By John D. Stoll
The battle cry for the United Auto Workers' 2015 bargaining
convention is summed up in these words: "No More Tiers."
The labor union, holding its quadrennial strategy conference in
Detroit this week, is under pressure from its membership to address
the pay gap between second-tier workers making an entry rate of $19
an hour, and traditional workers making $28. At auto factories
spanning Michigan to Missouri, workers have taken to wearing red
T-shirts with that three-word mantra written across the front.
The controversial two-tier pay structure was implemented in 2007
as Detroit's Big Three were struggling. It didn't have teeth over
the first four years because tens of thousands of auto workers were
laid off and two U.S. car companies went bankrupt.
But thousands of employees have been hired in the past four
years at the lower wage as the industry has rebounded. In theory,
those $19-an-hour workers are eligible to graduate to the higher
wage, but that process can take a long time and many are uncertain
if they'll ever get that $9 bump.
UAW officials will negotiate new deals with General Motors Co.,
Ford Motor Co. and Fiat Chrysler Automobiles LLC later this year.
Many issues are in play, including pensions and health care, but
UAW President Dennis Williams will be pressed to make good on his
promise to "close the gap" between the tiers.
The UAW convention has long been a pep rally heading into
negotiations, but Mr. Williams in a tough spot at this year's
meeting.
If he doesn't take a hard line, his base will be demoralized. If
he commits to abolishing the tiers, he paints himself into a corner
before negotiating with Big Three executives uninterested in cost
increases.
After decades of facing their own gap--a labor cost gulf of as
much as $35 an hour vs. nonunionized competitors, such as Toyota
Motor Corp.--GM, Ford and Chrysler's all-in U.S. compensation is
close to parity with foreign rivals.
As the auto makers have added jobs at their U.S. plants,
executives have been careful to cite lower labor costs as an
incentive to invest. Going into negotiations, those executives will
also remind Mr. Williams of how good the last four years have been
for his membership.
Since the last Big Three labor deal was signed in 2011, GM, Ford
and the Chrysler side of Fiat Chrysler have posted more than $70
billion in operating profit. UAW profit-sharing checks over that
period have, as a result, been generous--averaging $7,500 a year at
GM and Ford, and $2,250 at Chrysler.
When combined with other one-time payouts, such as quality
bonuses, Ford has paid out $43,200 in special lump sums per worker
over four years, while GM has paid $39,250. Over the life of the
agreement, these record bonus payouts equate to more than a
$5.30-per-hour worth of compensation, at a combined cost of at
least $2 billion to Ford and GM.
In January, GM Chief Executive Mary Barra tacked an additional
$2,000 on profit-sharing checks above and beyond what the
contractual agreement required. Referred to by some as the "Barra
Bonus," that move alone cost GM about $100 million.
Ford CEO Mark Fields did a similar move in 2011, topping off UAW
bonuses several months before that round of negotiations kicked
off.
Those bonuses, however, have come as Detroit enjoys tailwinds in
the U.S. market. Buyers are clamoring for high-profit trucks and
SUVs, driving the sales pace to near a decade-high. UAW negotiators
are reasonable to assume that what goes up, must come down--the
U.S. light-vehicle market will inevitably decline.
So how can Mr. Williams win while the wind is at his back?
UAW members have said one item he needs to push for is to win a
raise for traditional workers. While $28 an hour is generous in
manufacturing, the UAW's old-timers haven't seen a wage increase in
over a decade.
As for lower-paid workers, Mr. Williams will look to move them
to the higher wage more rapidly and with more certainty. This could
mean adjusting the cap on how many lower-paid employees can be
carried on the books, or have gradual raises in place that take
workers to higher rates over many years.
Regardless of the solution, any wage increases won this year
will need to be paid back with reduced pension benefits or higher
health costs for UAW members in the years to come. Explaining that
reality for the delegates gathered in Detroit may be the most
important item on Mr. Williams' agenda.
The Week Ahead looks at coming corporate events.
Write to John D. Stoll at john.stoll@wsj.com
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