Why mess with 2-tier wage success?

Hinrichs, Marchionne differ on key labor issue

Hinrichs: Risky to alter formula

DETROIT -- Two-tier wages, negotiated with the UAW in 2007, helped Ford Motor Co. and its Detroit competitors survive the devastating economic downturn that nearly destroyed the domestic automobile industry.

Now that Ford is churning out profits, Joe Hinrichs, Ford's president of the Americas, knows the two-tier structure will be a key issue in 2015 contract talks with the UAW. But Hinrichs, Ford's head of manufacturing in 2007 and a key player in that year's contract talks, believes it would be risky to mess with elements of the successful formula that helped bring Ford, General Motors and Chrysler back from the brink -- including the two-tier structure.

"Certainly the business has improved dramatically, and everyone has shared in that with record profit sharing for our UAW employees," Hinrichs said in an interview this month. "The other important thing is that we've in-sourced thousands of jobs consistent with that agreement.

"How do we keep the elements that have been beneficial to everybody in this discussion [and] keep our wages and our labor competitive so we can continue to invest in our plants here in the United States?"

In 2013, Ford reported a pretax profit of $8.6 billion. In February, Hinrichs hailed the result as "one of our best years ever." Ford reported a $1.4 billion pretax profit in the first quarter of 2014. Profit-sharing checks paid to Ford workers averaged $8,800 this year for their performance in 2013, according to the Center for Automotive Research in Ann Arbor, Mich.

'Freeze tier ones'

Hinrichs is not the only Detroit 3 executive to weigh in on the two-tier structure this month. Fiat Chrysler CEO Sergio Marchionne reiterated his opposition to the two-tier system on May 6.

"I've always been of the view that the two-tier wage structures are unsustainable in the long term," Marchionne told reporters. "We need to freeze the tier ones and make them a dying class. I don't mean that literally. I object violently to the notion of entitlement in the wage structure. That's something that is incredibly unwise."

Last week, Marchionne amplified his comments in a speech at the Brookings Institution, calling for contract talks with the UAW to be moved up by a year. He did not specify at what rate wages should be set.

Two-tier wages were implemented by the Detroit 3 in 2007 with the reluctant acquiescence of the union. Entry-level workers earn $15.78 to $19.28 an hour, compared with about $28 for top-tier workers, who also get more generous benefits. The gap in total compensation is about $20 an hour.

Two-tier wages "will absolutely be a central issue" in 2015 labor talks, said Kristin Dziczek, director of the industry and labor group at CAR. Dziczek said carmakers get flexibility from two-tier wages and other changes in the structure of worker compensation such as profit sharing.

"That's the whole concept behind flexible compensation," she said. "In good times we share. In bad times we're not handcuffed by higher costs."

UAW opposes 2 tiers

The UAW has remained committed to eliminating the two-tier structure. Bob King, the UAW president, who is retiring in June, told Automotive News in January: "Everybody that I know in the UAW -- myself, Dennis Williams, all the officers -- everybody has said that we believe in equal pay for equal work. We did the entry level because it was necessary to keep the companies viable."

Williams, nominated by UAW leaders to succeed King in June, was cheered at a UAW conference in February for saying that he didn't believe in two-tier wages and that "it's time to bridge the gap."

The UAW did not return calls by press time.

At Ford, about 21 percent of Ford's roughly 47,000 hourly workers are entry level. Ford still has the cap at 20 percent, although some of its plants don't count against the cap.

If the number goes over 20 percent, "those workers are supposed to transition to the higher wage but keep the lower benefits," Dziczek said. Caps at GM and Chrysler were suspended in 2015 as part of the 2009 bankruptcy reorganizations.

Hinrichs said labor negotiations can be unpredictable, as they were in 2007.

"We'll sit down as we do in our partnership and discuss -- look at it holistically and discuss how do we end up not destroying all the good things that have happened since the 2007 and 2009 agreements," Hinrichs said. "That will be an important conversation next year."

Nick Bunkley contributed to this report.

You can reach Bradford Wernle at bwernle@autonews.com

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