Labor Pacts in Hand, Automakers ‘Have to Start Selling Cars’

By Rick Popely, Chicago Tribune

Nov. 11—- After years of talking the talk that it needs cost concessions from the United Auto Workers to compete globally, the domestic auto industry will finally get a chance to walk the walk.

A tentative four-year contract with Ford Motor Co. appeared headed for union ratification in voting that ends Tuesday. That would make Ford the last of the domestic automakers to enter a new era of lower labor costs that should make them more competitive with Toyota, Honda and other imports stealing buyers.

The contracts are significant for domestic carmakers because money spent on wages and health care can now be pumped into new products, said David Cole, chairman of Center for Automotive Research.

“It gives the companies a real shot at doing things they couldn’t do before,” Cole said. “It’s a transformational shift. It’s a new game all around.”

For UAW members, the contracts signal more than ever that workers’ futures are tethered to their employers’ success.

If vehicle sales fall, for instance, there are no guarantees plants will remain open.

This absence of job security comes as the auto industry appears headed for hard times, with several analysts predicting U.S. vehicle sales could fall below 16 million next year, the lowest in 10 years. A plunge such as that could put thousands of UAW jobs in jeopardy.

“After the union has made these concessions, the question is whether the companies will be able to turn things around,” Clark University labor expert Gary Chaison said. “Now that these contracts have reduced their costs, they have to start selling cars. It’s going to be very difficult for them to do that in a shrinking market.”

General Motors Corp. will shave about $1,000 in costs per vehicle under its new contract, the Center for Automotive Research estimates, significantly narrowing its cost disadvantage with Toyota’s U.S. plants. Ford and Chrysler LLC could save nearly as much with their contracts, Cole said.

Japanese manufacturers typically redesign vehicles every five years, but domestic automakers often keep models on the market longer because they can’t afford the engineering, development and tooling costs, which can run between $500 million and $1 billion per vehicle.

Key elements of all three contracts include:

–Lump-sum bonuses instead of annual wage increases, a savings because annual raises are cumulative.

–A two-tier wage structure in which new workers will be hired at about $14 an hour, half what current workers earn. At GM and Chrysler, the lower-paid workers will hold non-production jobs, but at Ford all new hires will start at $14.20 and receive reduced benefits.

–The burden of retiree health care will shift to union-managed trust funds in 2010. GM, which unloaded $47 billion in retiree health-care liability, says it will save about $3 billion a year once the trust fund is operational starting in 2010. Ford and Chrysler, which had smaller liabilities, have not estimated their annual savings.

–Laid-off workers can stay in a “jobs bank” a maximum of two years and can be dropped sooner if they turn down job offers. Previously, workers could stay in the jobs bank for years and collect base wages and benefits if there were no new jobs within 50 miles.

Those changes, Cole said, are “the most momentous we’re seen in a labor contract. Labor did its part, big time.”

The two-tier wage structure has sparked considerable anger among some workers, who say it undermines the UAW’s solidarity by creating two classes of members. Gary Walkowicz, a former president of Local 600 in Dearborn, Mich., said lower auto industry wages will affect pay in other industries.

“This contract condemns our children and grandchildren to have a worse life than we do,” even if they never work in auto plants, he said in a flier that urges UAW members to vote against the Ford contract.

At GM and Chrysler, the lower pay scale applies only to certain non-production jobs, so there won’t be two pay scales for the same work. At Ford, all new hires will start at $14.20 an hour, setting up a potentially divisive situation in which two people perform the same task side by side, with one makes twice as much as the other.

“That ideology goes against what unions do, and it’s going to create problems for the union in the future,” Chaison said. “If they let it continue in the next contract, then it becomes permanent. That can really undercut the whole system.”

Ford’s contract caps at 20 percent the number of workers who can be hired at the lower wage and provides that lower-paid workers can move up to the higher scale when there are openings.

Harley Shaiken, a University of California at Berkeley professor, said he sees plenty of opportunities to move up because 30 percent of Ford’s UAW members will be eligible to retire over the next five years, and Ford is expected to offer new buyout and retirement incentives.

Shaiken said the major gain for the UAW is that the automakers made commitments to invest in U.S. plants that produce vehicles that sell. That means that “success in the marketplace will translate into gains for workers. The hope is that the contract will provide job security if the companies are successful,” he said.

If the union hadn’t granted concessions, Shaiken said, the future would be worse, especially if sales fall as expected.

“If this would have been business as usual, they all would have acted very rapidly to move more jobs out of the U.S.,” he said.

Chaison disagreed, calling the contract “one-sided” in the companies’ favor, and thinks the manufacturers will still move jobs to other countries.

“The fortunes of these workers hinge on the success of companies that increasingly see themselves becoming smaller in the United States,” he said. “Basically, the union gains time. They lived to fight another day in four years.”

Cole, however, said the union had no choice but to agree to two-tier wages and other cost-saving measures.

“What they’re dealing with is the reality of the world today. If you can’t be competitive, you can’t play the game,” he said. “The union’s primary mission was to preserve jobs, and to do that you need three sustainable companies.”

rpopely@tribune.com

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