GM Sees No Threat From 2-Tier Hourly Pay Scale

ROMULUS, MI – General Motors Manufacturing Manager Gerald Johnson sees no fallout from the auto maker’s 2-tier wage structure, a pay scale cross-town rival Chrysler considers unsustainable.

“It makes us competitive,” Johnson tells WardsAuto after announcing a $385 million investment at an engine plant here.

UAW member installs engine pistons at Michigan powertrain facility.

Last week, Chrysler CEO Sergio Marchionne said paying United Auto Workers union members different salaries was divisive and unsustainable long term.

“It creates two classes of workers within the plant,” Marchionne told journalists during a conference call to discuss Chrysler’s third-quarter financial results. “It doesn’t work in the same direction we are working to get this organization to work in unison.”

Paying newly hired workers nearly half of what veterans make has been seen as an asset for the Detroit Three, enabling them to slash manufacturing costs and effectively level the playing field against foreign auto makers building in the U.S. and employing nonunion work forces.

GM capitalized on the pay structure, which the UAW granted the Detroit-based producers during the bankruptcy crisis two years ago, to build a small car in the U.S. at its Orion Twp., MI, assembly plant.

Slim margins on small vehicles previously made their domestic production unprofitable, GM has said. About 40% of Orion’s 1,700 workers earn the lower wage.

GM, Ford and Chrysler each can employ up to 25% of its UAW workforce at the lower wage, which peaks at $19.28 an hour.

The UAW won a $4-an-hour increase in the low wage during contract bargaining this summer. Many in the union rank-and-file wanted the 2-tier wage structure eliminated, but negotiators instead placed greater emphasis on product commitments and jobs.

Johnson, who helps manage the Orion facility, says auto makers for years have successfully employed a 2-tier wage system for skilled-trade workers.

“The ability for people to work together and get paid different amounts for the work they do has never been an issue,” he says. “Among the salaried ranks it is equally true.”

Marchionne wants to scrap the 2-tier wage scale in 2015 contract talks.

GM’s investment in production of an all-new, fuel-efficient engine at the powertrain facility here will create or retain about 320 jobs.

Johnson says the engine will help the auto maker meet toughening federal fuel-economy rules but does not provide additional details, citing competitive reasons.

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