australia. Nope, it’s either “Whatever the Americans are Doing” and “Totalitarianism”.

      • 0 avatar
        jhott997

        How do I do that “roll-eye” thingy in psarhjinian’s direction?

      • 0 avatar
        Robert.Walter

        If you were a girl, I suppose you would put your hands on your hips, stomp your foot, do the head-turn flippy-hair thing, and make one of those little “hummph” sounds due to being out-argued by Psar!

  • avatar
    windswords

    “With labor making up only about 15% of the cost of each car, the low-hanging fruit for the OEMs is, he argues, is in rationalizing product development spending, and improving speed to market and supplier relations.”

    Where have I heard this before? This is what Chrysler did in the 90′s when they had Gale, Stallkamp, Caistang, and Lutz running things. They got the cost of development, the speed to market, and manufacturing costs down. That and good design by Gale’s minions gave Chrysler record profits. Instead of concessions the UAW got profit sharing bonuses.

  • avatar
    jhott997

    Marchionne’s letter shows his frustration with the exceedingly glacial pace at which events move in “Detroit”.
    Believe me, if you have never experienced the snails pace at which events happen in Detroit then you can’t possibly imagine his frustration.
    Also, I am reading between the lines, I sense Marchionne feels that King lied to him personally by not wrapping up these discussions sooner. Marchionne is correct, they have known about this date for 4 years and to wait until the last minute in order to grandstand for your UAW base (if that is what went one) is frustrating. Marchionne has other things to do than to negotiate forever and forever and forever a UAW “contract”.
    Personally, I have lived through several of these events and the whole thing is a show with lots of pomp and circumstance to keep the UAW base interested….
    It is a show in Detroit and something for all to talk about.

  • avatar
    geeber

    I must be missing something here – I thought that the whole point of VEBA was to relieve GM, Ford and Chrysler of paying the costs of workers’ health insurance. Why, then, are they still squabbling over co-payments and who pays for what? Can anyone explain…?

    • 0 avatar
      psarhjinian

      VEBA was supposed to relieve and defer, not eliminate, those obligations.

    • 0 avatar
      Robert.Walter

      I was wondering the same thing. Thought VEBA was to be a one-time thing (so stated in the contracts IIRC).

    • 0 avatar
      Pch101

      I thought that the whole point of VEBA was to relieve GM, Ford and Chrysler of paying the costs of workers’ health insurance.

      I may be mistaken, but I believe that the VEBA covers retiree benefits, not the costs of current employee health insurance.

      • 0 avatar
        geeber

        That would make sense. Thank you.

      • 0 avatar
        Robert.Walter

        I thought so too, but why then is he talking about retirees? To wit: “We did not manage to agree to a set of simple conditions that would have given certainty and peace of mind to the lives of more than 110,000 actives and retirees.”

      • 0 avatar
        Pch101

        I thought so too, but why then is he talking about retirees?

        Bigger numbers are better. If he could have found a way to include anyone in the tally who had even bought a Chrysler, rented a Chrysler, driven within ten miles of a Chrysler, had a friend or cousin who once saw a Chrysler and those who know how to spell Chrysler, then I’m sure that he would have mentioned them, too.

  • avatar
    NormSV650

    Even at 15% of the cost of a car, it is a variable costs to some extent. This is King’s first contract negotiations and no leaks to the press, the uaw’s strongest avenue, are not good for the outcome. Nor is it good PR for Obama and democratic unions. The Democrat party has taken it on the chin since he’s been in office. Looks like they’ll be taking a few more hits through 2012.

  • avatar
    GS650G

    Kinda cold out there in the real job world, the UAW should think about it and tread lightly

  • avatar
    ihatetrees

    While the the 15% figure for labor costs may not be much compared to other “low hanging fruit”, I bet transplants have a 1 or 2 basis point advantage due to union work rules. In other words, it costs GM and Fiatsler $17 to get the same productivity/results that cost Toyondissan $15.

    There’s also the non-quantifiable costs to management – in negotiation time and focus away from making cars. And probably lost potential management talent – many of whom regard working for a unionized firm with abject horror.

    • 0 avatar
      Pch101

      I bet transplants have a 1 or 2 basis point advantage due to union work rules

      As of the end of last year, GM had about 202,000 employees. As of March 2011, Toyota had about 318,000 employees. If anyone has a labor cost advantage, it’s probably GM.

      The problem with the low hanging fruit is that there probably isn’t any. The only logical path for the automakers is to maintain relatively strong transaction pricing with volumes well matched to demand. A plan built on margin requires strong branding and good product planning, so that aren’t too many losers in the lineup to suck away the profits.

      R&D sharing is a good theory, but in practice, it can be tough to implement properly. It’s good if it can work, but a lot of money and time can be lost in the process of finding that it can’t. At the end of the day, automakers need to make cars that consumers will happily buy without excessive discounting. If everyone ups the ante, that will be good for consumers but could make life harder for the companies that serve them.

  • avatar

    A strike by the UAW against Ford would seriously hurt the domestic auto industry, but even more so it would hurt the labor movement. Right now the winds of change are blowing against organized labor, in great part due to the strategic error of relying on organizing government employees to make up for shrinking union membership in the private sector.

    Much of the current budget deficit and long term debt is because of the growth of government, i.e. government employees and the cost of providing them with pay and very generous pensions and other benefits.

    The taxpayers and voters are starting to understand this. Organized labor bet heavily in Wisconsin and lost. They lost the Supreme Court election and their efforts to recall Republican state senators fell short. This was after dumping millions and millions of dollars into Wisconsin.

    The mood in the country is shifting and guys like Ron King and James Hoffa and Richard Trumka, either don’t know it, or they’re blustering to deny it.


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