Fiat Chrysler Union Talks Seen Contentious as Merger Urged

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With negotiations kicking off this month between U.S. carmakers and their main domestic labor union, talks involving Fiat Chrysler Automobiles NV are poised to be the most contentious.

On one side is a United Auto Workers bargaining team that wants a pay bump for veteran assembly workers, who have been paid $28 an hour for almost a decade, as well as a better deal for the lower-paid, entry-level employees who make up almost half of FCA’s workforce.

On the other side is Chief Executive Officer Sergio Marchionne, who in April said his company needs a merger partner just to be competitive in the next decade.

“UAW members are an integral part of the success of FCA and they need to participate in the economic well-being of the company,” Marchionne said today. “But we need to make money to pay people.”

While the union would prefer to get rid of the lower-paid second class of workers and elevate everyone who works on the assembly line to the top tier, Marchionne would like to phase out the old guard and staff his plants with younger, cheaper labor, said a person familiar with the matter. He’s said that with profit-sharing bonuses, union members’ total pay in the best years could be as high as the first tier gets now. But union members are skeptical and some observers, such as Kristin Dziczek, director of the Industry & Labor Group at the Center for Automotive Research, say FCA is the most likely to endure a strike.

Possible Agreement

Marchionne and UAW President Dennis Williams held a handshake ceremony to mark the start of talks. The two hinted at some possible common ground on compensation.

FCA favors variable pay as a means to give workers a greater share of the company’s success while safeguarding the company from a downturn, Marchionne said.

Williams said he would consider variable pay if the total compensation guarantees workers a middle-class living. With the right package, he may not even demand a cap on the number of second-tier workers that are hired.

“I’m not hung up on caps,” Williams said. “I want to be creative. How do we do a cost structure that allows our members to have a high standard of living and have flexible and variable pay?”

The challenge for the two sides will be to craft a solution that can get ratified by UAW members, who must vote in favor of any negotiated deal, said Dziczek, who is based in Ann Arbor, Michigan.

‘Greater Discontent’

“There seems to be greater discontent among workers at FCA,” Dziczek said. “Workers want a raise, and they had the narrowest ratification vote last time when they got an agreement that wasn’t as rich as Ford or GM’s.”

The union and FCA formally kicked off talks today, a day after Williams held a handshake ceremony with General Motors Co. CEO Mary Barra. Ford Motor Co.’s will be next week. The current contracts with all three automakers expire in September.

Strikes have been rare for the past decade, the last being in 2007 when union workers walked out of GM plants for two days and Chrysler plants for six hours.

Workers may choose to strike Fiat Chrysler as they see their peers at other automakers receiving bigger profit-sharing bonuses even while FCA has lower labor costs and a higher percentage of lower-paid laborers. During the last four years, FCA workers have received an average of $9,000 in variable pay, less than a third of what Ford and GM workers got, according to Ann Arbor-based Labor & Economics Associates.

UAW members at FCA approved the last contract with just 55 percent in favor when they weren’t allowed to strike and may be anxious over Marchionne’s persistent calls for industry consolidation. Ford and GM deals got at least 63 percent of the vote last time, and whatever is debated at the other two, Ford and GM have each made it clear they aren’t looking for a dramatic restructuring.

Fiat Chrysler shares declined 0.4 percent Tuesday to close at $14.53 in New York, paring the gain for the year to 25 percent.

Wage Gap

Williams has said in recent months that one of his top priorities is wages, especially for the so-called Tier 2 entry-level workers who start at $15.78 an hour and top out at $19.28. Under the current contract, they can’t graduate into the veteran wage of $28 an hour at GM or FCA. They can at Ford, because the company has a cap -- put in place before the bankruptcies of old GM and Chrysler -- that says a maximum of 28 percent of its labor force can be Tier 2 workers.

The union chief stressed that he isn’t looking for a strike and even said that he doesn’t see FCA as the most likely target.

“A strike is a failure of the bargaining teams and it’s one of the worst things you have to do,” Williams said. “I’m not afraid of confrontation, but I don’t want one.”

Marchionne said a two-tiered wage system creates tension among workers.

“You should pay people the same wage for the same work.”

Creativity Needed

Marchionne said union workers should have a way to get to the top pay scale. He didn’t say how that could happen while holding labor costs down.

“I believe in wealth distribution,” Marchionne said. “There ought to be no cap on the amount distributed.”

FCA doesn’t want a cap on how many entry-level workers it can hire, which the union is likely to seek, said two people familiar with the matter, who asked not to be identified because bargaining strategy is private.

With 45 percent of its U.S. workers at the entry-level wage, FCA enjoys the lowest average labor costs of the big U.S. automakers. FCA’s average hourly labor cost is $47 an hour, compared with $55 at GM and $57 at Ford, according to the Center for Automotive Research.

Despite their differences, Marchionne doesn’t forecast a strike.

“That’s not the spirit with which we are entering this process,” he told reporters in Toronto last week. “But, look, who am I to say?”

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