Profitability, smiles and handshakes guarantee nothing.
As the United Auto Workers and the Detroit automakers this week formally open national contract talks, the rite aiming to manage prosperity with optimism also carries seeds of potential confrontation. You want evidence that pieces of Old Detroit still exist in the post-meltdown model? This is it.
Instead of ensuring some measure of stability and good times, fat U.S. profits are challenging a status quo forged from restructuring, bailouts and labor-management cooperation imposed by the federal government. UAW President Dennis Williams is right: This won't be easy.
First, less than two weeks before talks begin, Ford Motor Co. confirms it will end production of Focus compacts and C-Max hybrids at its Wayne Assembly plant in 2018. Unless and until a new product line is assigned to the union shop in Wayne, the most likely beneficiary will be Ford's operations in Mexico.
In the UAW lexicon, "made in Mexico" remain fighting words. Eight years of retrenchment and reinvestment in Michigan (thanks, in part, to massive tax incentives extended in the waning days of the Granholm administration) look to be imperiled by a) the de facto end to the the state incentives and b) the press to more closely align profit margins with labor costs.
Eight years after former CEO Alan Mulally agreed to build compact cars in Wayne in exchange for a competitive labor agreement, Ford clearly is moving to build smaller-margin products in lower-cost markets like Mexico and reserve higher-margin products for sites closer to home.
The implication is clear: Company bargainers are prepared to use their Mexican operations as leverage to exert downward pressure on a labor-cost gap they know they cannot close in a single contract. But they want to show progress.
Second, Fiat Chrysler Automobiles NV CEO Sergio Marchionne continues to press his case for a merger with General Motors Co., irrespective of GM's flat rejection of the idea. Any such transaction would have profound implications for Metro Detroit and the union, whose support would be necessary to consummating any deal.
The merger pot-stirring adds a layer of complexity to the contract talks, presumably because Marchionne likely would tie investment commitments and substantial movement in second-tier wage rates to union support for a possible play for GM.
Third, a GM led by CEO Mary Barra seems determined to wear the white hat in these negotiations. At Monday's "handshake" marking the official start to bargaining, she said GM would "truly listen" to the UAW. GM sweetened profit-sharing checks earlier this year; continues to announce reinvestments in U.S. plants; confirmed that the automaker has "no plans" to abandon its small-car project at its Lake Orion facility.
How all of this good cheer will affect negotiations, if at all, remains to be seen. GM clearly is opening talks on a positive note, even as Marchionne is likely to work his longstanding relationship with Williams and Ford is likely to rely on its seasoned executive team and its deep ties to UAW-Ford Vice President Jimmy Settles.
Fourth, UAW members don't just want base-wage increases; they expect them. Sweetening profit-sharing formulas or enriching signing and lump-sum bonuses are not likely to be sufficient to ensure ratification — not when the three companies have booked North American profits totaling $67.7 billion during the four years of the existing contract.
That combined number will get even larger when the companies release their second-quarter financials in the coming weeks. As symbols, facts and the dynamics of national bargaining go, profits like that in the United States — the only market that matters when it comes to UAW compensation — cannot be overlooked.
Fifth, health-care costs continue to grow at alarming speed, increasing the likelihood that company bargainers will push for union members to pay a higher percentage of their annual health care costs. Doesn't much matter that white-collar salaried employees at all three companies already do.
Cadillac-style health care is a core expectation among the rank-and-file. A push to increase deductibles, or boost premium-sharing, in anything beyond token amounts would be fiercely resisted, especially at a time of fat profits and an expanding market.
This is new territory for Detroit's automakers and their major union. Six years after the global financial meltdown pushed the industry to the brink of collapse, prosperity is back. Managing it is tough.
Daniel Howes' column runs Tuesdays, Thursdays and Fridays and can be found at http://detroitnews.com/staff/27151.