How the Detroit 3-UAW can solve Tier 2 on the cheap

David Barkholz covers labor for Automotive News.

The UAW’s thorny Tier 2 problem with the Detroit 3 is so daunting I now expect the parties to avoid structural changes to Tier 2 with an extra contract signing bonus that placates entry-level workers.

Neither of the two obvious ways to “bridge the gap” between the $16 an hour starting wage for entry-level Tier 2 workers and the $28 an hour earned by longtime UAW members works particularly well for cash-strained Fiat Chrysler.

Simply raising wages for Tier 2 workers at the Detroit 3 would disproportionately hurt FCA US, whose 38,000-employee hourly work force is 45 percent Tier 2. In contrast, Ford Motor Co.’s work force is 28 percent Tier 2, and General Motors’ is 20 percent.

The other way would be to reinstall caps on the percentage of the hourly work force that can be Tier 2. It had been about 25 percent for each of the Detroit 3 until the UAW in 2009 lifted the caps at GM and FCA (then Chrysler Group) to help them through their respective bankruptcies.

Ford's needs

Ford, which didn’t get that concession, has been promoting Tier 2 workers to Tier 1 wages in recent months after exceeding its cap.

But again, any cap negotiated below the 45 percent Tier 2 work force FCA now employs would force FCA to promote workers to Tier 1 and burden a company that the UAW is trying not to damage. Consequently, caps don’t appear to be a viable option.

Which bring us to a third approach I’ve been pondering: to wit, tackle the Tier 2 disparity by simply giving Tier 2 workers a bigger contract signing bonus than legacy workers.

'Bridge the gap'

It has all kinds of advantages, not the least of which is allowing UAW President Dennis Williams to claim he made good on his bargaining convention promise to “bridge the gap” between Tier 1 and Tier 2 workers.

A key advantage is that a signing bonus is a one-time shot. That’s the way the Detroit 3 like it.

They are loathe to give a wage increase because wages compound over time whether vehicle sales are hot or not. So the Detroit 3 want to keep compensation increases variable, either through signing bonuses or profit-sharing.

And, oh my, is that big lump sum tempting to workers. If FCA were to increase the signing bonus for its 17,000 or so Tier 2 workers by $2,000, it would cost the company just $34 million for labor peace. If it took $4,000 for those workers to ratify a contract, that would be about $68 million.

With annual straight-time hours of 2,080, a $4,000 extra signing bonus would add about $2 an hour to the compensation of Tier 2 workers for one year only.

That, folks, is very cheap. The signing bonus wouldn’t even put a $1-an-hour dent in FCA’s $47-an-hour average labor cost.

And GM and Ford would be happy to match the bonus for their Tier 2 work forces at such an inexpensive price.

In the end, the Detroit 3 keep their labor costs in check. They don’t have to bother with structural changes to Tier 2. Entry-level workers get enough for a down payment on a car or a backsplash for the kitchen.

And UAW leaders declare victory and move on to the organizing drives of the nonunion auto plants in the South.

You can reach David Barkholz at dbarkholz@crain.com -- Follow David on Twitter: @barkholzatan

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