UAW, FCA officials miscalculated young worker angst

UAW negotiators failed to understand the deep hostility of entry-level workers who, instead of taking a substantial raise, chose to join forces with higher-paid veterans to resoundingly defeat a proposed, four-year deal with Fiat Chrysler.

Entry-level workers, referred to as Tier 2, have been stuck in a separate, lower pay range since 2007. But it was going to take more than a pay increase to win their vote, especially when the new deal didn't include a promised 25% cap on the number of entry-level workers at FCA.

Even with the higher wages, moving from the lowest entry-level wage to the highest entry-level wage would take seven years, another sticking point for Tier 2 workers, especially because the contract was for four years and that scale could change in the next deal.

It would have meant a substantial pay increase for Mike Franks, who began working at the Trenton engine plant more than two years ago. Still, he voted against the contract, saying workers deserved more.

“There is a sense of happiness that we all are actually sticking together,” said Franks, 25. “At this point, it’s just a matter of waiting to see how the union represents us.”

UAW President Dennis Williams told local union officials Thursday he'll contact FCA to discuss issues members say killed the proposed agreement, according to a memo obtained by the Free Press late Friday. The tentative agreement was defeated late last week 65% to 35%.

Thomas Geoghegan, a Chicago labor lawyer and author of "Only One Thing Can Save Us," said the underlying force at play is younger workers' awareness they're taking the brunt of a wage stagnation phenomenon with incomes falling in real dollars over time.

"A two-tier wage structure is like running up a white flag that younger workers are going to be abandoned," Geoghegan said. "What's happening with the UAW may dramatize how much the problem of wage stagnation is a reflection of the drop in income of younger Americans. That is what’s leading younger people to get involved in the Fight For 15 and other minimum wage movements."

FCA and UAW negotiators seriously miscalculated. But there were major economic signs:

Last month, the Census Bureau reported that the median household income of Americans in 2014 was 6.5% below its 2007 level.

Average weekly income fell 0.3% in September from August, the government reported Friday.

Workers not only were paid less, they worked less: The average workweek declined from 34.6 to 34.5 hours.

This is happening as automakers reported the strongest annual selling rate in September — 18.2 million — since July 2005. General Motors executives told analysts Thursday that 2016 earnings per share will be between 11% and 22% higher than this year, and even better in 2017 and beyond. Nearly all that profit growth will be driven by its North American business.

Narrowing the gap

FCA CEO Sergio Marchionne agreed in theory that the two-tier structure should end, but he and Williams chose to strike a deal that narrowed the gap between the tiers rather than erase it over the next four years of the contract.

Williams tried to convince workers that it was better to raise the pay of all entry-level workers than push the company to eliminate the pay gap in one contract.

“Your bargaining committee has taken a thoughtful and strategic approach to addressing this inequity over time in a way that allows the company to continue to invest in our plants, develop new product and keep our jobs secure,” the UAW told workers in a written summary. “This new wage schedule takes into account seniority on the job and creates a structure that can be built upon in the next round of bargaining.”

Under the agreement, those hired after 2007 would have seen their hourly wage range increase immediately from between $15.78 and $19.28 to between $17 and $24. At the low end, that's an immediate 8% raise. At the highest end, for those with six to seven years of service, it would have meant an immediate 24% raise. But there are likely few entry-level workers with that many years at the company, and so few Tier 2 workers at that level who might be more likely to vote in favor of the deal.

Under the contract, a worker like Franks at the Trenton plant, with two to three years on the job, would have moved up immediately to $19.50 per hour from $17.53, or an immediate 11% raise.

Regardless of promised pay increases, the difference between the tiers — and possibly generations — is stark.

Bill Parker, a veteran UAW worker and former president of Local 1700 at FCA's Sterling Heights plant, said it took him only 90 days to qualify for the union's top pay scale. Workers of his generation also received — and still have — a defined benefit pension plus a 401(k).

Younger colleagues could wait eight years or longer before reaching the same pay as their older line mates. They don't have a traditional pension. Their retirement money is tied completely to their 401(k) plans.

"This is a transitional contract year," said Gary Chaison, professor of industrial relations and labor history at Clark University in Worcester, Mass. "There is a turnaround in the industry and an expectation that the earlier concessions can be erased. They're not bargaining with bankrupt or near-bankrupt companies."

More at stake

For some entry-level workers, much more is at stake in this year’s contract negotiations with Fiat Chrysler than their own wages.

“I feel like American workers need a win here, because we are not only fighting against Sergio, but we are fighting against our government because they are making it so easy to allow companies to move work oversees,” said Sonia Lewis, 43, who works at the automaker’s transmission plant in Kokomo, Ind.

Lewis, who was hired in 2012, was a stay-at-home mother who struggled to find a job that paid well when she re-entered the workforce. She recognizes that workers run the risk of driving even more work oversees by demanding higher wages.

“Already, in our proposed contract talks … there wasn’t really anything in writing in the contract about bringing in more jobs. There is talk of moving products to Mexico, so that is a big concern.”

More than General Motors and Ford, FCA has taken advantage of the lower tier, which covers at least 43% of its production work force, according to UAW data. Ford agreed to a 20% cap in 2011 and GM has about the same percentage of UAW employees at the lower scale.

Despite robust sales and profits, global pressures confront all unions with hard choices. Even before hammering out the now-failed deal, Marchionne said FCA plans to shuffle several products among North American plants. For example, production of the Dodge Dart compact would move from Belvidere, Ill., to Mexico, and the Chrysler 200 would shift from Sterling Heights to Mexico.

Essentially the U.S. would become the base for pickups and SUVs, which generate larger profits.

Stagnant incomes

Like most Americans, autoworkers have seen regular economic reports and data showing incomes are stagnant, despite a slow-but-steady economic recovery. They also have seen the quarterly earnings reports of FCA, GM and Ford, and they've noticed North American auto industry profits big enough to mask losses in Europe and slowing growth in China.

Despite the good times for the industry, automakers are leery of returning to the days when out-of-control labor costs, including health care, strangled them. Over the last decade, the Detroit Three have managed to shrink their total labor costs, which include hourly wages and benefits, to be more in line with foreign competitors operating nonunion plants in the U.S., mainly in the South.

The repercussions of this showdown will ripple far beyond one automaker. All of organized labor is watching.

If the UAW, even in its smaller scale, can't deliver economic gains in good times, prospects remain bleak that the 30-year trend of flat or falling incomes will be reversed.

Even so, globalization remains a powerful force. The automakers are still in a cyclical industry.

Labor now accounts for $1,771 of the cost of each vehicle FCA makes in the U.S., according to Sean McAlinden, chief economist at the Center for Automotive Research. That's down from $4,167 per vehicle in 2007.

Much of that reflects the UAW's agreement several years ago to place health care obligations of its more than 750,000 retirees into a trust.

Other trends have driven down the cost of labor. Assembly, engine and stamping plants are more automated than ever. The jobs left for humans require more technical skills and training than ever.

"When you’re making $15 an hour how are you going to make ends meet?" asked Patricia Dallas, 60, a veteran (Tier 1) worker at the Trenton engine plant. "Go out and price those Chrysler vehicles; most of these younger people can’t afford them."

Contact Greg Gardner: 313-222-8762 or ggardner@freepress.com. Follow him on Twitter @GregGardner12.

What's next

UAW President Dennis Williams told local elected union officials on Thursday that he'll contact Fiat Chrysler to request a meeting to discuss the list of issues that union members identified as stumbling blocks to reaching a new master agreement.

After Williams and FCA executives meet, the UAW plans to reconvene its council meeting, according to the memo. No new date has been selected.

A UAW spokesman and a FCA spokeswoman declined to comment on any plans for discussions or meetings between the two sides.

Stumbling blocks

Top 13 worker issues at the Sterling Heights plant with the FCA contract proposal. Taken from a memo to membership obtained by the Free Press on Friday

1. The 25% cap on the number of lower-paid, entry-level workers never materialized, leaving workers feeling as if they were lied to with a past promise it would be implemented in 2015.

2. The creation of a health care co-op is being interpreted by members as a change to their coverage that will cost them more, and there are concerns their leadership is hiding that fact.

3. Attendance policy is described as too rigid.

4. The $3,000 signing bonus is $500 less than in 2011. Members think it should be higher because the companies are more profitable today.

5. Concern that there is no defined route for entry-level workers to reach the top pay of $28.23 during the life of the four-year agreement. It will take seven years for some workers.

6. Employees wanted to eliminate the practice of using two weeks of their vacation during the summer shutdown period. And while they won the ability to take vacation in one-day increments, it does not benefit those with 80 hours of vacation time or less.

7. Lack of sick days.

8. Failure to bring the cost of living allowance (COLA) back.

9. Entry-level workers have a long wait to get dental and vision benefits.

10. Failure to bring back overtime after eight hours.

11. Failure to reinstate an annual bonus for retirees. They receive a $1,000 car voucher.

12. Failure to resolve the employee referral issue.

13. Concerns about FCA's plans to shift car production to Mexico and other changes to which plants make which products in the future.