Profits, Pattern Bargaining, Performance Pay On The Docket As UAW Negotiations Begin

Edward Niedermeyer
by Edward Niedermeyer

With 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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2 of 17 comments
  • Steven02 Steven02 on Jul 25, 2011

    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.

  • Rnc Rnc on Jul 26, 2011

    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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