After nine-year run, UAW profit-sharing routine takes a turn
The now nine-year routine of hefty profit-sharing payouts to United Auto Workers members is poised to take a different turn.
Driving the upheaval in Detroit's hometown industry is a fundamental shift requiring automakers to redirect precious capital toward expensive electrification, mobility and autonomy efforts — just as they prepare for their quadrennial collective bargaining with the UAW over work in traditional car and truck plants.
The profit-sharing checks risk becoming a footnote as employees — white-collar and blue-collar alike — brace for the year ahead. But industry analysts, economists and even leaders at GM have made it clear that painful moves should be made while the economy is good and employees who lose their jobs can land new ones more easily.
"This time around, the uncertainty in the auto industry — and the fact that all three of these automakers have already announced some reductions — will trim that spending considerably," said economist Patrick Anderson, CEO of the East Lansing-based Anderson Economic Group. "Nonetheless, it is a very good sign that the Detroit-based automakers are making changes while they are still profitable, and that those profits are being shared with workers."
UAW members in the coming weeks will be paid bonuses ranging from $6,000 at Fiat Chrysler Automobiles NV to $10,750 at General Motors Co. now that all three Detroit automakers have reported profits for 2018. But amid the good times, GM and Ford Motor Co. are making the kind of cuts typically seen amid brutal downturns.
That is likely to change the dynamics at the bargaining table. GM is in the throes of a rigorous restructuring plan that included the start this week of more than 4,000 white-collar layoffs. The automaker also reported $11.8 billion in pre-tax profit last year, touted a strong outlook for this year, and used a filing with the Securities and Exchange Commission to outline an equity compensation plan for its GM Cruise LLC employees in Silicon Valley.
"As we begin the next phase of our transformation, I want you to know that we are committed to continuing to strengthen the core business as well as continue to accelerate our work to lead in the future of personal mobility," GM CEO Mary Barra told investors this week. "We are really repositioning this company from one that was trying to be all things to all people in all markets to a very strategic, agile and profitable company."
Ford, which made $3.7 billion last year, is expected to follow GM later this year with a restructuring of its own that will require pruning the global salaried workforce. The cuts already have begun, but are expected to intensify in the second quarter.
Fiat Chrysler, which made $4.1 billion last year, isn't expected to mirror the restructuring efforts of GM and Ford. But the transnational automaker is focusing more efforts on electrification and is expected to grow its manufacturing footprint in the U.S. this year — including reviving a plant in Detroit, CEO Mike Manley confirmed at the Detroit auto show.
But GM in particular has made it clear it won't invest in efforts that don't push the company toward a future it sees as driverless and emission-free. And it won't continue building products that U.S. consumers increasingly don't want.
As the company begins idling five North American plants and laying off white-collar workers, GM is upping its game to attract talent to its autonomous vehicle development operation by offering equity compensation to GM Cruise employees. The new incentive plan was approved last year by the board of GM Cruise, headed by Barra, according to the SEC filing.
GM Cruise CEO Dan Ammann, who moved on Jan. 1 to the driverless car unit from his job as GM president, also has an equity-based compensation plan that encourages him to meet certain targets for the company — including the grant of stock options, which would become valuable in the event of a GM Cruise spin-off.
“Mr. Ammann’s compensation plan is consistent with CEO benchmarks from tech companies with similar market cap to Cruise and is heavily weighted toward the attainment of specific technology and commercial targets,” GM spokesman Tom Henderson said.
UAW workers are likely to ask for their own slice of GM's profitability in the form of wage increases, experts say, not the stock options favored in Silicon Valley. More difficult decisions lie ahead for the industry as automakers weigh whether to invest in traditional product lines or expensive electrification and autonomy efforts. All while the companies deal with an increasingly volatile economic and trade environment.
"The UAW is going to want base wage increases, and the companies are not going to want to give it to them," said Kristin Dziczek, vice president of Ann Arbor-based Center for Automotive Research. The reason: base wage increases permanently increase fixed labor costs, while one-time bonuses represent one-time charges to the corporations. "Therein lies the rub."
In addition to GM's future-focused restructuring efforts, Ford is looking to trim operating costs by $25.5 billion over the next few years and plans to spend $11 billion reorganizing its European and South American operations. The automaker has not said what percentage of the global salaried workforce will be dismissed once the restructuring is finished. Ford expects to share details by the second quarter of 2019.
At the same time, CEO Jim Hackett rallied employees to push toward profitability as the company transforms, telling employees to "bury" 2018 "in a deep grave."