Detroit Three, UAW to Play Out Working-Class Drama

DETROIT – Stagnant wages are a symptom of America’s failing economy, says former Florida Gov. Jeb Bush, a leading contender for the Republican presidential nomination in 2016.

Bush’s remarks during a speech last week to the Detroit Economic Club are part of an unfolding discussion about income inequality and that will serve as the backdrop for this year’s contract negotiations between the United Auto Workers and Detroit’s automakers.

Since the 1930s, the UAW’s contracts with General Motors, Ford and Chrysler, now FCA US, have been enormously important for setting wage and benefits standards for autoworkers.

UAW's Williams

During the 1940s and 1950s, the negotiations helped lay the foundation for everything from employer-paid health care to pensions and annual wage increases. UAW President Walter Reuther admired Scandinavian-style socialism and used the contract talks to expand the safety net, not only for his members but also for other U.S. workers.

However, the UAW’s influence has become greatly diminished and the union has had to give up annual wage increases and cost-of-living adjustments, defined-benefit pensions and retiree health care, all of which were eliminated from the union’s contracts over the past decade as Detroit’s automakers went through a harrowing financial crisis.

But Dennis Williams, the UAW’s new president, has said the union hasn’t abandoned its long-term objectives and he will enter the negotiations looking for wage increases, profit-sharing formula revisions and a way to minimize the pay gap between long-term and new employees created by the 2-tier wage system implemented during the financial crisis.

Union Shifting Focus to Current Workforce

The dynamics around the 2015 talks are much different from previous negotiations. Over the past two decades as American automakers lost market share and closed factories, the UAW’s priority was protecting retirement and severance benefits of large cohorts of workers being pushed into retirement or into unemployment.

Those benefits still are important to the union, but Williams and other union leaders also are under pressure from current members looking for higher wages. Older workers haven’t gotten a pay raise in 10 years and younger workers want the pay gap between first- and second-tier eliminated, according to union members.

Williams told reporters in December a review of the current profit-sharing mechanism is needed.

GM responded last week by announcing it would award profit-sharing payments averaging $2,400 to hourly workers.

“GM has demonstrated that the company can profit, shareholders can have value and our members can be rewarded for their hard work,” Williams said of the extra payment, which was approved by CEO Mary Barra.

Barra has developed a close rapport with UAW representatives. having served as chief of labor relations during her tenure as head of GM’s labor-relations staff during negotiations in 2007 and while serving on the Opel Board of Supervisors with former UAW President Bob King.

For GM, however, the profit-sharing payouts, which would have been larger if not for the $3 billion in expenses associated with the recalls of more than 31 million vehicles during 2014, also was also a strategic move in its effort to maintain the status quo, including the lower wage for new workers – something the union hopes to eliminate or severely restrict.

Sergio Marchionne, CEO of FCA, is among the executives most outspoken about the need to hold down wage increases for both first- and second-tier workers. “More of the compensation should be made variable,” Marchionne said during last month’s North American International Auto Show in Detroit.

FCA has the most to lose since 40% of its workers are new hires paid second-tier wages.

“Profit sharing has been the primary source of additional revenue for these workers since many have not had a raise in almost 10 years,” says Art Wheaton, a lecturer at the Cornell University School of Industrial & Labor Relations. “By using profit-sharing formulas, workers and their local communities get bonuses in good years while not (being promised) higher wages in lean years.”

GM's Barra

The same issue has cropped up at Ford, where the existing contract calls for the promotion of second-tier workers to the high-wage first tier. The automaker last summer began to bump up against a cap that limited second-tier wages to 20% of the hourly workforce.

Joe Hinrichs, head of Ford’s operations in North and South America and one of the architects of the current agreement with the UAW, said last fall Ford was in the midst of discussions with the union about the next step. Meanwhile, critics within the union’s ranks were complaining neither the company nor the UAW was moving fast enough to fulfill the contract’s terms about promoting second-tier workers.

Ford relented last week, announcing that for the first time the company would promote between 300 and 500 workers from the second to the first tier, raising their wages from $19 per hour to $28.50.

Automakers Defend Lower-Tier Wage

The automakers note even the second-tier wage is higher than the average U.S. manufacturing wage. Moreover, it’s equal to the wage paid by non-unionized foreign automakers in the U.S., particularly at newer plants developed by Toyota, Nissan, Kia, Mercedes-Benz and Hyundai since the end of the recession in 2009.

The UAW nevertheless has enlisted help from unions in Germany and France to step up organizing at Volkswagen, Mercedes and Nissan. The efforts have been costly for the union and so far have met with only limited success, mainly at the VW plant in Chattanooga, TN, where the union could emerge as the bargaining agent for employees after a long campaign.

Williams insists he prefers cooperation to confrontation and he shown while negotiating union contracts at Caterpillar and Mitsubishi he is capable of working out compromises under difficult circumstances.

But the UAW president also is facing pressure from right-to-work laws that ban compulsory union membership to deliver practical gains for his current members, who are acutely aware the automakers are profitable and executives are collecting substantial salaries and bonuses again.

Unions represent a smaller percentage of Americans workers than at any time since the 1920s, but where they have leverage in the private sector they have begun to push back against demands for concessions.

Longshoremen on the West Coast have been engaged in a standoff with employers for more than six months that has slowed traffic through ports from San Diego to Seattle, while oil refinery workers in Texas and California have staged their first strike in more than 35 years.

From the advent of Ford’s $5-a-day-wage to GM’s Treaty of Detroit in the post-World War II era to the UAW’s concessions in the recession-wracked early 1980s, Detroit has played a big role in framing the discussion about the economic benefits of work in America.

As Bush’s speech and President Obama’s State of the Union address underscored the discussions about wages, income, fairness and equality, those issues are certain to infuse urgency into the contract talks between the UAW and the Detroit Three.