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Pay increases, health care contributions and a controversial two-tier wage structure are expected to be discussed at the United Auto Workers' Special Convention starting Tuesday in Detroit, as the union prioritizes issues for contract negotiations with Detroit automakers.

The challenge for UAW President Dennis Williams and his leadership team will be to appease rank-and-file workers, many of whom haven't received a pay increase in 10 years. At the same time, he knows he must keep labor costs for domestic automakers competitive with their non-union, foreign counterparts.

That will be easier said than done. The Center for Automotive Research on Monday released estimates that 2014 average hourly worker labor costs for automakers in the U.S. ranged from $38-$65, with Detroit automakers taking two of the top three spots.

Mercedes-Benz had the highest labor costs, at $65 per hour, up $3 from 2011. That was followed by General Motors Co., up $2 to $58; and Ford Motor Co., down $1 to $57. FCA US, formerly Chrysler Group LLC, was sixth on the list at $48, down $4 from 2011.

The estimated wage costs include everything an automaker spends on temporary and direct employees — from pension and health care contributions, to hourly wages and paid time off.

The report concludes the majority of automakers cut labor costs during the three-year period. That was largely because strong auto sales caused them to hire more entry-level workers.

"They've been able to expand employment at lower wages in this upturn of the market," said Kristin Dzicek, Center for Automotive Research director of the Industry & Labor Group.

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Detroit automakers established separate wages and benefits for new and legacy employees as part of their 2007 contract negotiations with the UAW in order to become more competitive with foreign counterparts. GM, Ford and FCA US are the only automakers whose U.S. workers are represented by the UAW.

The two-tier wage system has allowed Detroit's Big Three to invest billions into U.S. plants and hire thousands of new employees. But those entry-level workers make substantially less than Tier 1, or legacy, employees who earn about $27 an hour. Tier 2 workers can make a base wage up to $19.28 an hour; that's an increase from the $15.78 they earned in 2011.

Initially, there were caps on the number of lower-wage workers at all the Detroit automakers. But those were suspended at GM and Chrysler as they emerged from government-backed bankruptcies in 2009.

At the end of 2014, less than 20 percent of GM's hourly workforce was entry-level, and about 44 percent at FCA US. Ford, capped at 20 percent, recently maxed out and announced 300-500 workers would move up from the second-tier to top wage status after Ford exceeded its cap.

UAW members have said the two-tier system has caused divides on factory floors, as workers doing the same job are being paid differently.

Williams has said he does not consider the entry-level wages acceptable for the work. He says that the days of automakers arguing that union labor costs make them uncompetitive are over, as the pay gap between CEOs and the rank-and-file grows.

"If they want to go ahead and want to talk about wages, I am more than happy to sit down and talk about their salaries," he told reporters in December.

Analysts speculate it was easy to implement the two-tier structure, but it will be much more difficult to eliminate, as the workers themselves have different priorities.

The second-tier workers rely more on bonuses and profit-sharing checks more than the traditional hourly workers. They may not want to see bonuses lowered or eliminated in exchange for bridging hourly wages between the two pay levels of workers. For legacy workers who haven't had pay raises in several years, boosting pay may be more important than profit-sharing.

According to UAW automotive locals surveyed by The Detroit News, getting rid of the system is a top concern for the upcoming contract negotiations this summer. The current contracts expire in September.

"Clearly the biggest issue this time around will be the second-tier," said Arthur Schwartz, a professor of labor relations at Wayne State University and a former general director of labor relations for GM.

About 900 delegates from more than 800 local unions representing workers at more than 1,500 employers this week will debate a common collective bargaining strategy to meet goals of the UAW's roughly 400,000 members who work in auto, aerospace, agricultural implement, public service, health care, higher education and other sectors.

Williams and his leadership team will hear from members from all sectors and finalize issues that will be raised at bargaining tables. Hourly raises, pensions and health care contributions are among other hot-button issues expected to be discussed.

"The purpose of the convention is for the UAW leadership to hear what the members have to say," Schwartz said. "The leadership has ideas of their own, but this is a chance for the locals to express their opinions."

Besides the Detroit automakers, high-profile UAW contract negotiations this year include John Deere and the state of Michigan.

The auto industry traditionally plays a major role in shaping the discussions, but others, including delegates representing about 22,000 in Michigan's public sector, will voice their concerns as well.

In June, UAW members approved the first dues increase since 1967 — a 25 percent hike — to replenish the strike fund that had fallen to about $600 million. Union leaders said they needed a healthy strike fund so companies would take seriously the threat of a work stoppage.

Williams has said striking is not something the union looks to do when entering negotiations with any company, but it has to be prepared for the worst.

"Striking is a failure on both parties' part," he told reporters in December. "We don't plan on failing, but we're going to be prepared."

The 2015 contract talks mark the first since 2007 in which workers at GM and Chrysler have the right to strike; the UAW gave up that right for the 2011 talks as a condition of the government bailouts of GM and Chrysler.

mwayland@detroitnews.com

(313) 222-2504

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