Marchionne Risks Chrysler Arbitration Over Union Contract: Cars

Chrysler Group LLC CEO Sergio Marchionne
Sergio Marchionne, chief executive officer of Chrysler Group LLC and chairman of of Fiat SpA. Photo: Hannelore Foerster/Bloomberg

Chrysler Group LLC Chief Executive Officer Sergio Marchionne is pressing the United Auto Workers for a cheaper contract than his rivals, taking a hard-line stance that may push the talks into arbitration.

Marchionne wrote a letter criticizing UAW President Bob King for his efforts. When talks have stumbled, he has declared new deadlines, rather than open-ended extensions. And now, he wants to remove a cap on the number of entry-level workers, according to two people familiar with the negotiations.

“He has taken a harder line and Chrysler is in a different situation because their balance sheet isn’t as beautiful and the profits haven’t started to fall in,” said Kristin Dziczek, a labor analyst with the Center for Automotive Research in Ann Arbor, Michigan.

After winning concessions in Italy at Fiat SpA, which owns a majority of Chrysler, Marchionne is seeking to repeat his success in America -- even with the threat of binding arbitration that may increase the automaker’s labor costs. New contracts at General Motors Co. and Ford Motor Co., whose average pay is already higher than Chrysler’s, may be used as the benchmark in any proceedings, said Harley Shaiken, a labor professor at the University of California at Berkeley.

Jeep Decision

“He’s rolling the dice,” Shaiken said. “There will be a precedent set at two companies with similar circumstances.”

Marchionne, speaking today to reporters at Fiat’s Turin headquarters, said he’s confident a solution can be found.

“I sincerely hope that we don’t have to get to arbitration,” Marchionne said. “But if necessary, Chrysler will go there.”

The UAW said it prefers to avoid arbitration.

“Regarding Arbitration: The UAW has been very clear,” the union said today in a post on the “UAW Chrysler Talks” Facebook page. “It is our intention to negotiate a contract, and bring it to the membership for approval.”

Fiat traded 3.4 percent lower at 3.96 euros as of 5:04 p.m. in Milan as European stocks fell on concern that the region’s debt crisis will curb growth. The company said today it will quit Italy’s Confindustria employer group on Jan. 1, seeking greater labor flexibility. It also gave the go-ahead for production of a Jeep sport-utility vehicle in Turin.

The UAW contracts with GM, Ford and Chrysler have traditionally followed a pattern of wages and benefits set by the first company to reach a deal. The union agreed not to strike Chrysler or GM as part of the U.S. government-backed bankruptcy reorganizations, allowing unresolved differences to be settled in binding arbitration.

Ford Meeting

GM’s new four-year contract was ratified by members, the UAW said Sept. 28. The UAW has asked local union leaders from Ford factories throughout the U.S. to gather in Detroit tomorrow, said Michele Martin, a spokeswoman for the UAW.

“We call council meetings in anticipation of reaching an agreement,” she said in a telephone interview.

Marchionne took over Chrysler when Fiat gained control of the Auburn Hills, Michigan-based company in the 2009 bankruptcy. Under him, the No. 3 U.S. automaker has lowered its break-even point to 1.5 million vehicle sales and has forecast its first annual profit since the restructuring this year, with earnings of $200 million to $500 million, excluding some expenses.

The CEO wants to ensure fixed costs don’t increase beyond 2015 by eliminating a cap on the number of workers he can pay entry-level wages, said two people who asked not to be identified because the talks are private. A cap of 25 percent is scheduled to go into effect in 2015. The entry-level assembler wage is $14.89 to $16.28 an hour at Chrysler, according to the company, compared with $28.31 for the so-called tier-one wage.

2007 Contract

Under the 2007 contract that allowed for hiring of the lower-paid workers, when an automaker surpasses 25 percent of the workforce on the lower second-tier wage, the company must move some to the first-tier wage, Dziczek said. Those workers, however, would maintain their second-tier benefits, which don’t include a defined pension plan or access to retiree health care coverage. The cap was lifted through 2015 as part of the bankruptcy agreement, UAW leaders said.

“The UAW will fight hard to maintain that ladder to the first tier for second-tier workers,” Dziczek said. “That’s key to why the union agreed to the second tier in the first place.”

Chrysler, which had 43 percent fewer hourly workers at the end of 2010 than 2007, cut deeper during the recession than its U.S. competitors and has rehired more people at the so-called second-tier wage.

‘Core Issue’

About 12 percent to 14 percent of Chrysler’s hourly workers are at the entry-level wage while at GM it is less than 3 percent and Ford has fewer than 100.

Eliminating the cap on second-tier workers, as Marchionne is seeking, would get the contract voted down by Chrysler’s workers, said Art Schwartz, president of Labor & Economics Associates in Ann Arbor, Michigan, and a former GM labor negotiator.

“The ladder to the first tier is a core issue for the UAW,” Schwartz said. “To wipe out that pathway would not go over well with the membership.”

Chrysler also doesn’t want to give a signing bonus as large as the $5,000-a-worker payout in the GM-UAW contract, three people familiar with the talks said. Chrysler is pushing for signing bonuses of $3,500, two of the people said.

“We and GM are completely different,” Marchionne told reporters Sept. 19 in Turin, Italy.

Marchionne is known in Europe for his tough labor stance, often clashing publicly with Italian unions, said Arthur Wheaton, a Cornell University labor expert.

“He is an extremely good negotiator,” he said.

‘Whipsawing’ Unions

Marchionne is playing the UAW off the Italian unions, who have fought his efforts to implement new cost savings, Wheaton said. “‘Whipsawing’ is the term,” he said. “He can use Chrysler against Fiat.”

Marchionne reached three labor agreements in less than a year as part of his strategy of raising productivity at Fiat’s domestic plants. The deals at all three factories include measures to limit strikes and curtail absenteeism.

Fiat also won approval to introduce longer shifts and run plants on a six-day workweek. In addition to more hours, workers get shorter breaks and postpone lunch until their shift’s end.

The changes at Mirafiori, Fiat’s oldest plant, in January were won with a 54 percent majority and set a milestone in Italian labor relations.

‘Incongruous’ Environment

Today’s Jeep announcement means production of sport-utility vehicles will go ahead in Italy with a smaller model and delayed until the second half of 2013 from the last quarter of 2012. Fiat had planned to make the redesigned Jeep Compass at the factory. Now it will make a smaller one, as well as a Fiat SUV and a five-door version of the Alfa Mito, said a person familiar with the plan, who asked not to be identified.

“It is not the medium-size vehicle platform,” Sergio Marchionne said today when asked about which model will be produced at Mirafiori. He declined to elaborate.

Fiat said it will produce the Alfa Romeo Mito at Mirafiori, without confirming the five-door plan.

The decision to withdraw from Confindustria was prompted by concern that an agreement struck with unions in June won’t be fully implemented, threatening its effectiveness and limiting operational flexibility, Fiat said in a letter to the group dated Sept. 30 and published by the manufacturer today.

“Fiat, which is engaged in the creation of a major international group with 181 plants in 30 countries, cannot afford to operate in Italy in an environment of uncertainty that is so incongruous with the conditions that exist elsewhere in the industrialized world,” Marchionne said in the letter.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE