March 29, 2024

Auto Labor Contracts with U.A.W. Help Protect a Turnaround

With the ratification of the last of their new four-year agreements with the United Automobile Workers union on Wednesday, the Detroit car companies have successfully held the line on costs and further closed the competitive gap with their foreign rivals.

It was one of the cheapest set of contracts ever negotiated by the companies, analysts said. Historically, new union contracts have meant annual increases in labor costs in this country of 5 percent or more. But the 2011 talks resulted in a much more manageable increase of about 1 percent a year.

“I think both the union and the company came to a good place, common ground,” Daniel F. Akerson, General Motors’ chief executive, said in an interview. “Both of us can say we did well for our constituencies.”

It took three months of intense negotiations, which culminated in more opposition than normal by union members at General Motors, Ford and Chrysler. But in the end, Detroit won favorable contracts that not only keep costs down, but also allow the companies to increase production and employment in their United States factories.

By avoiding wage increases for their longtime workers, the automakers have minimized the longer-term, structural cost increases that had characterized its contracts with the U.A.W. for years.

The companies did reward workers with healthy signing bonuses, better profit-sharing formulas, and pay increases for the growing ranks of entry-level workers. In addition, all three companies pledged to add thousands of new jobs over the life of the contracts.

Yet the overall low cost of the agreements reflected the tenuous nature of the industry’s comeback.

“You can’t discount the fact that these companies are shadows of their former selves,” said Kristin Dziczek, a labor analyst with the Center for Automotive Research in Ann Arbor, Mich. “The industry is smaller and leaner than at any time in many years.”

G.M., Ford and Chrysler employed more than 300,000 hourly workers in the United States in 2001. That figure has dwindled to 112,000, and a small but growing fraction of those jobs are entry-level positions.

By reducing jobs and factories to better match their market shares, the Detroit companies have drastically reduced the level of industry sales at which they can break even.

Now as they add new products, they can also begin the hiring of thousands of new, less expensive lower-tier workers. The combination of less costly workers and steadily growing sales should produce higher profits over the course of the contracts.

Mr. Akerson, who joined G.M. after its bankruptcy in 2009, expressed confidence that his company could cover the modest increase in costs with better productivity and more profitable vehicles in its lineup.

“I think it is well within our capacity to, in terms of productivity gains and our ability to raise prices,” he said. “The contract maintained our break-even point, which was critical.”

Several factors contributed to the positive outcome, including new leadership at G.M. and Chrysler and a new president, Bob King, at the union. From the start of negotiations, there was an emphasis on compromise rather than confrontation, and little expectation that the automakers would increase wages for veteran workers.

Instead, Mr. King concentrated on getting sizable cash bonuses for workers now and a bigger share of corporate profits for them in the future.

The union also treated each company differently, based on its current financial condition.

Ford, which did not need a government bailout, was pressed to hand out the largest signing bonuses, $6,000 a worker. G.M. agreed to pay $5,000 and Chrysler consented to $3,500, although only half of that will be paid this year.

Mr. King and other union leaders had a tough time persuading some union members to support the disparity in bonuses. While workers at G.M. and Ford approved their new deals by votes of about 2 to 1, only 55 percent of Chrysler employees voted in favor of their new contract.

Workers were predictably split on whether the new agreements were fair.

“Is everybody happy with it? No,” Mr. King said in a conference call with reporters on Wednesday. “I’m not happy either. We know the struggles our members are going through.”

Mr. King said it was important, however, that the new contracts did not wipe out the competitive gains the companies had achieved through restructuring.

Analysts estimated that the three automakers were able to shrink the gap between what Detroit paid its workers and the compensation of nonunion employees at plants operated by foreign automakers in the United States.

The American companies now pay workers $57 to $50 an hour, when the cost of pensions and health care coverage is included. Ford, which has the fewest entry-level employees, is at the high end of the range, while Chrysler’s costs are the lowest.

By comparison, labor costs at the foreign-owned plants are still below $50 an hour on average.

“But the gap has closed considerably,” Ms. Dziczek said. “It used to be close to $30 an hour, and now it’s less than $10.”

The new contracts also symbolically moved the industry past its darkest chapter, when G.M. and Chrysler were forced to seek federal aid to survive.

At Ford, the negotiations were crucial to re-establishing parity with G.M., which emerged from bankruptcy with far less debt than its crosstown rival.

“We worked out something with the U.A.W. that did not disadvantage us to G.M.,” said John Fleming, Ford’s head of global manufacturing. “We always knew we’d have to pay our workers a little bit more to ratify it.”

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Chicago News Cooperative | The Bottom Line: Rahm Emanuel and Unions Square Off Over Work Rules

Because of agreements between the city’s leaders and employee unions, many drivers often are required only to chauffeur other employees and equipment to work sites across Chicago. Upon arrival, the drivers then just wait while other workers complete such tasks as installing street lights or trimming trees.

“It is commonplace, if you are a resident of the city of Chicago, to see work crews on which only a couple of people are working and others appear to be standing or sitting idle,” Mr. Ferguson said last week. “The remarkable thing about this is they are doing exactly what they are supposed to do. We have basically codified wasteful overstaffing.”

As Mayor Rahm Emanuel begins to grapple with the city’s daunting financial shortfalls, he faces a thicket of longstanding labor rules that could complicate efforts to make city government operate more efficiently.

Just two months after his inauguration, Mr. Emanuel already finds himself locked in a dispute with union officials over his demand that they agree to change some workplace rules or face hundreds of layoffs.

Mr. Emanuel and his budget-cutting aides are plunging into a murky legal sphere.

Reaching a clear understanding of how city employees are supposed to earn their taxpayer-financed paychecks can be much more complicated than merely reading union contracts. The way things have been done historically carries legal weight, labor law experts say.

The new mayor’s options appear to be limited even further by the 10-year contracts that Richard M. Daley reached with dozens of city workers’ unions in 2007. Those deals promised the same conditions and annual wage increases for union members through 2017.  Still, there are clauses that seem to allow the Emanuel administration to reopen the contracts in 2012.

With a budget deficit that could exceed $700 million next year, and with personnel costs representing the vast majority of expenses, Mr. Emanuel has said everyone must make sacrifices to help balance the city’s books. He has adhered to his campaign pledge to refrain from requesting that employees take more unpaid days off to save money, as Mr. Daley pushed them to do for years.

Instead, Mr. Emanuel said last month, he will have to lay off more than 600 workers unless their unions agree to changes in work rules. Although at first city officials did not offer details, Mr. Emanuel last week described three of the nine proposals he had presented to union officials in a closed-door meeting. The mayor and his aides have not publicly revealed the other six changes or the amounts that any of the nine changes would save.

Two of those ideas would affect the city’s hoisting engineers, who operate heavy machinery and who belong to the clout-heavy International Union of Operating Engineers Local 150. The mayor suggested an end to the contractually mandated practice of paying those employees double their usual $45.10 hourly rate for overtime. Almost all other city employees are entitled to just one-and-one-half times their regular wage when they work overtime.

Mr. Emanuel also called for changes to the perk that hoisting engineers call “grease time,” a practice that guarantees a half-hour of overtime pay in each shift for maintaining the heavy equipment that union members operate.

Even before factoring in overtime, which has added tens of thousands of dollars to yearly wages, the annual pay for more than 200 hoisting engineers is at least $93,808.

Officials of Local 150 declined to answer questions about the two mayoral proposals.

The hoisting engineers’ union, which had been a major supporter of Mr. Daley, backed Gery Chico to succeed him in the election in February.

The third concept Mr. Emanuel mentioned last week would involve compelling the city’s administrative staff to work 40 hours a week instead of 35.

dmihalopoulos@chicago
newscoop.org

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