Wage battle looms over contentious UAW auto talks

Four years of strong profits for U.S. automakers all but ensure the United Auto Workers will seek significant hourly wage increases for the union's rank-and-file as contract talks continue. And that's expected to be a sticking point as General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles prepare for a changing industry, slowing sales and an economic downturn.

The UAW is eager to lock in wage gains and other benefits for the next four years. That comes as hourly labor costs for the Detroit Three continue to rise, widening the gap separating them from non-union, foreign-owned competition in the United States.

How and where bargainers strike a balance both can live with — and sell to both investors and union members — holds major implications for the automakers’ ability to compete amid shifting priorities and greater calls for cash as they invest in autonomy and electrification.

UAW President Gary Jones, center, and the UAW negotiating team opened contract negotiations with Ford Motor Co. on July 15 in Dearborn.

Experts say automakers have several options other than wage increases to find that balance: bigger signing bonuses; uncapped profit sharing or more generous profit-sharing formulas; improved benefits; and promises of product allocation for certain plants.

“I don’t know how they get there, because there is so much pressure from the union side for wage increases,” said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research.

The current contract expires Sept. 14. 

UAW President Gary Jones set the tone for negotiations at the opening-handshake ceremony marking the official beginning of labor talks. 

"Since the 2015 negotiations, (the Detroit Three) has seen enormous gains in profits — profits made possible by the UAW workforce," Jones said. "My brothers and sisters who build these cars and trucks and SUVs, and who stood by this company and made sacrifices to ensure its survival, expect to share in those profits."

Union officials have argued the automakers have money to spare after years of reporting fat profits since union workers last ratified a contract in 2015. Those profits led to profit-sharing checks that workers have come to rely on — but also led to fluctuating personal income, Dziczek said. 

“It is very difficult to plead poverty from the company’s standpoint because they have been doing very well, but they have also been sharing that through the profit-sharing fund,” she said.

Detroit carmakers are expected to point to the pay gap between them and foreign producers like Toyota and Honda with plants in the United States. With benefits and bonuses included, GM hourly employees make $63 an hour, Ford workers make $61 and Fiat Chrysler workers make $55. Foreign producers spend about $50 an hour for workers in U.S. plants, according to data from the Center for Automotive Research.

From 2014 to 2018, GM's labor costs per vehicle increased 14%, Ford's was up 8% and Fiat Chrysler's was up 42%, according to CAR. 

Profit sharing

For every $1 billion made in North America, GM and Ford UAW employees under the current contract get $1,000 in profit sharing. Fiat Chrysler pays $800 for every 1% in profit margin generated in North America. 

In real terms, the average GM worker represented by the UAW has collected $45,500 in total over the last four years of the contract, which breaks down to an effective $5.47-per-hour pay increase. Ford workers got a total of $33,400 in profit-sharing checks from 2015 to 2019. Fiat Chrysler workers received an average of $20,500 over four years.

Profit sharing makes sense to the companies because “you pay money when you make money and you don’t when you don’t,” said Art Schwartz, president of Labor and Economics Associates in Ann Arbor and the former general director of labor relations at GM. But from the union’s perspective, profit sharing isn’t a certainty that can be relied on, which is why the Canadian labor union Unifor has staunchly stood against it over wage increases.

“If I was bargaining, I would argue you are way ahead on profit sharing,” Schwartz said. “The union is going to come back and say, ‘It’s not guaranteed and it doesn’t stay... a 3% pay increase is in there forever so I will take the 3%, which will net me about $2,000 a year but it will be there every year.’”

Bargaining chips

While GM, Ford and Fiat Chrysler have made moves recently to reduce costs and pump more profitable SUVs and trucks into their lineups, the automakers would still move to brace against sales declines, which would potentially cut into profits.

Ford and GM, for example, spent most of 2018 and early 2019 cutting their salaried workforces across the globe. The companies would move to lower costs in plants, too, experts said.

Automakers could rein in costs by negotiating for more temporary workers, who don't make as much or get the same benefits as their full-time counterparts. That would, in effect, net potential wage increases for those UAW workers who are already full-time employees.

The automakers argue that their foreign competition in the U.S. uses a higher percentage of temporary employees than the Detroit Three have been allowed. For example, about 7% of GM’s workforce is temporary compared with foreign automakers’ 20%. About 6% of Ford's workforce is made up of temporary workers. Fiat Chrysler's percentage of temporary workers is in line with GM and Ford, the company has said. 

One bargaining chip the automakers in negotiations is allocating — or taking away — vehicles or other products from plants.

They could sweeten a deal by making more plant investments in hopes of avoiding a wage increase.

But if automakers feel like they won't be able to get a deal ratified without some wage increases, then they could pull those products because they "go into bargaining with a dollar amount in mind for how much labor they are going to buy from UAW workers," Dziczek said. And if the union is going to make each hour cost more, the companies will purchase fewer hours, she said.

The battle over labor costs is only part what makes these negotiations contentious and leads some experts to believe that there is a high likelihood of a strike. 

In the background of this year's negotiations is the shadow of the UAW corruption scandal led by federal authorities that has so far led to eight convictions. 

"These negotiations were going to be difficult absent any outside federal investigation," Dziczek said. "They were going to be hard anyway and that just makes them harder."


Twitter: @bykaleahall