F Ford Motor Company

By Christina Rogers and Jeff Bennett 

The United Auto Workers union reached a tentative labor deal with Fiat Chrysler Automobiles NV that will eventually remove a controversial two-tier wage system that pays newer hires less than more-experienced co-workers doing the same jobs, according to people familiar with the agreement.

Under the current arrangement, newer factory employees earn about $9 an hour less than more senior employees, a point of friction for many rank-and-file workers. The new structure will eventually phase out the two classes of wages over time, the people said.

Pay for entry-level workers hired after 2007 is currently capped at $19.28 an hour. The new deal would raise that pay ceiling after a number of years closer to $25 an hour, the people said, though the precise time frame and dollar amount couldn't be learned. Veteran workers earning more will keep their wages until they no longer work for the company, leaving the other wage as the new pay standard for auto workers going forward, the people said.

Fiat Chrysler Chief Executive Sergio Marchionne and UAW President Dennis Williams discussed the pact at a news conference in Detroit Tuesday evening, but declined to disclose specific wage details. UAW leaders will likely brief members on highlights in coming days.

Mr. Marchionne said bargainers have "crafted a very careful process by which the [tier-wage] system will go away."

For decades, the Detroit Three's auto workers made the same wage. But the UAW in 2007 agreed to a contentious new wage structure that paid new hires much less in an effort to aid the auto makers during a period of financial distress. The fortunes at the Detroit auto makers were squeezed in part by increased competition from foreign rivals such as Toyota Motor Corp., which enjoyed lower labor costs.

Union and Fiat Chrysler leaders several times said the new deal addresses rising health-care costs, which Mr. Marchionne characterized as a costly component of hourly-worker compensation.

"Health care was an important piece of this contract," Mr. Marchionne said. "I think we have an obligation to manage a better way. There are built-in inefficiencies of how health care is run today."

Mr. Williams has pushed for a health-care purchasing pool that would represent roughly one million active workers and blue-collar retirees and use its size to win cost savings from medical providers. It wasn't clear whether the new deal features such a pool.

The Detroit car makers, which combined will spend more than $2 billion on health care this year, say medical expenses have been growing at an unsustainable rate.

Mr. Williams said his aim was to reach a deal that would increase pay, reward members for sacrifices and address escalating health-care costs.

Company and union negotiators bargained through the night and all day Tuesday, hoping to hammer out a template the union hopes can be used for later talks with General Motors Co. and Ford Motor Co., the other two Detroit car companies.

Union leaders will now send the deal to the rank-and-file members for a ratification vote. Fiat Chrysler has about 36,000 U.S. hourly workers represented by the UAW.

The UAW hopes GM and Ford will use the deal with Fiat Chrysler as a guide when they head to the negotiating table. Mr. Williams sought to allay concerns that the UAW might not win better terms from those more-profitable companies.

"The FCA contract doesn't have to be an identical pattern," Mr. Williams said. "I don't want people to think for one minute that I am not looking at the other companies and what they have made. Each company has unique operations. What we have here for FCA doesn't mean we will have the same thing for GM and Ford."

In a statement, GM said: "We are pleased the UAW and FCA negotiating teams have reached a tentative agreement and are eager to continue discussions with our union partners."

In its statement, Ford said: "We look forward to negotiating a fair and competitive labor agreement that enables us to continue providing jobs and investment here in the U.S."

GM and Ford extended their contracts Monday, awaiting a resolution at Fiat Chrysler. Workers at all three Detroit car makers will continue to operate under the terms of their 2011 agreement until a new deal can be completed.

The two sides had been bargaining for months, often working late nights and weekends, trying to reach a new multiyear agreement for the UAW's 140,000 hourly workers at GM, Ford and Fiat Chrysler.

With all three auto makers earning healthy profits and U.S. new-vehicle sales on track to eclipse 17 million for the first time since 2001, the UAW's Mr. Williams is under pressure to win pay raises for senior workers who haven't received an increase in a decade.

Hourly workers at Fiat Chrysler have also received much less in profit-sharing bonuses than their counterparts at GM and Ford, a disparity that has rankled many members.

Fiat Chrysler is the smallest and least profitable of the Detroit Three car makers. With about 45% of its hourly workforce earning the lower wage, the company has a labor cost advantage of about $9 to $10 an hour over rivals GM and Ford, putting it more on par with Asian rivals such as Toyota.

UAW leaders picked Fiat Chrysler on Sunday to take the lead in talks, an unusual move for a union that has a history of choosing the most profitable company to settle on a contract with first. Typically, the union goes where it can get the richest deal, hoping it can pressure the other two companies to match it.

But Mr. Williams chose the company in part because of his unique relationship with Mr. Marchionne, a person familiar with the matter said. Mr. Williams has known the Italian-Canadian chief executive for years and believed he could quickly sell a deal to GM and Ford once hammering out an agreement with Mr. Marchionne, this person said.

In the 2000s, Mr. Williams led the UAW's region 4, negotiating deals at farm-equipment makers Deere & Co., Caterpillar Inc. and CNH Industrial, the truck and tractor manufacturer spun off from Fiat's automotive business four years ago. Mr. Marchionne is now board chairmanat CNH Industrial.

Mr. Marchionne has said since the start of talks in July he would lead the final negotiations and has been vocal about eliminating the two-tier wage structure, calling the inequity in pay and the division it created among workers unsustainable over the long-run. Executives at GM and Ford haven't publicly stated their position on the wage scale.

Mr. Marchionne canceled his appearance at the Frankfurt Motor Show this week to focus on bargaining, which took place at a UAW training center in Detroit.

Winning membership support for the deal could prove challenging for union leadership. Some factory workers were baffled by UAW leaders' decision to go with Fiat Chrysler first, worried they would end up with a weaker deal than if the union negotiators had started with GM or Ford.

"Naturally we're not very optimistic about [Fiat] Chrysler being chosen, " said Austen Keown, 26, an assembly-line worker at Ford's Louisville, Ky., plant. "They're the least profitable."

During the last round of talks in 2011, Chrysler workers were split on the contract with the skilled-trade group--representing a small number of the total workforce--rejecting the tentative deal. Then-UAW President Bob King was forced to step in and declare the contract ratified since most workers approved it.

Write to Christina Rogers at christina.rogers@wsj.com and Jeff Bennett at jeff.bennett@wsj.com

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(END) Dow Jones Newswires

September 15, 2015 23:36 ET (03:36 GMT)

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