When negotiations with the Detroit 3 automakers start next week, the United Autoworkers Union has a few significant things in its favor. Sales trends for cars and light trucks look good at least through 2017, if the economy shows modest gains, and Ford and General Motors are outshining Toyota and Honda on profitability. GM makes $2,600 in profits per vehicle and Ford $2,000, while Toyota and Honda are only at $1,850 per vehicle.
And UAW wages are now at least in the neighborhood of wages of U.S. workers at the international automakers. Hourly labor costs are $47 for workers at Toyota and Honda, which is right where Fiat Chrysler (FCA) workers are at now.
But it’s not all sunshine and rainbows; it never is. FCA is a wildcard in the negotiations, with much less profitability and about $10 an hour less hourly cost per worker. There’s the perennial problem of declining union membership (at over 1 million in the late 1980s and bottoming out in 2010 at around 400,000) and competition from Mexico, where autoworkers are paid $8.24 an hour compared to $37.62 hourly in the United States. And with new Right to Work laws in Michigan, for the first time, autoworkers can opt out of paying union dues. (Teachers were able to opt out in Michigan last fall, and unionization dropped dramatically.)
With the uncertainty of FCA bargaining, the union taking a hard line on healthcare and workers on different pay tiers having different priorities, “I think the probability of a strike is much greater than zero,” Kristin Dziczek, the Center for Automotive Research’s director of the Industry & Labor Group, told attendees at an industry briefing in Detroit late June. “And there’s a challenge here because the UAW is trying to increase its membership by organizing international automakers and representing a broader base of automotive employment, and a big, long, protracted ugly strike gives them a bad image of organizing in the South. And that’s something that’s going to have to be managed fairly astutely.”
Dziczek calls healthcare “a go-to-war issue for the UAW,” which wants to expand benefits without additional cost-sharing. Automakers, on the other hand, will push for more cost-sharing as they look to cut the cost of their most expensive benefit.
On employment and job security, union members are divided, Dziczek says. Workers with more seniority (Tier 2), who haven’t had a raise in eight to 10 years, want base-pay increases, which means less hiring. Entry-level workers want more people hired behind them so they can be pushed past the Tier 1 pay hurdle, and receive more pay and benefits. Both groups have high expectations and want to see the auto companies make very specific product and investment commitments to ensure job security.
Dziczek predicts the tiered pay system, established with the 2007 contract, “will disappear with a long grow-in.” She sees “modest raises” for Tier One starting with entry level, with more outsourcing “so less membership growth because we’re raising costs and the market is flattening out.” She expects profit-sharing, which has amounted to slightly more than a 3% annual pay raise for workers since 2011, to continue with tweaks in the FCA formula in light of the company’s 2014 reorganization.
She also forecasts product commitments in every plant, with detailed investments and U.S. shift preferences for vehicles co-produced in Mexico, and sees a good possibility of a healthcare pool for the 140,000 autoworkers hired at the Detroit 3 after 2007.
Any strike would most likely be at FCA, she says, and it could be drawn out.
Sean McAlinden, CAR’s executive vice president of research and chief economist, said that the contract “should be relatively rich. I say, give Ford and GM a big raise, to make up for no (cost-of-living adjustment). And find some way to push FCA bargaining elsewhere.”
Arthur Schwartz, GM’s former director of labor relations who now runs a labor negotiations consulting firm, said that the UAW “would as soon leave healthcare the way it is. Virtually zero cost, no premiums or deductibles, minimal co-pays. We’ve argued with the union bargaining about it. Their feeling is this is a core issue for them—the one they feel they’ve earned over the years—and they don’t have any interest in anything that raises the cost for their members.”
Healthcare costs automakers $16,000 per employee for traditional employees, $7,000 each for entry-level. “Compared to what any of us pay, it would be considered excellent healthcare,” says Schwartz.