FCA to put $5.3B in U.S. plants; cars to move to Mexico
United Auto Workers leaders from across the country gather Friday in Detroit to vote on a tentative contract with Fiat Chrysler Automobiles NV that includes raises for all hourly workers and profit-sharing checks based on profit margins. The contract also includes a $5.3 billion investment in U.S. plants, as part of a plan to move nearly all domestic car production to Mexico, and fill the voids left on American assembly lines with more-profitable SUVs and pickups.
Plant investments under the four-year proposed deal involve at least five vehicles and four U.S. assembly plants. The investments, like the pay hikes, are contingent on ratification by the union’s 40,000 Fiat Chrysler members.
Production of the Ram 1500 pickup would move from the Warren Truck Assembly Plant to the Sterling Heights Assembly Plant, according to two sources briefed on the matter who didn’t want to be identified because union membership hadn’t been told about the moves.
Production of the Chrysler 200 in Sterling Heights would go to Mexico, and the upcoming Jeep Grand Wagoneer would be built at Warren, according to the sources.
Dodge Dart production, currently in Belvidere, Illinois, also would move to Mexico, one source said. The Illinois plant also makes the Jeep Compass and Jeep Patriot, but those vehicles are being phased out under the automaker’s previously announced five-year plan. The Jeep Cherokee, which Fiat Chrysler CEO Sergio Marchionne said would leave the Toledo Assembly Complex to make more room for the Jeep Wrangler, would move to Belvidere.
“Some of it seems like a lot of movement, but the idea of putting higher profit-margin vehicles in plants with higher labor costs, and putting production of vehicles with lower profit margins in plants that have lower labor costs, makes perfect sense,” said IHS Automotive senior analyst Stephanie Brinley, who had not been briefed on the plan.
The strategy is meant to focus popular pickup and SUV production in the U.S., and concentrate the slower-selling cars in plants in Mexico, where labor rates are cheaper.
“It’s all about margins for Sergio Marchionne,” said Kelley Blue Book managing editor Matt DeLorenzo. “By moving car production to Mexico with its lower costs, it stands a better chance of making money on vehicles it typically uses incentives to move.”
Building the majority of the automaker’s hot-selling SUV, pickup and crossover models domestically could provide better stability for UAW members. However, it would cost billions of dollars and likely a lot of downtime at the facilities involved.
The production proposal helps the company move some of its most important, profitable products to newer facilities. The Warren Truck Plant in particular is one of the oldest, most outdated production facilities of any domestic automaker. It is in need of significant investments and a new paint shop — which the Sterling Heights Assembly Plant has, due to $1 billion in investments in recent years.
The Grand Wagoneer, a three-row luxury SUV, isn’t due on showroom floors until at least 2018, giving the company time to overhaul the Warren plant.
The production shuffle would leave the Dodge Viper as the only car produced by Fiat Chrysler in the United States. Workers at Conner Avenue Assembly in Detroit hand-built just 760 of the V-8 sports cars last year.
Officials with the union and automaker declined to comment on the contract provisions. Union members are expected to be briefed on the details in the coming days, following a UAW National Council meeting and UAW Leadership meeting with Local union leaders Friday at the Renaissance Center. Anywhere from 100 to 200 union officials are expected to attend. They, in turn, will explain the tentative agreement to their members before the company-wide ratification vote.
The proposed $5.3 billion investment in U.S. production facilities is nearly equal to the $5.7 billion the company has invested domestically since 2009.
The product moves were first reported by trade publication Automotive News.
The plans are similar to what Ford Motor Co. recently announced. The Dearborn automaker builds three cars — the Lincoln MKZ, Fusion and Fiesta — in Mexico. Earlier this year, the company said it was pulling production of the Focus and C-Max from Michigan Assembly in Wayne in 2018; the union was told those cars are heading out of the country, likely to Mexico. Ford entered contract talks with the UAW with plans to bring production of the Ranger midsize pickup to Wayne.
First- and second-tier UAW members at Fiat Chrysler would receive wage hikes and profit sharing based on North American-generated profit margins under the tentative deal that help bring entry-level workers closer to their veteran counterparts.
The entry-level, or second-tier, will have a top wage of about $25 per hour, according to two sources briefed on the deal. Second-tier workers currently start at under $16 and top out at $19.28 per hour over four years.
The amount of time it takes for a worker to reach the top will depend on how long they’ve worked as a second-tier worker, according to the sources. For tier-two workers already making the top wage, the tentative deal would give them a roughly 30 percent increase once they hit the new top wage.
Veteran, or tier-one, workers who currently make about $28 an hour would receive 3 percent wage increases in their first and third years of the contract and 4 percent lump sums in the second and fourth years, according to the sources.
In addition to wage increases, all workers would receive $800 for every one percent of profit margin from its North American-based operations, officially called FCA US. Second-tier workers also would receive additional money after an 8 percent margin to help “bridge the gap” with veteran workers: $1,000 for 8 percent; $2,000 for 9 percent; and $4,000 for 10 percent.
Under the last contract profit sharing checks were based on 85 percent of the FCA US’s operating profit.
Most Fiat Chrysler workers the last four years received 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.
Bloomberg News, which first reported the wage changes, also said workers will receive a $3,000 signing bonus if the contract is ratified.
Appeasing the tier-two workers was particularly important for Fiat Chrysler because they make up 45 percent of its workforce. General Motors Co.’s tier-two workers account for only 20 percent of the workforce; at Ford, it’s 28 percent.
GM, Ford next
While Fiat Chrysler’s tentative deal is expected to set a pattern for negotiations with Ford and GM, Williams on Tuesday hinted the union may be seeking more lucrative deals with them, because they’re making more money. Contract talks are ongoing at those two automakers.
“This is a contract that we can very well pattern, but pattern is very unique to each company,” Williams said on Tuesday, adding “each company has different unique ways of operating.” He mentioned he will look at the profitability and status of each company.
John Stapleton, GM’s chief financial officer in North America, was asked Wednesday at an investors conference if he thought the UAW would be more aggressive with GM on securing a contract deal than it was with FCA.
“We have a great relationship with the UAW, with Dennis Williams and (UAW Vice President) Cindy Estrada,” Stapleton said. “I can’t say that they’ll be more or less aggressive. I think what they typically try to do is negotiate a pattern agreement. That would be the baseline that they would start from and we’ll go from there.”
Stapleton declined to comment on the tentative agreement Fiat Chrysler and the UAW reached and how it could impact GM because limited details have been shared and GM’s team is still bargaining.
Staff writers Melissa Burden and Michael Martinez contributed.