“Big Three” Open Contract Talks with United Auto Workers Union

The United Auto Workers (UAW) union opened negotiations with Chrysler on Friday (20 July), kicking off the round of talks over a new four-year contract with the “Big Three” automakers. Chrysler is the first to begin talks, with General Motors (GM) and Ford scheduled to open their negotiations with the union today. Chrysler Chief Executive Officer (CEO) Tom LaSorda offered the ceremonial handshake with UAW President Ron Gettelfinger at the company's headquarters building in Auburn Hills (Michigan), but despite the cordial atmosphere, all parties expect this to be one of the most contentious and high-stakes rounds of negotiations ever undertaken by the automakers and the union. "Negotiations are all difficult, and this one is no exception", LaSorda told reporters, while Gettelfinger added, "We're not going to get into the specifics of any negotiations. We're going to deal with the negotiations in the proper forum—at the negotiating table."

What the Automakers Want

Overall, the “Big Three” are looking to reduce their labour costs and eliminate as much of their healthcare retiree liabilities as they possibly can. On the separate issues, the automakers are looking for progress in a number of areas:

• Reduction ofHealthcare Liabilities: The “Big Three” have billions of dollars in healthcare liabilities for retirees, costing the companies as much as US$10 billion annually and adding as much as US$1,400 on average to the cost of every vehicle assembled in the United States. The “Big Three” are expected to ask for a Voluntary Employee Benefits Association (VEBA), a trust fund set up by the automakers, administered by the union, and run by various financial institutions, that would take all of the accumulated liabilities and eliminate them from the automakers' balance sheets. The key will be to get the UAW to accept a VEBA funded for less than the actual liabilities; most Wall Street analysts expect that one could be created for between US$0.60 and US$0.75 on the dollar. At such rates, GM would save nearly US$1.6 billion annually in healthcare costs by 2010, and Ford would be looking at a saving of nearly a US$1.0 billion (see United States: 10 July 2007: UAW Sees Changing Role as Suppliers Struggle).

• Establishment of a Two-Tier Wage System: The automakers are looking to hire new workers on wages much lower than those of current UAW employees, while maintaining the wage levels of current workers. The actual wage disparity between the UAW plants and the industry-leading Japanese transplants is not terribly big, discounting benefits and healthcare costs, but the “Big Three” are looking to reduce their labour costs by hiring new employees (and in many cases, temporary workers) for much lower rates.

• Elimination of the Jobs Bank: The highly contentious jobs bank, established in the 1980s as a way of assuaging UAW fears that worker suggestions to improve efficiency would result in the elimination of jobs, is on the list of areas that the automakers would like to address. However, recent talk from inside sources has suggested that buyouts and retirements have shrunk the jobs bank to very low levels, and the automakers have placed this issue fairly low on their agenda (seeUnited States: 3 July 2007: U.S. “Big Three” Seek to Close Jobs Bank in New Contract Talks).

The Union's Agenda

The Detroit News has obtained an advance copy of the UAW's overall demands in its negotiations with Chrysler, and the list of union goals is not unexpected. Among its demands, the UAW wants to:

• Protect Retiree Healthcare Coverage: In a time when more and more suppliers and auto-related companies are declaring bankruptcy, the cost of healthcare in the United States is spiralling upwards, and relief from the federal government does not seem to be forthcoming. This is thus a crucial issue for the union.

• Limit Temporary Workers: The UAW has witnessed tensions at several plants, including Chrysler's Belvidere (Illinois) assembly facility, in response to the hiring of temporary workers, who are performing the same jobs as permanent workers for less pay. The union is expected to request improved language skills regarding the use of temporary workers, as well as a limit on the outsourcing of jobs to non-union employees.

Outlook and Implications

These negotiations, which are expected to last at least until the 15 September expiration of the current contract, are being billed as crucial to the future of the domestic industry. The “Big Three” automakers simply cannot continue on their present course, with uncompetitive labour rates in their biggest and most important market continuing to reduce their profitability. This is known by all parties—the automakers, the UAW leadership, and the rank-and-file union members. "Today, the domestic auto industry faces unprecedented challenges", Chrysler CEO LaSorda said in a statement. "We can no longer afford to conduct business as usual", he added.

The biggest challenge for the automakers will undoubtedly be securing a reduction in their healthcare liabilities. The union is steadfast in its resolve to protect its members’ benefits, although it has shown a pragmatic approach in making sure that it safeguards as much as possible. Recent agreements with Dana and Delphi have shown that the union is interested in helping to improve the health of the U.S. automakers, and that it is willing to offer concessions in order to achieve this. A VEBA at Dana will be instrumental in helping that supplier's recovery, and although UAW boss Ron Gettelfinger has said that the union is not going into these negotiations "in a concessionary mode," he has also intimated that the union is very likely to grant such concessions to Chrysler, matching those the UAW gave to GM and Ford last year.