Marchionne Wants End Of Two Class System

Bertel Schmitt
by Bertel Schmitt

Chrysler CEO Sergio Marchionne wants an end of what he called “two classes” of employees represented by the United Auto Workers union. The two-tiered system “creates the kind of environment that doesn’t appear to work in the same direction that we’ve been trying to use to establish the new basis of Chrysler,” Marchionne told Reuters. He continued:

“The whole notion of trying to get this organization to work in unison when you’ve got this kind of economic disparity between the people on the line is not something that can go on forever.”

Marchionne hopes the matter can be settled during the next round of contract talks in 2015.

Knowing Marchionne, his idea of parity won’t be to upgrade everybody to First. He probably wants everybody to fly Economy.

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href=""> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href=""> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • Conslaw Conslaw on Oct 28, 2011

    It is stupid bad P.R. for SM to propose this right after the new contract has been adopted. It's like telling the UAW, F.U., we're really going after you next time. It's deliberately rude and offensive.

  • Eldard Eldard on Oct 29, 2011

    As a worker, you are only worth the demand for you. Let the UAW fail!

  • DC Bruce DC Bruce on Oct 29, 2011

    Speaking as a person who took a 50% "pay" cut in '10 over '09 and previous years and who won't do much better this year, it probably would be better if everybody felt the effects of the market, to some degree. The big, private industry unions are relics of an earlier time in America when most major U.S. industries were oligoloploistic cartels. One of the hallmarks of FDR's New Deal response to collapsing prices across the board was the establishment of cartels with the stated and express purpose of reducing competition (and raising prices). Under those circumstances it was only fair that those industries have "workers cartels" (i.e. unions) as well, so that everyone would get a piece of the pie. However, like the U.S. steel industry, the U.S. auto industry lost its oligopoly to foreign competition sometime in the late 1960s or early 1970s. The Nixon administration's 1971 decision to let the U.S. dollar "float" on foreign exchange markets only made the problem worse, as the value of the U.S. dollar fell against the currencies of Japan and the major industrialized countries of Europe. Nevertheless, the leadership of the auto industry and its union continued to pretend that the foreign competition wasn't there . . . the industry by not improving product quality and by ceding parts of the market (small cars) and the unions by demanding ever-sweeter compensation packages. What was not "visible" under the old system was the union's (and its members') vested interest in the success of the industry in which it worked. Only with the bankruptcies of GM and Chrysler was it painfully obvious that the workers were also stakeholders in the success of their employers. As it was, by strong-arming an abrogation of bankruptcy laws, the administration shielded the union from the full consequences of the bankruptcy . . . if you want to know what "full consequences" means, take a look at the consequences to the unions of the bankruptcies of various major airlines, such as Delta and United. Pretty ugly. So, it would be good to eliminate the two-tier pay structure (which I assume must piss off younger workers no end) and replace it with a pay + bonus structure, with the bonus tied to some sort of objective benchmarks of the company's financial performance. Then all of the incentives are lined up correctly. As for the excessive compensation of the people in the executive suite, yes, it needs to be fixed, but it's a red herring. There are only a handful affected. That's really a corporate governance problem and a problem driven the by tax code, which strongly penalizes "deferred compensation." Ideally, you would say to the CEO: "You're hired under a 5-year contract. You get paid X. At the end of the contract, you will get paid Y in bonus, the amount of Y being determined by various financial performance benchmarks met or not met during your term of office." The problem with that plan is that the tax code sees that as an income tax deferral device and the tax code doesn't like people to be able to defer paying income tax, so it's strongly penalized. The best surrogate for that is stock options, but the problem is the value of the options (or the stock) does not correlate directly with the financial performance of the company. It's subject to a lot of external factors. As far as healthcare goes, one of the many objections to Obamacare is that it didn't solve one of the basic problems with healthcare in the U.S., which is that health insurance is tied to employment. When you think about that, it makes no sense. Again, the tax code is at fault. Traditionally, the value of health insurance has been a non-taxable fringe benefit to the recipient. So, it's better for the employer to provide the employe with health insurance that costs, say, $2,000 a month rather than to bump up the employee's salary so that the employee can have $2,000 a month to buy health insurance. The reason it's better is that the money given to the employee is taxable as income, so in order to give the employee $2,000 to buy health insurance, the employer would have to pay the employee $2,000 plus the taxes on $2,000. As a second consequence, the costs of employee benefits (mostly health insurance) is going up, so the cost of each employee is going up, even though the employee doesn't see a pay raise in his check. That makes for unhappiness and lack of trust all around. In many, many business relationships the parties are simultaneously adversaries and partners, yet somehow they make it all work. For the good of everyone, it's time that attitude spread to the unionized part of the U.S. auto industry. Otherwise, they're all -- workers and employers alike -- circling the drain.

  • Ihatetrees Ihatetrees on Oct 29, 2011

    SM should know that 2 tier wages aren't going away in one contract. Maybe in two or three contracts the lower paid workers will catch up - assuming tier 1 workers agree to zero increases. The real battle SM should be fighting is over certain plant's work rules. These rules are the productivity killers when comparisons are made to the transplants.