Editorial: UAW, Chrysler deal addresses key issues

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The tentative contract struck last week between the UAW and FCA US, formerly known as Chrysler, seems to meet the needs of both the union and the industry. The union tackles some of its membership’s top concerns, and sets up a solid framework for negotiations with General Motors and Ford Motor Co.

The deal addresses the union’s two-tier pay system, and begins to tackle the increasingly expensive problem of health care for active workers.

UAW President Dennis Williams’ pick of Chrysler as the target, or lead company in the talks, is not surprising. Williams and Chrysler CEO Sergio Marchionne have an unusually warm and candid relationship, and Marchionne has been the most vocal of the Big Three about his own opinions, as well as the financial status of his company.

Fiat Chrysler’s tier-two workers — those recently hired — would start at $17 an hour, up about $1 per hour; their top wage would range up to $25.35, an increase from $19.28. They also would receive an improved 6.4 percent 401(k) contribution.

More senior tier-one employees would receive 3 percent general wage increases in the first and third year, plus 4 percent lump sums of about $2,400 in the second and fourth year.

Automakers can’t handle much of an increase in labor costs all at once, particularly as they look to be more profitable in the future than they have been in the past decade, and with competition not taking a breather.

The tentative contract will likely appease newer workers, and also provide enough cushion to give senior workers the hourly raise they haven’t had in a decade.

The UAW’s choice to begin with Chrysler is likely also strategic. The company has the lowest profit margins of the Big Three and the highest percentage of second-tier workers. About 43 percent, or 15,300 of its employees make the lower wage.

By comparison, 29 percent of Ford’s workers and just 19 percent of GM’s are second-tier.

If cash-strapped Chrysler can afford the increased labor costs, the UAW’s thinking is that GM and Ford have no choice but to follow suit.

With such attention in these talks on compensation and benefits, new employment has not been a focal point. That’s perhaps intentional on the part of the UAW.

Cheaper labor costs in the South and in Mexico threaten to take some auto production from Detroit.

As part of the deal, Chrysler announced it would move all car production to Mexico, while investing $5.3 billion in U.S. plants, which will take over production of all SUVs and pickup trucks. Several Detroit area plants need major improvements.

But profit margins on larger vehicles are bigger, and it makes sense the companies would move cars with lower profit margins to a location with cheaper labor costs.

Ford has also announced new products will be made in the Motor City, but that came after an announcement that some of its smaller vehicles would now be made in Mexico.

And as fuel and emissions standards tighten over the coming years, automakers could be making almost 50 percent less profit than they currently do on a vehicle sale in North America. That profit erosion would threaten UAW jobs.

Nonetheless, the agreement between FCA US and the UAW is a promising start to what should be a workable deal for the next four years, and speaks to the increasing maturity of relationships between automakers and the union.

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