Fiat Chrysler Automobiles NV Chief Sergio Marchionne is open to
killing the controversial two-tier wage system that union members
dislike but is unwilling to raise overall labor costs, a position
that could complicate the path to reaching a new labor deal in
mid-September.
"We need to make money in order to pay people as crass as that
may sound," Mr. Marchionne said during Tuesday's ceremonial
handshake to mark the start of contract negotiations with the
United Auto Workers "The downturns in this industry are lethal
enough to kill you."
Mr. Marchionne's negotiation team favors a flexible pay model,
which could include higher levels of variable pay, such as
performance bonuses. UAW members have been issued sizable
profit-sharing checks over the past four years as auto makers
returned to profitability, but banking on those checks to continue
is risky given the boom-and-bust nature of the auto industry, union
leaders have said.
The Fiat Chrysler talks are seen as the most contentious within
the U.S. auto industry, leaving the auto maker the most vulnerable
to a worker strike. Unlike General Motors Co. and Ford Motor Co.,
Fiat Chrysler is far less profitable, giving it less wiggle room
financially to award richer pay and benefits.
The two-tier wage structure, which pays newer hires a lower wage
than veteran workers, has been widely cited as helping the U.S.
auto makers in hiring tens of thousands of workers since the last
deal was signed in 2011. But it has also created a division among
the rank-and-file, who say it is unfair to pay some workers less
for equivalent work. This inequity in pay is particularly grating
on the auto maker's hourly workers because nearly 45% of those
working on the line are paid the lower wage.
UAW President Dennis Williams has been reluctant to call for the
elimination of the two-tier system, saying instead he hopes to
close the pay gap.
On Tuesday, Mr. Williams raised the possibility of adopting a
more-flexible pay model—a measure Mr. Marchionne has advocated for
in the past. Rather than receive base wage increases, workers would
be rewarded with greater profit-sharing bonuses if the company is
doing well financially.
"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 Fiat Chrysler handshake comes a day after the UAW started
talking with GM. Unlike the GM presentation, the opening was warmer
and more personal, with Mr. Marchionne giving Mr. Williams a hug,
rather than a traditional handshake. Mr. Williams at one point
referred to Mr. Marchionne as a "good partner" and "friend" while
crediting his work for turning around the company following its
2009 bankruptcy.
The UAW and Ford will hold an opening handshake on July 23.
At Fiat Chrysler the UAW wants to secure a pay raise for veteran
workers and wants to close the wage gap for new hires who now make
about $12.25 an hour less than veteran workers. Veterans earn $28
an hour while new hires start at $15.78 an hour.
"New hires have hired in at what we would call entry level and
their future seems somewhat bleak," Mr. Williams said. "Many of
them feel like second-class citizens."
Mr. Marchionne said eliminating the two-tier wage system may not
happen during this round of negotiations.
"We will do our best to try to get there," Mr. Marchionne said.
"People who do the same work should get paid the same amount.
Anything that creates two classes of people is unsustainable."
Fiat Chrysler enjoys lower labor costs than its crosstown rivals
due to a higher percentage of lower-paid workers.
Separately, Mr. Marchionne said he is still looking to merge
Fiat Chrysler with another auto maker but such a deal can't impact
the company's manufacturing workforce. He said it isn't a "slash
and burn strategy."
Sitting next to Mr. Williams, Mr. Marchionne said the union
would be consulted before any tie-up took place.
"Whatever happens in terms of consolidation, it will never be
done without the consent of the UAW," Mr. Marchionne said.
Write to Jeff Bennett at jeff.bennett@wsj.com and Christina
Rogers at christina.rogers@wsj.com
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