Detroit 3 labor costs to ‘rise steadily' over next 4 years under new UAW contract

Last year's contentious negotiations with the UAW will prove costly for the Detroit 3 automakers, according to a forecast from the Center for Automotive Research.

Kristin Dziczek, vice president of industry, labor and economics at CAR, said the average hourly labor cost for Ford Motor Co., Fiat Chrysler Automobiles and General Motors will "rise steadily" over the next four years, despite vows by each company heading into the talks to keep those figures in check.

Fiat Chrysler will see the sharpest rise between now and 2023, from $55 per hour to $66 per hour, CAR estimates. GM's hourly labor cost will rise from $63 per hour to $71 per hour, while Ford's hourly costs will jump from $61 now to $69 in four years.

A company's hourly labor cost includes wages, profit-sharing payments, bonuses, health insurance, pension contributions and other factors. It's a weighted average by workforce composition, including top-wage legacy workers and lower-wage in-progression workers and temps.

By comparison, Dziczek said the labor costs for transplant automakers, which are not unionized, will rise about $2 per hour between now and 2023. Coming into the 2019 negotiations, the Detroit 3 had between a $5 and $13 labor-cost gap with its foreign rivals.

Labor experts say the increase was to be expected, despite the automakers' goals heading into negotiations.

"When the companies are doing well, it makes no sense to expect labor costs aren't going to go up," said Art Schwartz, a labor consultant and former GM negotiator. "Anyone who went into this thinking the labor cost would stay the same or go down was dreaming."

Schwartz noted that most of the increases won't hurt the companies' long-term health because they're mostly one-time payments.

"Most of the economics are not structural," he said. "It's lump-sum cash, bonuses, etc. When companies are doing well, they can more easily afford the cash."

He said all three automakers are likely to try and counterbalance the added labor costs with improvements in productivity.

"The new labor agreement does the right thing for our employees without compromising GM's competitiveness or manufacturing flexibility," David Barnas, a GM spokesman, said in a statement. "Importantly, we maintained the mix of our North American manufacturing footprint for products sold in the U.S. and the ability to adjust our workforce in response to changing industry levels.

"There was no increase to defined pension obligations or increased obligations to retirees, and we expect productivity gains to offset labor-cost increases over the contract period. We also maintained breakeven levels in the 10 million to 11 million-unit range in the U.S., preserving our ability to navigate through a downturn."

Ford and FCA declined to comment. 

Dziczek noted both sides could take credit for wins in bargaining, which took roughly three months from the date the prior deal expired and included a 40-day national strike against GM.

Ford and GM won the ability to close some plants, while all three were able to focus most of the benefits into lump-sum payments.

The UAW maintained job security, kept health care costs the same, added investment in the U.S. and won a pathway for temporary workers to gain permanent status. All told, the Detroit 3 vowed to invest $23 billion in the U.S. over the next four years, roughly a 10 percent increase from their investment promises in the 2015 pact.

"The UAW came into it looking for guarantees and certainty," she said. "And they didn't lose anything."