UAW Talks Open With Labor Costs Rising, Slowdown Looming

By Nora Naughton

After years of prosperity, car companies in Detroit are entering contract talks this week with the United Auto Workers union with one main goal: cap fast-rising labor costs ahead of a downturn in the U.S. auto industry.

Within the past eight years, factory worker costs for Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles NV have crept toward prerecession levels, as the union won pay increases and other benefits sacrificed during the last downturn while car companies posted big profits.

This time around, negotiators for the three American car makers plan to press for concessions on health care and want greater flexibility using temporary workers, according to people familiar with their bargaining strategy. GM and Ford also want to address underused factories with the union as both companies continue to slash costs and shift more resources into developing electric and self-driving cars.

Ford, GM and Fiat Chrysler together employ nearly 150,000 UAW-represented workers. All three labor contracts expire Sept. 14.

UAW President Gary Jones said Monday the union won't back down easily, emphasizing in a speech that it will resist major concessions while the companies are still making healthy profits. The union and its members want more permanent workers and job security for the plants, especially as the car companies stop production of U.S.-built sedans.

"With this year's negotiations, we will halt that race to the bottom," Mr. Jones said during an event marking the official start of labor talks. "We will protect our work, our jobs and our way of life."

One big wild card in this round of talks: nearly 42% of the Detroit Three's unionized workforce have never experienced a slowdown in the U.S. car sector, according to data provided by industry sources. After the recession, U.S. car sales bounced back, recording their best four-year period ever, as pricey SUVs proliferated and padded profits for auto makers.

Negotiators for the companies worry that this group -- many of whom were hired after 2012 as auto industry rebounded -- will pose a tougher challenge in terms of predictability because they have less exposure to economic hard times and aren't as experienced with the bargaining process, say people familiar with the car makers' bargaining preparations.

The membership must ratify any contract struck by the union and company with a 51% majority vote. In the last round of negotiations, Fiat Chrysler workers voted down the first tentative agreement before passing the second pact. GM and Ford factory workers ratified their respective contracts in 2015 with a slim majority.

Mike Daniels, a factory worker hired at GM in 2013, said he isn't concerned about the threat of another downturn. He wants union leaders to fight GM for base wage increases that close the pay gap between pre- and postrecession workers, as well as pensions and guaranteed work for plants that GM has proposed to shutter, such factories in Detroit and Lordstown, Ohio. He said he will vote down any contract that doesn't include those elements.

"I deserve it," said Mr. Daniels, who recently transferred to a casting-plant in Indiana after GM downsized production at its Detroit assembly facility. "I'm standing my ground, and I'm drawing the line."

GM and Ford's all-in labor costs, including wages and benefits, have each exceeded $60 an hour for the first time in years, according to the Center for Automotive Research. Fiat Chrysler's all-in labor costs now stand at $55 per hour, up from $47 an hour during the last round of bargaining in 2015, the research center estimates. By comparison, foreign car companies, which don't have unionized factories, spend an average of $50 an hour on labor, the center found.

While labor accounts for only about 5% of the cost of building a vehicle, it is a crucial cost-saving lever for auto makers as it is the only component they can control, labor experts say.

Still, many workers want to see greater pay equity among the rank-and-file, including getting newer workers up to the top wage faster and winning them the same benefits offered to veteran employees. The UAW in March moved to raise the strike pay in preparation for a work stoppage if they can't come to an agreement with the companies.

"It's a new dynamic for this bargaining relationship," said Kristin Dziczek, vice president of the Center for Automotive Research in Ann Arbor, Mich. "This is not a concessionary environment, but there is a shoe about to drop, and these companies don't want to get hamstrung with costs they can't absorb if the industry contracts."

A federal investigation is also hanging over contract talks this year. A U.S. attorney's office is probing whether former union leaders and Fiat Chrysler executives corrupted the bargaining process by misappropriating training center funds in 2015. The investigation has so far led to eight convictions. The UAW has said it is reforming, while Fiat Chrysler has said a few bad actors stole funds for their personal enrichment.

Health care is expected to be a major issue in bargaining with the companies as they look to press for workers to pay a greater share of their costs, say people familiar with the bargaining preparations. Company negotiators also want to reduce fixed costs by using more temporary workers, these people say.

The companies say they need to address both of these items to be more competitive with foreign auto makers and shore up their finances as U.S. auto industry sales slow. GM's plans to idle four U.S. factories will also loom large in these negotiations with the union pushing to keep the plants open, while the company has argued it has too much unused factory space.

Joe Hinrichs, Ford's president of automotive operations, said the companies need to maintain their competitiveness, regardless of the industry's health.

"The backdrop of the negotiations is basically we've had a 10-year run of strong economics in the U.S.," Mr. Hinrichs said. "That doesn't stay on forever."

Write to Nora Naughton at nora.naughton@wsj.com

(END) Dow Jones Newswires

July 16, 2019 09:23 ET (13:23 GMT)

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