Detroit Contracts Alter Strategy ; Deal to End 2-Tier Wages Could Push Less-Profitable Production to Mexico

By Bill Vlasic; Mary M Chapman | International New York Times, November 26, 2015 | Go to article overview

Detroit Contracts Alter Strategy ; Deal to End 2-Tier Wages Could Push Less-Profitable Production to Mexico


Bill Vlasic; Mary M Chapman, International New York Times


The deals represented a striking shift from years of cuts and stagnant wages and looked toward an end to automakers' two-tier wage system.

When union contracts were finally ratified at Ford Motor and General Motors last week, a new era began in the American auto industry.

The deals, which culminated labor talks among the nation's three big automakers, were the most generous for workers in more than a decade and represented a striking shift from years of cuts and stagnant wages.

"The feeling among workers was that if you're not going to get the money now when we are near the top of the market, you're not going to ever get it," said Kristin Dziczek, a labor analyst at the Center for Automotive Research in Ann Arbor, Mich.

But for automakers, the raises will add to the pressure to maintain profits and could spur a shift of less-profitable car production to Mexico from the United States.

Ford and Fiat Chrysler, for example, are considering moving some passenger car production from American plants to lower-wage factories in Mexico. In their place, the companies would make more high-profit trucks and sport utility vehicles in the United States. That shift could cause production issues down the road, particularly if gas prices increase and temper consumer demand for pickups and sport utility vehicles.

"From the company's point of view, the U.S. is where you have to build your premium products," said Harley Shaiken, a University of California, Berkeley, professor who studies the auto industry. "To cover the cost of labor, you have to go upscale."

It is all part of the delicate series of changes needed to solve the two-tier wage problem that has been dogging the United Automobile Workers since the system took effect in 2007. And it was the primary hurdle that had to be cleared in the recently completed talks. When automakers began final negotiations on contracts this fall, their goal was to reward union workers financially while containing costs and preserving profits.

The companies were also willing to meet the U.A.W. halfway on reducing the gap in pay between entry-level and veteran workers. But the strategy collapsed on Oct. 1, when workers at Fiat Chrysler overwhelmingly rejected a proposed contract that did not eliminate the divisive two-tier wage system.

"We showed we aren't quite as naive as they thought," said Scott McGinnis, an entry-level worker at a Fiat Chrysler plant in Michigan. "After that first agreement, a lot of people were insulted."

It was a stunning rebuke of the company and the U.A.W. leadership, and completely altered the course of the talks -- and ultimately the cost structures of G.M., Ford and Fiat Chrysler. Since then, all three companies have agreed to contracts that provide a defined path for every worker to earn the top union wage of $29 an hour.

The richer contracts also underscore how healthy the Detroit companies have become since G.M. and what was then the Chrysler Corporation slipped into bankruptcy and needed government bailouts to survive just six years ago.

Sales of new vehicles in the United States are expected to hit 17 million this year, the most in a decade, and possibly exceed that in 2016. In that environment, the time was ripe for workers to cash in.

Ms. Dziczek, the labor analyst, estimated that over the life of the four-year agreements, average hourly labor costs -- including health care and other benefits -- would rise 5 percent at Ford, 9 percent at G.M., and 19 percent at Fiat Chrysler. The increases are partly based on the number of entry-level workers at each company, and the impact that progressive pay increases will have on overall costs. …

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