NEWS ANALYSIS

Can UAW fix Tier 2 disparity?

Return to pattern bargaining unlikely

About 42 percent of FCA's 36,000 U.S. workers are Tier 2, meaning they receive about half the pay and benefits of veteran auto workers for doing the same job. Photo credit: BLOOMBERG
Advantage FCA
Fiat Chrysler now has a significantly higher percentage of lower-paid Tier 2 workers.
 Tier 2 percentage of hourly work force
FCA US42%
Ford29%
GM20%

DETROIT -- A major reason why Fiat Chrysler enjoys a labor-cost advantage of about $10 an hour over Ford Motor Co. dates to Chrysler's bankruptcy.

A UAW contract concession in 2009 allowed FCA US to hire an unlimited number of lower-cost entry-level workers.

Ford workers, in contrast, refused to eliminate a provision that capped the number of entry-level, or Tier 2, employees at 20 percent of its total UAW work force.

In union parlance, the UAW broke "pattern" to give a mending FCA US, then Chrysler Group, a little more incentive to hire workers. General Motors was given that same edge.

Now, as the union prepares to negotiate new contracts with the Detroit 3 this year, restoring pattern bargaining will be difficult.

Traditionally, the union has used pattern bargaining to play one automaker against another as it has tried to lift wages and benefits for all its members.

The technique was to pick the healthiest of the Detroit 3, negotiate the best deal possible, then lock the other two automakers into the same contract.

Standing in the way of fully restoring pattern bargaining are the Tier 2 wage earners. They violate the UAW's principle of equal pay for equal work.

But the automakers say Tier 2 wages are needed to keep their labor costs competitive with non-union rivals, especially the Japanese automakers.

Heavily entrenched

Today, about 42 percent of FCA's 36,000 U.S. workers are Tier 2, meaning they receive about half the pay and benefits of veteran auto workers for doing the same job. Ford recently had to promote 500 workers who had been Tier 2 to a full $28-an-hour Tier 1 wage because it had exceeded its cap of 20 percent, excluding certain exemptions.

"It's the biggest thing out of whack," said industry labor expert Kristin Dziczek of the Tier 2 disparity in the contracts. Dziczek is director of the industry and labor group at the Center for Automotive Research in Ann Arbor, Mich.

This year's auto talks begin in earnest this month after the UAW holds its national bargaining convention in Detroit March 24-25.

In a statement, UAW President Dennis Williams said he would not comment on pattern bargaining or the upcoming negotiations to avoid pre-empting delegate discussion at the bargaining convention.

The rank and file would like to see Tier 2 ended in the next four-year agreements that the UAW will hammer out this year. Tier 2 is anathema to the union ideal of equal pay for equal work, Williams has said previously.

But ending Tier 2, let alone reducing its use, is unlikely to happen in these talks, said Dave Cole, chairman emeritus of CAR.

Cole, who has watched auto negotiations for decades, said Tier 2 has helped the Detroit 3 rebuild some of its U.S. work force decimated by plant closings before and during the recession.

For example, FCA has added nearly 13,000 net jobs since mid-2011 and now has a UAW-represented work force of 35,719. The growth has been almost entirely in Tier 2 workers who now represent 42 percent of its U.S. work force.

FCA has added nearly 13,000 net jobs since mid-2011 and now has a UAW-represented work force of 35,719. The growth has been almost entirely in Tier 2 workers who now represent 42 percent of its U.S. work force. Photo credit: BLOOMBERG

Still lagging transplants

Ford's U.S. work force has grown by about 10,000 people over that time to 51,160. That total just surpassed GM's U.S. hourly work force for the first time since at least the 1930s. GM has made the least use of Tier 2. GM's Tier 2 workers represent about 20 percent of its U.S. work force of 50,300.

Through a campaign to in-source jobs previously performed by suppliers and other efforts, Ford has legally surpassed its 20 percent Tier 2 cap. Its Tier 2 component stands at about 29 percent.

Ford Executive Vice President Joe Hinrichs has been especially vocal in his support of keeping Tier 2 intact. Even with greater use of Tier 2 workers, Ford and GM carry average hourly labor costs of about $59, Dziczek said.

That compares with the nonunion U.S. auto plants of the Japanese, Korean and German carmakers that combined come in close to FCA's average hourly labor cost in the "high $40s."

FCA and GM declined to comment on upcoming negotiations.

In a written statement, Ford spokeswoman Kristina Adamski said the automaker wants "a fair and competitive labor agreement that allows us to continue investing in U.S. facilities and adding jobs in the U.S.

"We need to continue to close the gap to the foreign automakers so that we can continue to support American manufacturing," the statement said.

Cole said it will be tough to get the contracts in pattern on Tier 2 this contract cycle given the advantage that FCA has grabbed with its ability to hire unlimited numbers of those entry-level workers.

The union wants to raise Tier 2 wages above the current maximum of $19. At the same time, longtime UAW workers haven't had a wage increase in 10 years. Providing relief on either count will cost money.

And Cole doesn't see a way that the union can clamp down on the use of Tier 2 workers and get the other wage increases it wants from automakers still trailing the transplants on labor costs.

He predicts the automakers will emerge with four-year contracts that keep total annual labor cost increases at the rate of inflation. And the biggest payoffs will remain profit-sharing bonuses that this year paid GM workers, whether veteran or Tier 2, $9,000 per person and Ford workers $6,900.

Cole said: "The key is not locking in fixed costs that can hurt [the Detroit 3] farther down the road."

Advantage FCA
Fiat Chrysler now has a significantly higher percentage of lower-paid Tier 2 workers.
 Tier 2 percentage of hourly work force
FCA US42%
Ford29%
GM20%
You can reach David Barkholz at dbarkholz@crain.com

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