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Fiat Chrysler chief wants to eliminate two-tier wages

Michael Wayland
The Detroit News

Detroit — Fiat Chrysler Automobiles NV CEO Sergio Marchionne wants to eliminate the two-tier wage structure for the automaker and the United Auto Workers union during 2015 contract negotiations.

The UAW wants to end the two-tier system too, but the devil is in the details of a way to achieve it that satisfies both sides.

Marchionne, who has spoken out against the wage disparity for years, said there is a “better than” 50 percent chance of eliminating the two-tier system during this round of negotiations, which officially kicked off Tuesday in Detroit.

“I’m walking into this … with a very clear view of trying to do our best to get there. Time will tell,” he said during a ceremonial handshake event to officially start negotiations with the union in Detroit. “We’re going to do our darndest to try and pull it off, if we can.”

The two-tier structure was introduced in 2007 as a way to help Detroit automakers be more competitive with their foreign competition and help them during the economic downturn. Veteran tier-one workers earn about $28 an hour. New hires — so-called tier-two workers — top out at $19.28 for doing the same work.

FCA has benefited the most since that decision, with a cap on entry-level workers being lifted in 2009. About 45 percent of its roughly 39,000 union-represented hourly workers are classified as tier-two. That’s compared to 20 percent at General Motors Co. and about 28 percent at Ford Motor Co.

Negotiations are expected to be challenging at FCA this year, given its high percentage of second-tier workers; some workers who are displeased with alternative work schedules; and significantly lower profit-sharing and bonuses.

One issue not expected to be part of the talks is industry consolidation and potential mergers for FCA.

“Sergio (Marchionne) and I often talk,” said UAW President Dennis Williams during the event. “I’m not concerned about it, nor do I believe that it will be any part of this bargaining.”

Marchionne, who has been touting benefits of industry consolidation for months, said whatever happens in terms of consolidation “would never, ever be done without the consent and support of the UAW.”

‘Huge obligation’

Marchionne said it is a “huge obligation” for the automaker and UAW to eliminate two-tier wages, which both sides on Tuesday said is unsustainable and creates a divide in the workforce. He reiterated there are better ways for the company and union to help one another, such as profit-sharing.

“It’s essential to the long viability of the corporation to have employees that feel valued, and they aren’t,” Williams said.

Williams said he and Marchionne have had discussions on the wage structure since 2011, when he was secretary-treasurer under then-UAW President Bob King.

The union, as a way to “bridge the gap” — its philosophy on bargaining — would benefit by bringing all tier-two workers up to the level of tier-one veteran wages, but many of those veteran workers are vying for a raise under these negotiations. Many haven’t received an increase in about a decade.

The company would benefit from red-circling veteran workers — holding them at $28 an hour — and creating a path for more recent hires to get to $28 an hour or more. One way could be to offer the veteran workers more profit-sharing than entry-level workers to award their seniority. Marchionne always has been a proponent of profit-sharing.

“I firmly believe in wealth distribution,” he said. “I am a very firm believer that wealth that’s created needs to be distributed. That’s a fundamental issue.”

Most FCA workers got about $16,500 in bonuses and profit-sharing before taxes. Over the same four years, Ford hourly employees received up to $43,200 in bonuses and profit-sharing before taxes, and GM workers received $39,250 pre-tax.

Kristin Dziczek, director of the Industry and Labor Group for the Center for Automotive Research, said she expects the UAW and Detroit automakers will agree to give a small raise to first-tier employees who haven’t had one in eight to 10 years, while entry-level workers eventually would become first-tier workers over a grow-in period.

“I think the companies pretty much realize they’re going to have to give the first tier a raise and that the second tier will need to come up,” Dziczek said in June.

The FCA-UAW contract covers about 39,000 union-represented hourly workers in the U.S. Other significant issues include health care costs, raises and securing vehicle commitments for U.S. plants, as automakers invest billions in Mexico for vehicle production.

‘Recognize and reward’

The mood at the handshake event was lighthearted, but at the same time serious. Marchionne and Williams hugged one another instead of shaking hands to begin the event; then they laid out how both have been able to prosper in recent years, while discussing a need for this year’s agreement to continue that success.

Marchionne and Williams, whom have known each other for about a decade, were optimistic about this year’s talks. But the union, after years of stagnant pay and concessions during the economic downturn, looks to share the benefits of record sales and profits for automakers.

Glenn Shagena, lead negotiator and FCA North America head of employee relations, said the company is in a far different place than it was four years ago, and it needs to “recognize and reward” employees “for their hard work and dedication.” But the company, he said, has no plans to return to the deals that led Chrysler into a government-backed bankruptcy in 2009.

GM and the UAW met Monday to kick off talks. Ford Motor Co. will kick off negotiations on July 23. Autoworkers’ current four-year contracts expire Sept. 14.


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