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UAW-FCA deal dooms Tier 1 if passed

No bridge for Tier 2 signals lower wages the norm

Ford this year promoted 865 workers from Tier 2 to Tier 1 after it exceeded its Tier 2 cap.

DETROIT -- In a few years, there will be only one pay tier for UAW members at the Detroit 3 -- just as they demanded.

But it won't be the one they wanted.

If the union's tentative contract with Fiat Chrysler is any indication, the surviving tier will be the lower one: The rich, traditional jobs will go away over time, replaced by a class of auto workers earning less in wages and benefits than the highest-paid today.

That would maintain the lower labor costs the Detroit 3 won in the last contract, which they say have allowed them to compete with the U.S. transplant operations of German, Japanese and Korean carmakers.

If vehicle sales slow, FCA and the union will be in a position to survive the pain.

"They're well-prepared to deal with an emergency," said Dave Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, Mich.

Under the UAW's tentative agreement for about 37,000 FCA US employees, the maximum wage for Tier 2 workers rises 32 percent from $19 an hour to $25 in four years. But that's still $5 an hour below what Tier 1 workers will earn over that time given their wage increase to $30 an hour from $28 today.

More important, the agreement provides neither a path to full pay nor a cap on Tier 2 hiring -- a previous contract provision that promised higher-seniority Tier 2 workers a promotion to Tier 1 once the cap was exceeded. Instead, the agreement resets the long-term wage scale at FCA and most likely at Ford and General Motors as well.

"As people retire, the people coming up behind can never reach the higher standard of pay we earned," said Gary Walkowicz, a UAW bargaining committeeman at Ford's Dearborn Truck assembly plant who opposes the deal.

From that standpoint, the current UAW contract negotiations with the Detroit 3 are historic.

When those talks unofficially started in March at the UAW bargaining convention in Detroit, rank-and-file delegates demanded on principle the elimination of the two-tier pay system.

That system, which began with the 2007 national contracts, allows the auto companies to pay entry-level workers far less than traditional workers for doing the same jobs. Workers have complained the system creates divisiveness on the shop floor, though the carmakers say Tier 2 has made it affordable to hire U.S. workers.

UAW President Dennis Williams took up the mantle at the convention, vowing to "bridge the [pay] gap" between the two tiers.

With the carmakers richly profitable and U.S. vehicle sales nearing historic highs, hopes soared among the 137,000 Detroit 3 hourly workers awaiting new contracts that the two-tier system would be killed in this year's bargaining or, at the least, a clear pathway would be established for entry-level workers to achieve full pay. About 45 percent of FCA's hourly work force is Tier 2 vs. 29 percent at Ford Motor Co. and 20 percent at GM. Combined, Tier 2 is about 25 percent of the Detroit 3 work force.

Those hopes were dashed in the FCA agreement. The results of the ratification vote at FCA are due after the last UAW local votes on the agreement Wednesday, Sept. 30.

The other route to Tier 1 also is gone.

In the FCA agreement, the UAW decided against capping Tier 2 employment at 25 percent of the total hourly work force, a provision negotiated in 2007 when the union agreed to the wage system at the Detroit 3.

This year, Ford promoted 865 workers from Tier 2 to Tier 1 after it exceeded its Tier 2 cap. That cap is now 29 percent, higher than the 25 percent because Ford received other hiring exemptions.

Whether the 25 percent caps will survive at Ford or be revived at GM (where the cap was suspended through 2015) will be answered by the impending negotiations at the two companies.

Williams warned, though, that while he might ask the richer GM and Ford for more total money than from FCA, he said he intended to keep the fundamentals of the contracts very similar or in pattern so as not to disadvantage one or another of the Detroit 3.

Walkowicz took that to mean the caps will be eliminated at Ford and GM, and the same basic Tier 2 wage structure negotiated at FCA will be applied at the other two carmakers.

If that comes to pass, this year's contract negotiations will have effectively reset the going-forward wage structure at the lower Tier 2 level, counting on retirements and attrition to eliminate the current Tier 1.

Said Walkowicz: "The next generation of auto workers is going to make less money than the previous generation."

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

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