Two-Tier Wage System May Merge Toward Tier 2 In UAW-Detroit Three Talks

The two-tier wage system in place now may come down in this year’s UAW negotiations with the Detroit Three. If so, Tier 1 may be the dead man walking.

Automotive News says its sources and analysts believe the outcome of the upcoming negotiations could see Tier 1 wages phased out in favor of more Tier 2 employees, mainly on the basis of keeping up with the labor-cost schemes among the transplants. Center for Automotive Research industry and labor group director Kristin Dziczek states that the tiers could merge over the next two negotiation cycles, proclaiming that “over the next eight years, we won’t even be talking about tiers.”

At present, nearly 40,000 workers are under Tier 2 contracts, making up just 29 percent of the 137,000 hourly employees working for FCA US, Ford and General Motors. Among the UAW rolls, FCA has the most members under Tier 2 with 42 percent, followed by Ford’s 29 percent and GM’s 20 percent.

Ford worker and bargaining committeeman Gary Walkowicz believes Tier 2 should give way to Tier 1, which pays $28/hour, a feat he says could be done overnight for $335 million a year at his company, which made $6.9 billion last year. He adds GM could do the same, considering the automaker recently bought back $5 billion in shares.

However, the two companies have higher hourly labor costs than FCA or the transplants, coming to $59/hour compared to the latter’s $40. Further, FCA’s situation is a result of a hiring cap suspension made during its bankruptcy proceedings in 2009, allowing the automaker to hire as many Tier 2 employees as it needs. The cap, established in 2007, limits hirings to between 20 percent and 25 percent of total hourly employment, though FCA and GM had theirs lifted through September 2015; Ford never had its cap removed.

Tier 1, meanwhile, could disappear due to demographics: average age of those workers at FCA and GM is 51, 49 at Ford. Eight years and two cycles later, most of those workers will have retired or nearing retirement. The hiring cap could also push the upper tier over the cliff, as all three automakers will want to gain or maintain a higher percentage of Tier 2 hiring than the current cap allows.

One proposal, according to consultant and former GM labor negotiator Art Schwartz, could see the UAW raise Tier 1 wages, while the Detroit Three offers to boost those of Tier 2, adding that the end of Tier 2 could jeopardize jobs that would not have happened were it not for the two-tier system.