Howes: Auto talks balancing rich past, uncertain future

Daniel Howes
The Detroit News

The clash over cash in the coming auto talks, crystallized by profit-sharing payouts and the push for base-wage increases, hinges on whether the past four years of fat U.S. profits signal a gilded future — or represent an aberration that cannot be sustained.

Bargainers for Detroit's automakers and the United Auto Workers can both marshal persuasive evidence to bolster their cases. The net result is a recipe for an old school-style clash fueled by the rhetoric of income inequality, fears of free-trade agreements and a rank-and-file expectation to get a bigger chunk of the $67.7 billion in North American profits the companies earned over the past four years.

The biggest challenge will come down to vision. Namely: should the competitive landscape facing the companies and potential financial rewards sought by the union be viewed through the metaphoric windshield pointing toward the future, or in a rear-view mirror trained on the past and a hunger for payback?

Count on bargainers for General Motors Co., Ford Motor Co. and FCA US LLC to acknowledge the pile of profits over the past four years; to remind whoever will listen how much hourly workers received in bonuses and profit-sharing the past four years; to try to separate how and how much UAW members are paid from the optics and the reality of executive compensation. Good luck.

Count on the companies to spend a lot more time, however, arguing that the past is not an accurate predictor of the future; that the longest-running sales-growth binge since the 1960s, now well into its sixth year, cannot continue indefinitely; and that the companies need the flexibility to manage the next downturn better than they did the last, which nearly destroyed the Detroit-based industry.

Led by GM and Ford, they'll use estimates from the Ann Arbor-based Center for Automotive Research to show how their all-in labor costs (wages, bonuses and all benefit costs, including pensions) continue to lag FCA's Chrysler unit and the Asian automakers operating in the United States, chiefly Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co.

The gap separating GM and Ford from Chrysler, Honda and Toyota is roughly $10 an hour, CAR estimates. It is closer to $15 an hour with Nissan. And the gap is even wider with Hyundai, BMW AG and Volkswagen AG plants operating in the South, the Motherlode for potential UAW members.

They'll remind that the competition is dynamic, not static; that foreign-owned rivals manage labor costs with much larger contingents of temporary workers, anathema to a union looking to bolster its membership ranks; that the political backlash against new trade deals makes competitive operating costs in the United States more important to ensuring new investment in U.S. facilities.

All of which may be true, but none of it will be an easy sell to UAW bargainers under pressure to deliver. They're expected to win boosts in wages for second-tier workers, to negotiate base-wage increases for "legacy" workers who have not seen a raise in their hourly rate in a decade, to protect health-care plans deemed so rich they will be subject to Obamacare's "Cadillac Tax" during the life of the new contract.

The union has facts on its side, too, viewed over the arc of the past eight years. Since the 2007 contract, the UAW has agreed to tiered wage levels it publicly loathes but privately understands are likely to stay because they help the business case for new investment in existing facilities. It also agreed to off-load retiree health care to a trust managed, successfully, by the union.

The harrowing downturn of 2008-09, culminating in federal bailouts and the bankruptcies of GM and Chrysler, enabled the automakers to rationalize their plant capacity; to eliminate tens of thousands of jobs, hourly and salaried; to euthanize brands that competed for resources and distracted management; to sharpen their product portfolios and streamline powertrain offerings.

Sales remain strong, powered by low interest rates, pent-up demand and modestly strong consumer confidence. Profit margins in the U.S. market — the only market that matters in UAW calculations — are among the strongest in 50 years, particularly for GM and Ford. Debt loads are manageable, and labor accounts for the smallest percentage of total costs per vehicle than anytime in a very long time.

How? Because the hourly work forces are dramatically smaller than eight years ago. Second-tier wages levels are at or near the highest levels allowed. And the automakers are producing their share of a booming U.S. market with a fraction of the workers employed in the past — all of which means bonuses and wage increases are a smaller piece of total cost today than in the past.

The ugly years of bailout and bankruptcy are not yet ancient history. But the business models they claimed, and helped to restructure, are dramatically different today, a fact likely to influence who gets what and how much in contract talks free of federal oversight and existential crisis.

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Daniel Howes' column runs Tuesdays, Thursdays and Fridays