Costly labour makes US car cos lose edge Centre mulls export booster

After strike, GM agrees to higher wages; others may follow

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Detroit, Oct. 18: There are plenty of puts and takes in the tentative deal the United Auto Workers struck with General Motors Co. this week, but this much looks clear: Detroit carmakers dealing with already-higher labor costs than their international foes risk becoming even less competitive.

GM’s labour costs will rise $100 million a year just due to the increases in worker pay, which “could be an even bigger headwind” for Ford Motor Co. and Fiat Chrysler Automobiles, according to RBC Capital Markets analyst Joe Spak. And that doesn’t even account for the cost of continuing the union’s generous health care coverage — a tab Ford expects to rise above $1 billion next year.

“The economics of the deal look really attractive for the GM workers,” said Colin Lightbody, a former labour negotiator for Fiat Chrysler who’s now a consultant in Windsor, Canada. “This agreement will increase the competitive labour cost gap.”

GM’s average hourly labour costs — including wages, benefits and other expenses — were already about $13 above what international automakers such as Toyota Motor Corp. and Honda Motor Co. pay workers at their US plants, according to the Center for Automotive Research. Ford’s costs are $11 an hour higher, while Fiat Chrysler pays a $5 premium.

The UAW will begin the process of ratifying its proposed contract with GM on Saturday, with workers casting ballots at locals across the country through October 25. Assuming the deal goes through, the union will turn its attention to either Ford or Fiat Chrysler next. While the two companies will look for ways to tailor an agreement to their unique needs, the union will seek to broadly follow the economic pattern established by the pact with GM.

Buyout Offset

GM is seeking to offset wage concessions with buyouts of higher-cost production workers. It’s offering $60,000 early retirement payouts to as many as 2,060 employees.

Even if overall labour costs still go higher, it may be worthwhile as long as the automakers’ deals with the union give them room to manoeuvre on where models are manufactured and when output needs to be curtailed.

“They got the ability to continue to run the company without the union telling them what they can produce and where,” said Art Schwartz, a former GM labour negotiator who is now a consultant in Ann Arbor, Michigan.

New Faces

Ford’s bargaining team is likely going to understand that concessions are “part of doing business” with the UAW, said Arthur Wheaton, director of the Worker Institute at Cornell University.

“The wild card is Fiat Chrysler, because it’s all new people at the bargaining table,” he said.

Fiat Chrysler Chief Executive Officer Sergio Marchionne, who died last year, played an important role in past contract talks with the UAW. Other key negotiators for the company and the union have retired or been implicated in an ongoing corruption scandal.

Signing Bonuses

There’s no desire at Ford or Fiat Chrysler to stomach a strike of the sort UAW has staged at GM. That walkout will last almost 40 days if GM’s 48,000 workers ratify the proposed pact next week.

The UAW issued statements earlier this month citing progress they were making with Ford and Fiat Chrysler while the GM deal was being hammered out. Should the two companies succeed in avoiding a strike, they might save some money by paying smaller signing bonuses — they wouldn’t have to essentially compensate workers for wages lost during a walkout, as GM is doing with its record $11,000 ratification reward.

Four years ago, Fiat Chrysler went first in negotiations and paid roughly half the signing bonus of its rivals. Now that the company is more financially fit, it’s unlikely to get away with as big of a discount.

“I can’t see the UAW allowing FCA to go down 50 per cent anymore, because their margins are pretty good now,” Lightbody said. “They’re gotten close to GM and Ford.”

Costly Care

Health care remains the most intractable cost as it reaches record levels of more than $20,000 a year for family coverage, according to a study by the Kaiser Family Foundation. While the average American worker contributes 30 per cent of the premium for family coverage, UAW members pay for just three or four per cent of their insurance plans, according to the automakers.

During bargaining, GM quickly rescinded a request to have workers cover 15 per cent of their medical coverage and have left it to others to cut that cost.

The UAW zealously defends its healthcare benefits, viewing them as compensation for giving up raises and jobs for years as the Detroit carmakers struggled to survive.

Temporary staff

Another concession the UAW won from GM is on the use and treatment of temporary workers, who’ve populated plants in greater numbers since GM and Chrysler reorganised in government-sponsored bankruptcies in 2009. They now represent almost 10 per cent of the roughly 150,000 unionised workers at the Detroit Three.

GM agreed to give temps a path to permanent employment and more vacation days, and the highlights of the automaker’s agreement states the UAW will have stronger oversight over their use. While it’s possible the company negotiated wiggle room in this regard to keep a steady stream of at-will cheap labor on hand, the fine print of the proposed agreement hasn’t been made public.

The cost of this compromise could fall hardest on Fiat Chrysler, which has the most temporary workers, Wheaton said. In the end, though, both Fiat Chrysler and Ford are likely to settle for paying a little more than planned rather than risk disrupting the flow of fresh models into a shrinking US auto market. Labour only accounts for five per cent of the cost of a car, Wheaton said.

“When you’re fighting over only five per cent of the cost, you have to ask yourself: ‘Why are we doing this?’” Wheaton said. “Why risk a billion to save $100,000?” — Bloomberg Worried over a sharp contract of exports due to poor outbound shipments, the commerce ministry is likely to take corrective measures soon. The ministry has called a meeting of all export promotion councils on October 24 to discuss the way out for enhancing the exports in the country, according to a commerce ministry source.

The move of the ministry comes at a time when India’s exports figures have showed negative for the second consecutive month in September. Besides, the ministry is learnt to have expressed discontent over the poor performance by manufacturing, power and mining sectors in which industrial output shrank significantly in August.

“As exports contracted for the consecutive second month in September, we will hold a meeting with all export promotion councils on October 24 and it will be chaired by commerce secretary Anup Wadhawan. The councils will also suggest ways to contain fall in exports,” the source said.

“The country’s outbound shipments have also remained subdued so far this year, showing downward trend of economy. The ministry’s new measures may be a step forward to pep up the export growth,” the source added.

As far as exports in the country, experts feel that it may have a bearing on the overall economic growth, which fell to over six-year low of 5 per cent in the first quarter of the current fiscal. Out of the 30 key sectors, as many as 22 segments showed negative growth in exports in September.

India’s exports remained in the negative zone for the second consecutive month in September, contracting by 6.57 per cent to $26 billion mainly on account of significant dip in shipments of petroleum, engineering, gems & jewellery and leather products, according to the government data.

“Besides, imports also contracted by 13.85 per cent to $36.89 billion in September, narrowing the trade deficit to a sevenmonth low of $10.86 billion,” it said, adding that shipments of gems and jewellery, engineering goods, and petroleum products contracted by 5.56 per cent, 6.2 per cent and 18.6 per cent, respectively.

Also, industrial output declined by 1.1 per cent in August due to poor performance by manufacturing, power generation and mining sectors. Ludhianabased exporter SC Ralhan has called for immediate release of foreign trade policy by the government to arrest the downfall.

“Government should immediately announce foreign trade policy. If it will be delayed, the government would not be able to control the damage,” Ralhan has said.

Trade Promotion Council of India Chairman Mohit Singla said there is a definite sign of manufacturing slowing down owing to the sluggish market demand, which has taken a hit at export.