Give and take in U.S. labour deals
U.S. workers at Big Three get raises as some production goes to Mexico
SOUTHFIELD, MICH. The most lucrative contract negotiations for the United Auto Workers in more than a decade won’t add a lot to carmakers’ costs, even though each company committed US$2 billion or more for raises, bonus money and benefits.
In exchange for improving pay and health care, General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV can boost production of a few cheaper, lower-margin passenger cars in Mexico, where employees average about US$5 an hour compared with as much as US$29 an hour in U.S. factories.
The companies also gain the flexibility to hire more, less-expensive, temporary employees and have them work any day of the week; traditionally, they filled in during vacations and holidays, and worked on Mondays, Fridays and weekends. And automakers can replace retiring workers with cheaper entry-level hires, which will save about US$12 an hour initially.
GM, Ford and Fiat Chrysler did pledge billions in investment for their American factories. But most of this will prepare for new models of vehicles the plants already assemble, according to Art Schwartz, a former GM labour negotiator and president of consulting firm Labor and Economics Associates in Ann Arbor, Mich.
“The translation is, ‘We can go to Mexico,’ ” he said. “With this contract, it looks like money for workers is more important than adding jobs.”
The temporary-hiring flexibility, one-time payouts and bonuses, and other provisions — on top of shifting some production to Mexico — will help the automakers save cash, reduce total payrolls and offset the union’s gains. GM will be able to keep its labour costs essentially unchanged, at US$2,350 a vehicle in 2019 compared with US$2,374 in 2014, according to analysis by Schwartz and Kristin Dziczek, director of labour and industry at the Center for Automotive Research in Ann Arbor.
Ford’s costs will rise about US$200 to US$2,600, and Fiat Chrysler’s will jump to US$2,500 from US$1,771, Dziczek said.
Since U.S. sales are nearing a peak, additions to Mexico will be gradual, and these vehicles could be exported to other markets. By the time the contracts expire in 2019, the three automakers will have added an estimated 320,000 vehicles worth of production there and cut U.S. output by a collective 120,000, according to a forecast from IHS Automotive, a research firm in Southfield, Mich. Ford will add the most, boosting its Mexican production to 631,000 from 433,000, IHS said.
Joe Hinrichs, Ford’s president of the Americas, said management and the UAW spent a lot of time during negotiations talking about the “competitiveness of our footprint and the products we build and where we build them.” The company also needs to have “some flexibility to move some of our smaller products to other locations, which we intend to do.”
The list of vehicles built outside the U.S. already is growing. Ford will move two compacts, the Focus passenger car and C-Max hybrid, to plants in Mexico, according to a person familiar with the matter. Fiat Chrysler will assemble a compact Jeep sport utility vehicle there starting in early 2017, according to IHS. GM said a year ago it is investing US$5 billion in Mexico and will import the Buick Envision sport utility vehicle to the U.S. from China. It is expected to add more production in the U.S. than Mexico, IHS said.
Ford also is investing US$2.5 billion to build new engine and transmission plants in Mexico. The announcement drew the ire of Republican presidential hopeful Donald Trump, who said in August that he “wouldn’t allow it.”
The auto companies aren’t closing plants in the U.S. as they boost output south of the border, but they won’t be adding nearly as many jobs as the 30,000 hires they made in the past four years, both because sales growth is expected to peak and because labour costs now are higher.
One of the biggest challenges for the union “was to balance the competing demands of higher wages and job security,” UAW president Dennis Williams said in a statement when the GM agreement was released. “We believe this proposed agreement achieves both income security and job security.”
The Ford deal, the richest of the three, promises US$9 billion in factory upgrades and expansions that create or preserve 8,500 jobs in the U.S. It also provides acrossthe-board raises and US$10,000 in ratification bonuses. Bonuses were US$8,000 for GM workers and as much as US$4,000 at Fiat Chrysler.
Veterans at all three companies got two, three per cent raises and two cash payouts equal to four per cent of their pay. Entry-level, or so-called Tier 2, workers who once started at less than US$16 an hour and topped out at US$20 now start at US$17 and grow into the union’s traditional US$29. Those at Ford and GM also get the top-flight health insurance of their Tier 1 coworkers.
Even though the Tier 2 pay scale now has a gate to Tier 1 pay, reaching it takes eight years.
And as people retire, carmakers can replace them with these employees or temporary staff who make even less. GM’s hourly workers retire at a rate of about three per cent a year. That could more than double during the life of the agreement, giving the company additional savings, said the Center for Automotive Research’s Dziczek.
Higher wages over time still will make U.S. factories even more expensive compared with Mexico and even pricier than plants in Canada, where costs are close to those in America, said Michael Robinet, managing director of IHS Automotive.