Biggest U.S. Automakers Said to Study Lower-Pay Tier for UAW

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United Auto Worker
An employee works on the wheel well of a vehicle at the General Motors Co. Bowling Green Assembly Plant in Kentucky, U.S. Photographer: Luke Sharrett/Bloomberg

U.S. automakers General Motors Co. and Ford Motor Co., heading into negotiations with the United Auto Workers union, are considering asking to create a new tier of lower-paid union workers in their U.S. factories, people familiar with the matter said.

This new pay rate for some lower-skilled jobs would help the car manufacturers lower labor costs as they compete with Asian and European rivals that typically pay less at non-union U.S. plants, said the people, who asked not to be identified discussing private plans.

The UAW has said it wants raises for both its top-paid $28-an-hour assembly workers and the lower-paid second tier, whose wages top out at $19.28. The union, which abhors different wages to members doing the same job, is already considering pushing to eliminate the second tier, said a person familiar with the leadership’s thinking.

Asking for a lower-wage third tier could be a tough sell with union negotiators at a time of growing disparity in U.S. incomes. UAW leaders are already under pressure from their 80,000 auto-making members to eliminate the second tier or at least get them a raise. Paying less to union members -- even newly hired workers -- isn’t on the UAW’s agenda.

The automakers “are putting forth what they would want if they could just write a new labor agreement on their own,” said Art Schwartz, a former GM negotiator who is now president of the consulting firm Labor and Economics Associates in Ann Arbor, Michigan.

A third tier of workers may not be all bad news for the union, because some of those employees could do work that has been outsourced to parts suppliers and it would bring that work back inside GM plants. But since the UAW argues that the second-tier wage isn’t really enough to support a family, members don’t want to encourage even-lower pay or more divisions among workers on the factory floor.

GM Exceptions

GM already has some employees who are making less than the second-tier wage at sites in Michigan where the union agreed to exceptions to the master collective-bargaining agreement. Those union members don’t assemble cars. Nor would future Tier 3 employees, said one of the people.

“We’re committed to working with our UAW partners on solutions that will benefit employees and improve GM’s competitiveness,” said Katie McBride, a spokeswoman for the Detroit-based automaker.

UAW spokeswoman Sandra Davis declined to comment.

The union will probably still oppose another tier of workers, said Kristin Dziczek, director of the Industry & Labor Group at the Center for Automotive Research.

Second-tier workers were supposed to do only non-assembly work when the union agreed to the lower entry pay in 2007. But older workers wanted to leave the assembly line and do less physical work as they got closer to retirement age, Dziczek said, so eventually there were employees doing the same jobs side by side for very different wages.

“With the companies showing strong profits, it would be difficult for the union membership to have employees making even less than Tier 2,” she said.

Wage Pressure

Since 2009 in the U.S., management compensation has grown about 50 percent faster than union workers’ income. In the U.S. auto industry, real wages have declined 24 percent since 2003, the center said.

While negotiations don’t formally begin until July, the automakers and the union are holding some early-stage talks and planning their strategies internally, said the people, who asked not to be identified because the discussions are private. Delegates from all of the UAW’s locals -- including those representing aerospace, higher education, gaming and public-sector workers -- are meeting in Detroit this week to set the agenda for the union’s bargaining committees.

Scheduled speakers include NAACP President Cornell William Brooks and U.S. Labor Secretary Thomas Perez. UAW President Dennis Williams, who told reporters in December that wages are the union’s top issue this year, will also address the delegates.

Scott Houldieson, a member of UAW Local 551 at a Ford plant in Chicago, wore a T-shirt that read “No More Tiers” when he took the podium to urge union leaders to eliminate the two-tiered wage and refuse any kind of lower-tier pay.

“The companies want to move in that direction,” he said in an interview. “We have to fight to eliminate it.”

Williams told members of the GM bargaining committee in January that he wants to eliminate Tier 2 workers or at least get their pay closer to top-tier wages, said a person familiar with the matter. Automakers pay second-tier workers $15.78 an hour to start. Senior auto workers haven’t had a raise at GM, Ford or FCA US LLC, which used to be called Chrysler Group LLC, for at least eight years.

GM Subsidiary

GM’s average hourly labor cost in the U.S., including benefits, is $58, Ford’s is $57 and FCA’s is $48, according to data from Center for Automotive Research. Meanwhile, Toyota Motor Corp.’s average hourly cost in the U.S. is $48 and Nissan Motor Co. averages $42, according to the center.

GM already has a precedent for paying below a Tier 2 wage. The automaker has a subsidiary called General Motors Subsystems Manufacturing LLC at its Lake Orion, Michigan, plant that makes subcompact cars. The subsidiary employs workers at below the starting second-tier wage to do non-assembly jobs like kitting, which is putting parts together in the order that they would be assembled onto a new car.

They are doing jobs that once were done by a union-organized parts supplier, so that arrangement did bring some work back into GM.

The subsidiary also also employs workers at a plant in Brownstown, Michigan, where they assemble battery packs for the Chevrolet Volt plug-in hybrid. Those workers earn about $14 an hour, according to the Center for Automotive Research.

Temporary Workers

At Japanese-owned plants, temps are paid less than permanent employees. The Center for Automotive Research estimates that Nissan uses temps for as much as 43 percent of its U.S. work force and Toyota uses them for 10 to 20 percent.

Travis Parman, a Nissan spokesman, said the 43 percent figure is too high, but he wouldn’t say how many temporary workers the company uses. Rick Hesterberg, a Toyota spokesman, also declined to say what percentage of the Japanese company’s U.S. workers are temps. Toyota uses temporary workers to handle fluctuations in demand and to screen hires, he said. Toyota has permanently hired 1,900 of those people since 2011 at its Georgetown, Kentucky, plant alone.

At Ford, temps make up about 2 percent of the workforce and as much as 4 percent in summer months when they are needed to cover vacation time, said Kristina Adamski, a spokeswoman for the automaker.

“The entry-level agreement has enabled Ford to in-source work, grow jobs and invest in the U.S.,” she said in a statement when asked about a possible third tier. “For the 2015 negotiations, we’re open to discussing many different solutions with our UAW partners that will allow us to continue to employ a competitive labor rate and add U.S. jobs and investment.”

The union will also probably want to cap how many Tier 2 workers each company can use. Ford has a limit and has had to promote 544 Tier 2 workers to the top pay scale -- while keeping second-tier benefits -- because the company exceeded its contractual limit. GM and Chrysler have no limits.

FCA’s situation is different because the company has 43 percent of its workforce paid at the lower wage, said spokeswoman Jodi Tinson. GM has 19 percent of its UAW work force in Tier 2 and Ford has about 28 percent making that wage, the companies said.

Given the union’s push to get Tier 2 workers up to top wages, the union is unlikely to agree to a deal that allows a big influx of either third-tier or temporary workers, Schwartz said.

“The UAW will only listen if it means additional jobs that they didn’t already have,” Schwartz said. “If you just say, ‘We want to hire people at less than Tier 2,’ it’s not going to fly.”

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