FCA CEO Marchionne aims to eliminate 2-tier UAW wages

Fiat Chrysler CEO Sergio Marchionne said Tuesday that the two-tier wage structure established by the Detroit Three is "unsustainable in the long-term" and vowed to essentially eliminate it in contract talks with the UAW this year.

Marchionne said he thinks there is as much as a 50% chance that the UAW and FCA US will effectively eliminate the two-tier structure in this round of negotiations.

"We are going to try our darnedest to close it up," Marchionne said. "We need to design a career path for people who come into this business that tells them that if they work hard they can get there."

Marchionne has expressed that view before, but his remarks coming at the traditional handshake that marks the beginning of the talks were especially welcomed by UAW President Dennis Williams. The UAW head has pledged to close the wage gap between the Detroit Three's legacy auto workers and those hired after 2007.

If the two men can pull off that goal in contract discussions this year it would mean that the 2015 contract would go down in history as yet another transformational contract that would set a new course for Fiat Chrysler's 39,000 U.S. hourly employees.

Marchionne and Williams were among those who spoke at the ceremonial handshake event at the UAW-Chrysler National Training Center in Detroit. The UAW's contract with FCA US, General Motors and Ford expires on Sept. 14.

Marchionne, wearing a blue golf shirt with both the FCA and UAW logos, skipped the handshake and instead gave Williams a hug to begin the event.

"You should pay people the same wage for the same work and therefore anything that is dual in nature…is unsustainable in the long term. You cannot live that way," Marchionne said.

The UAW, which has historically believed deeply that workers doing the same work should be paid the same, agreed to the controversial two-tier wage structure in 2007. At the time, Chrysler, General Motors and Ford were suffering financially from truck-heavy lineups, overproduction, a reliance on incentives and a labor contract that made their UAW workforce more expensive than competitors.

Today, newly new workers hired by the Detroit Three start at $15.78 per hour and earn a maximum of $19.28 per hour while those hired before 2007 make $28 per hour.

Williams, in his opening remarks, said entry level workers don't earn enough to be part of the middle class and currently have no hope of getting to the higher wage.

"Their future seems somewhat bleak, because they have no path (to full pay)…and for many of them they feel like second class citizens," Williams said.

Williams said he is willing to explore a more flexible pay structure.

"We are interested in how do we do a cost structure to enhance all members' ability to have a higher standard middle-class living and yet have flexible and variable play," the union chief said.

The challenge facing Williams and Marchionne will be to figure out how, exactly, to create a wage path for the entry level workers.

Williams has also said the workers hired before 2007 deserve a base wage increase in this round of contract talks.

In January, Marchionne suggested that the workers who haven't had a raise since 2005 also should not get a raise from the next contract.

"We need to grandfather the (tier) ones and we need to work on the (tier) twos," Marchionne said at the time. "And, we need to open up to (entry-level workers) the possibility of effectively — through a variable pay scale — to make as much as a one makes."

Williams wants to "bridge the gap" between entry level workers and those hired before 2007 by negotiating a raise or securing other benefit increases.

Another thorny issue for the UAW and FCA is the percentage of hourly workers who are entry-level workers.

At FCA, more than 42% of hourly workers have been hired at the lower wage — far more than the 28.5% at Ford and 19% at GM.

FCA benefits from the elimination of a cap in the 2011 talks on the percentage of entry-level workers it can hire, giving it an advantage over its crosstown rivals.

That puts FCA in a much different place than GM and Ford and puts pressure on the UAW, which has historically tried to negotiate contracts with all three automakers that follow a similar pattern.

Marchionne has argued FCA deserves that advantage because it had to hire the highest percentage of new workers to recover from the recession.



Also, workers at FCA have received far smaller profit-sharing checks than workers at Ford or GM because FCA's profits have been smaller.

Since 2011, FCA's U.S. hourly workers have received, on average, a total of about $9,000 in profit-sharing and other bonuses before taxes compared with $30,200 for Ford workers and $30,250 for GM workers, according to Art Schwartz, president of Labor and Economics Associates in Ann Arbor.

That puts pressure on the UAW's contract negotiating team to win changes to the contract that would give FCA's workers a better shot at larger profit-sharing checks.

Williams didn't clearly explain how he hopes to deal with those differences.

"It's not whether or not we are creative in one way here, and then go somewhere else and say 'you have to identically do it,'" Williams said. "Pattern bargaining is very important to us. Philosophically."

Glenn Shagena, vice president of employee relations for FCA North America, said the company is in a much stronger position today than it was in 2011 during the last round of contract talks.

The automaker has reported 63 consecutive months of year-over-year sales gains and is profitable again.

"At the same time we cannot ignore any of the bitter lessons we learned during our restructuring," Shagena said.

This year, the U.S. auto industry is on track to sell about 17 million new cars and trucks. However, it's unlikely that industry sales will increase much more in the coming years. That means it will be harder for the UAW to win job commitments and plant investments commitments from automakers this year.

One key product in flux for FCA is the next-generation Jeep Wrangler, which has historically been made in Toledo. Marchoinne, who originally hoped to decide where the next Wrangler would be built by June, said Tuesday the Wrangler will be a part of contract discussions.

Marchionne said the cost of expanding the plant or building a new plant is higher in Toledo than other possible locations in the U.S. but hopes to keep it there because of the commitment of the Toledo workforce.

"I will do everything I can to keep it in Toledo," Marchionne said.

Contact Brent Snavely: 313-222-6512 or bsnavely@freepress.com. Follow him on Twitter @BrentSnavely.