FCA concedes on Tier 2 without busting budget

Costs above previous UAW deal mostly incurred after this one is set to expire

Other than the path to full pay, the new deal is largely unchanged.

Fiat Chrysler Automobiles' new agreement with the UAW, reached under threat of a strike, gives hourly workers the victory on Tier 2 they demanded without significantly raising labor costs -- for now -- beyond what FCA was slated to pay under an earlier, rejected four-year deal.

A revised tentative agreement reached Thursday eliminates the divisive two-tier wage by providing entry-level workers with an eight-year ladder of pre-determined annual raises until they reach full wages of $30 an hour.

It is similar to a 10-year grow-in to full wages that the Detroit 3 have had since 2012 in Canada, where their entry-level auto workers are represented by the Unifor union.

The absence of a pathway to top pay was the main reason FCA's 40,000 hourly workers voted down the previous tentative deal last month and were poised to strike FCA at a cost of $1 billion a week in revenue from lost vehicle production.

That previous deal offered Tier 2 workers substantial raises over four years that would have taken maximum pay from $19 an hour to $25 an hour. But it fell $5 an hour short of the full pay that Tier 1 workers achieve at contract's end. About 45 percent of FCA's hourly work force is Tier 2.

Faced with the prospect of a devastating work stoppage, FCA opted for the improvements on Tier 2 in part because the additional new costs above the previous deal are back-loaded. Most of those costs don't kick in for five years, or until after this year's contract would expire four years from now, said a source familiar with the negotiations who asked not to be named.

In other words, an entry-level worker with just less than three years of seniority who was scheduled to earn $24 an hour in the final year of the rejected four-year agreement will earn $26 an hour under the new agreement. But the stepped progression of annual raises beyond that time is now mapped out for that worker until a full $30 an hour is achieved after that.

Over the next several days, FCA workers will vote whether to ratify the revised agreement, which varies little from the previous failed deal except for the path to full pay.

Among the contract provisions that did not change are a pair of 3 percent raises for Tier 1 workers over the four years and a signing bonus for Tier 2 workers of $3,000. FCA's 22,000 Tier 1 workers saw their signing bonus raised from $3,000 to $4,000, at a total cost of $22 million.

The agreement also clarifies plans for a health care co-op that preserves the members' company-paid insurance featuring a cost share by members of just 6 percent.

FCA was looking at a disastrous strike if it had refused to budge on Tier 2.

As Automotive News estimated, FCA stood to lose 35,000 vehicles of production in the first week of a strike, or about $1 billion in revenue.

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

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