Chrysler Eyes One Wage Rate for Hourly Workers by 2015

The 2-tier wage structure that allows Detroit auto makers to pay entry-level hourly employees substantially less than veteran line workers must go, Chrysler CEO Sergio Marchionne says.

Workers this week ratified a new 4-year deal crafted by Chrysler and the United Auto Workers union that clears the way for the auto maker to hire an unlimited number of Tier 2 workers.

But Marchionne says the two sides will work between now and the next round of negotiations in 2015 to abolish the 2-level wage rate.

“Long term, (the system) is not a viable structure,” Marchionne says in a conference call with analysts and media to discuss Chrysler’s third-quarter financial results released yesterday.

“It creates two classes of workers within the plant. It doesn’t work in the same direction we are working…to get this organization to work in unison.”

Chrysler and the UAW tried to tackle the issue in this year’s negotiations but ran out of time, he says.

“In this round, we came to the conclusion that…we have to postpone the long-term solution until the next time around,” he says.

“We do need to provide real (financial) upside to our workers as long as organization continues to perform. (But) our people also have to share in the downside of this business, particularly the cyclical nature.

Marchionne: Tiered wage structure not viable long term.

“I don’t know what the solution will be, but it needs to be done,” Marchionne says, adding he believes the UAW also wants to end the 2-tier wage structure.

“The 4-year contract is ample runway to start the dialogue. I’m confident the next time we sit down we’ll be able to find a more permanent solution.”

Chrysler says the new pact will not increase its overall labor costs, and its all-in average wage rate of $51 per hour puts the company on par with foreign transplants in the U.S. Although hourly wages will increase to a maximum of $19.28 per hour by the end of the 4-year deal, that hike will be offset by an increasing percentage of lower-paying Tier 2 jobs.

Marchionne says about 13% of Chrysler’s U.S. workforce is classified as Tier 2, and that figure will reach at least 25% by 2015.

“By then, it will be such a significant portion of our industrial workforce that it’s structurally undesirable to have this diversity of pay scales.”

Chrysler’s contract with the UAW calls for $4.5 billion in investment and the addition of 2,100 entry-level jobs.

Workers are receiving a bonus of $3,500 for ratifying the pact, though half of that amount won’t be paid unless certain financial milestones are met over several consecutive quarters.

Additional quality and performance bonuses total $4,000 over the life of the 4-year deal, though Chrysler says there is “100% upside potential” for that amount.

Marchionne calls Chrysler’s third-quarter financial performance “a confirmation of the fact the plan we put together in 2009 was right.

“I have no negative news,” he adds of the period in which the auto maker posted a net profit of $212 million. “It’s been a terrific quarter for Chrysler.

“There were some skeptics back a couple of years ago...(but) I feel comfortable that what we told you we are delivering on.”

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