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Tags: UAW | Labor Talks | Marchionne | Contract

4 Reasons the UAW Chose to Start Talks With Tough Marchionne

4 Reasons the UAW Chose to Start Talks With Tough Marchionne

Tuesday, 15 September 2015 12:49 PM EDT

In a play to get a labor deal that will set a pattern for union pay and benefits at Detroit’s three carmakers, the United Auto Workers went to Fiat Chrysler Automobiles NV, the poorest of the three and the company whose CEO is a notorious hard-line negotiator.

Historically, the UAW has picked the healthiest of the three companies to negotiate a deal and used that contract to set a pattern of wages and benefits that the other two would closely mimic. So why would UAW President Dennis Williams go the carmaker with the least money to try to hammer out a deal? Such an effort is even more challenging with a savvy negotiator like Sergio Marchionne.

There are many things Williams is trying to accomplish in the new contracts. He wants to secure swift ratifications from all three work groups. He also is seeking raises for senior members and for lower-paid workers. Overall, he’d like to get the three companies on equal footing while perhaps squeezing a bit more from the healthier companies. To get there, he’s taking on the hardest bargaining first.

Toughest Talks

Getting the toughest talk out of the way first can position the union to get all three deals done the quickest. Talks with FCA promised to be the most contentious, so Williams might want to get that pact done and ratified with his members before moving on to the deeper pockets of General Motors Co. and Ford Motor Co., where bargaining should be a little easier.

The two larger carmakers also have been more generous in the past, so Williams may not risk much by working out a deal with FCA first, said Art Schwartz, a former GM negotiator and now president of consulting firm Labor and Economics Associates.

“I think he decided this would be the toughest so he might as well get it done first,” Schwartz said in a phone interview. “I didn’t think they would go there first.”

That’s why selecting FCA is a surprise, Schwartz said. The company’s labor costs including benefits are $47 an hour, about $8 an hour less than GM and $10 an hour less than Ford, according to data from the Center for Automotive Research in Ann Arbor, Michigan. Setting a pattern with a richer company like GM or Ford could make the other two deals better for workers.

The majority of UAW locals at Fiat Chrysler plants have reached tentative agreements, Norwood Jewell, the vice president in charge of the UAW Chrysler Department, told local leaders in a letter posted Monday on the union’s website. On the national level, he said “there are still many items of importance to be reconciled.” The contract is being extended on an hour by hour basis as bargaining continues.

No More Tiers?

This could be the UAW’s chance to get rid the two-tier wage system. Unions don’t like two-tier wage deals, because the idea of two people doing the same job for different pay violates their core principle of solidarity. But sometimes -- as the UAW did in 2007 -- they agree to them to help companies lower labor costs without sharply cutting pay and benefits for longtime employees. Companies tend to like them, because in addition to the cost savings, the eroded solidarity makes the union weaker.

But Marchionne sounds more like a union boss when he talks about how the two-tier system is “almost offensive.”

The problem is that the union wants to lift everyone up to the top scale, and Marchionne wants to bring everyone down to the lower one. He’s trying to ensure that costs are low enough to survive downturns, while allowing workers to make as much as ever in good times.

FCA has more of the so-called Tier 2 workers, whose hourly pay rate starts at $15.81 and maxes out around $18. Veteran workers make $28 an hour. After the contract expires, FCA is supposed to limit its percentage of entry-level workers to 25 percent.

That limit was suspended during Chrysler’s bankruptcy in 2009. With nearly half its workforce making the second-tier wage, it is doubtful that FCA wants to promote those workers to Tier 1 pay, Schwartz said.

There may be some common ground on pay. When Williams and Marchionne kicked off labor talks with a public handshake in July, the UAW president said he would consider variable pay if it got workers -- especially those in Tier 2 -- to a middle- class income.

Ratification Strategy

It doesn’t matter what kind of deal is reached if it can’t get ratified by the members.

While Williams would like to raise everyone to the top tier of pay, rapid increases in second-tier wages to something close to Tier 1 pay -- perhaps $25 an hour -- could be very popular with those members, said Dziczek. As long as the veteran workers also get a raise, such a deal could easily be ratified because the 45 percent of Chrysler workers who make Tier 2 pay would vote for it, she said.

“Anything that helps the Tier 2 workers will help ratify a deal with Chrysler,” Dziczek said.

Timing is also important when it comes to the union’s internal politics. Fiat Chrysler’s UAW workers tend to get smaller signing bonuses and profit-sharing checks than workers at GM and Ford. If they see a richer deal for workers across town, they might not ratify it. So if Williams gets them to vote on a deal before he reaches agreements with Ford and GM, he might have a better chance to get all three deals done, Schwartz said.

In 2011, FCA paid workers $3,500 to ratify the contract and it narrowly passed with 55 percent of workers voting on favor of it. GM workers got $5,000 and Ford workers were paid $6,000.

“They don’t have to do the same agreement,” Schwartz said. “They can go to company No. 2 and say we want Chrysler plus more.”

Pressure Point

It doesn’t take a nationwide strike to bring a company to its knees -- halting supply of one key component can be just as effective. And Fiat Chrysler is vulnerable to just such an attack.

UAW members have authorized a strike against any one of the carmakers, but the UAW has another tool with Fiat Chrysler. The company makes transmissions for all of its vehicles at a cluster of plants in Kokomo and Tipton, Indiana, north of Indianapolis. If one or both of the union locals representing workers there went on strike, such as over local safety issues, they could shut down the entire company quickly because Fiat Chrysler has no other source for transmissions, said Sean McAlinden, chief economist at CAR.

Any strike would be short lived, McAlinden said, but it could still help improve the pay for the entry-level workers, which is the union’s primary goal in this agreement.

“The workers in Kokomo are ready to shut Chrysler down,” McAlinden said.

© Copyright 2023 Bloomberg News. All rights reserved.

In a play to get a labor deal that will set a pattern for union pay and benefits at Detroit's three carmakers, the United Auto Workers went to Fiat Chrysler Automobiles NV, the poorest of the three and the company whose CEO is a notorious hard-line negotiator. Historically,...
UAW, Labor Talks, Marchionne, Contract
Tuesday, 15 September 2015 12:49 PM
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