UAW Persuades Detroit Three to Share New Wealth

After a long retreat, the UAW is reasserting its influence over the U.S. auto industry by winning contract improvements reflecting automakers’ resurgent profitability and flirtation with record sales.

New contracts have been ratified by UAW members at FCA US, Ford and General Motors despite some stiff resistance from workers, who believed the union should have gotten more from the automakers.

The failure to ratify the first contract negotiated at FCA halted movement toward changes in the expensive health-care benefits that have been one of the industry’s hallmarks over the past half-century.

The narrow ratification votes at GM and Ford reflected a growing undercurrent of militancy that surprised union leadership after it had successfully negotiated the richest contracts for its members in nearly two decades.

“People are frustrated,” notes UAW vice president Jimmy Settles.

With the last-minute hurdles cleared, the agreements between the UAW and Detroit Three chart a new course for labor relations in the auto industry. The tiered wage scale the union sought to scrap has been modified, although it will live on in parts operations as part of the UAW’s ongoing effort to slow outsourcing.

The contracts also provide UAW members with wage gains that will put significant pressure on the automakers should sales soften, but the costs of the traditional pensions that once were a key feature of UAW contracts are easing.

A striking feature of this year’s negotiations was the union’s ability to win a pay increase at a time when raises of any kind have been difficult to come by for most American workers, including those in relatively safe jobs, says Harley Shaiken, a University of California-Berkeley professor who long has studied the UAW.

“It shows that unions can make a difference,” he says.

Shaiken notes the UAW won raises for so-called first-tier workers hired before 2007 and, more importantly, created a path where more recent hires at GM, Ford and FCA can earn top wages. The “grow-in” takes eight years to complete, but the workers hired since the end of last decade’s recession will complete the grow-in within the new contract’s 4-year run.

While the tentative agreements retain the 2-tier wage system, even workers in the lower classification will receive substantial raises, Shaiken points out.

For example, Tier 2 Ford workers hired after the 2011 contract and with three to four years’ seniority will get a 53% pay increase over the next four years as their wages climb from $18.41 per hour to $28 per hour.

“This is a significant accomplishment,” Shaiken says.

UAW President Dennis Williams last spring stopped short of promising to get rid of the 2-tier system and adopted a more cautious approach, pledging to close the wage gap. Indeed, the first contract the union negotiated at FCA closed the pay gap but did not eliminate the 2-tier system, and it was rejected by the rank-and-file.

In subsequent talks, FCA agreed to a formula that eliminated the wage difference for workers who stay on the company payroll for eight years.

The $8,500 ratification bonuses negotiated for all classifications of employees at FCA, GM and Ford, which pulled back on demands for new concessions from the union, will give workers a financial boost. UAW members also can expect profit-sharing and inflation-protection payouts.

The extra costs will put more pressure on the Detroit Three automakers, according to Sean McAlinden, vice president-research at the Center for Automotive Research in Ann Arbor, MI.

“I think GM and Ford can take a moderate recession (25% revenue drop for a year) pretty well with this contract,” McAlinden says in an e-mail. The GM and Ford contracts have provisions that encourage older workers to retire, which could reduce health-care costs as retiring workers are replaced by younger and presumably healthier employees.

FCA, however, could see health-benefits for active workers soar, as its deal contains virtually no early retirement incentives.

During a presentation at the University of Michigan’s annual Economic Outlook Conference, CAR’s Kristen Dziczek and Arthur Schwartz of Labor & Economics Associates describe the new agreements as more traditional than transformative and predicted a sharp increase in labor costs at all three companies.

Hourly labor costs will rise to an average of $60 per worker at Ford and GM by 2019, even as older workers retire, according to Dziczek and Schwartz. Ford’s current labor costs average $57 per hour and GM’s average $55 per hour.

FCA can expect the steepest increase with costs rising to $56 per hour by 2019, up from $47 per hour now. Compensation for non-unionized workers at Toyota is roughly $48 per hour and also is expected to rise over the next four years.

However, the UAW set aside its longstanding demand for large supplemental unemployment benefits and other layoff protection in this year’s negotiations. Bargainers instead sought investment in specific plants such as Ford assembly facilities in Michigan, Illinois and Ohio.

Investment means more job security, notes Bruce Baumhower, president of UAW Local 12 in Toledo, OH, which represents workers at FCA’s Jeep complex.

The contract is intended to slow and even reverse the outsourcing that has been a sore point with the UAW since the early 1980s when the domestic automakers began closing down in-house operations. The union has agreed to maintain the tiered pay system at the automakers’ remaining parts plants and will continue to encourage the companies to bring in more work by agreeing that new hires will be paid a lower “market” wage.

Another salient feature of the contract is the restoration of the ability of skilled-trades workers, such as electricians, millwrights and carpenters, to control their jobs after their influence was curtailed during the recession and bankruptcies of GM and the former Chrysler.

A new display of militancy among skilled trades helped scuttle the first contract at FCA and held up ratification at GM. In order to get the contract ratified, GM bowed to old-school tradition and agreed to provisions that enforce the boundaries between the various trades.

Skilled-trades workers at several large Ford locals voted to approve the tentative agreement by wider margins than production workers. However, after years of reducing the ranks of skilled trades, Ford also agreed to take on a significant number of new apprentices in the trades at its Rouge complex in Dearborn, MI. That helped win votes during the ratification process, in which the contract ultimately was approved by a narrow 51.9%-48.1% margin.