Howes: Price of two-tier hangover looms over UAW talks

Daniel Howes
The Detroit News

The union delegates are right: tiered wage levels are an affront to the United Auto Workers' historic mantra of "equal pay for equal work."

By dint of hire date, not ability or work ethic, the tiers mock the tradition of solidarity by compensating workers differently for doing the same job. They come with less lucrative benefits. They can breed resentment on the factory floor, especially among the often younger, lower-paid employees.

But they don't deliver nothing. An under-appreciated fact of the 8-year-old tiers the UAW faithful love to hate is that they made reinvestment in U.S. plants more doable; bolstered sagging UAW dues rolls through difficult times; and helped repatriate production of cars and trucks otherwise destined for plants outside the country.

They enabled FCA US's Chrysler unit to restaff its decimated hourly workforce to cope with exploding demand for a reinvigorated lineup. They helped General Motors Co. rationalize its decision to keep its Lake Orion assembly plant open.

They contributed to near-record profitability, especially at GM and Ford Motor Co. In other words, "tier two" wages pretty much delivered as advertised, with an ample assist from American taxpayers and two epic bankruptcies, and now they should be dumped, the union says.

The two-tier hangover is here. The four-plus years of profitability, market growth and U.S. capacity utilization are now the chief arguments leveled against separate pay tiers — tiers, it must be said, both sides institutionalized in their 2007 contract.

Eliminating the second tier, as the 900 delegates at this week's quadrennial bargaining convention are demanding, won't come easily. Why? Because core pieces of the UAW's historically iterative contracts with Detroit's automakers are seldom dismantled in a single negotiation, unless they must be.

Top union leadership clearly understands this. As delegates demand the new contract "close the gap" between the second-tier and the legacy pay rates, the brass that works in Solidarity House and meets regularly with automakers talks of "bridging the gap."

That's a semantic difference, but a significant one. The brass, including President Dennis Williams, understands the first real set of labor talks since the global financial meltdown and the federal bailouts carries outsized significance for the status of the union and the automakers with investors, employees, customers and taxpayers.

Ranking auto executives also understand the predicament tiered wage levels pose for a union founded on the principle of equal pay. But that potentially divisive reality rooted in the past eight years must be balanced against the broader business case for future investment — and a potential downturn, whenever it comes.

Competitive wage rates and massive state tax credits powered the wave of post-recession investment in Michigan auto plants. The tax-credit liability in Lansing is swelling to more than $9 billion, making them unlikely to be repeated in the future. And industry profitability is undercutting the case for lower-tier wages.

Still, closing, much less bridging, the pay gap wouldn't come without a price. What would it be? Would the automakers propose to compensate by tweaking profit-sharing formulas or agreeing to smaller base-wage increases for top-tier workers who haven't seen a raise since 2007?

How will the contract account for higher health insurance co-pays in anticipation of the Obamacare "Cadillac tax," a component of the Affordable Care Act aimed squarely at pricey union health care during the life of the next contract?

As much as two-tier wages helped chart the path back to sustainable U.S. profitability, they also are creating a vise squeezing both sides. The automakers cannot plead poverty anymore than union bargainers can argue that the second tier provided no benefit to the union ranks, because it did.

GM and Ford head into this year's talks with the highest all-in hourly labor costs of all automakers operating in the United States, save Mercedes-Benz, according to the Center for Automotive Research.

"Closing the gap" threatens to widen that disparity, potentially impacting the location of future investments. Pretending otherwise is an exercise in self-delusion, a deliberate misreading of recent history or both.

The union is right when it says the existential threat is past, but not extinct. The challenge for both sides is squaring union demands with profitability and flexibility — because profitable, competitive automakers benefit both sides of the bargaining table.

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Daniel Howes' column runs Tuesdays, Thursdays and Fridays and can be found at