Detroit's dilemma: How to share gains with UAW

By Bernie Woodall

DETROIT (Reuters) - Over the past two years, Ford Motor Co has roared back from the brink of failure, won accolades for its gains in quality, posted its highest profits in a decade and rewarded patient investors with a 14-fold increase in its share price.

But Mike LeBeau, 23, who works at a Ford assembly plant in Chicago making around $15 per hour and lives at a bedroom in his parent's house, is not feeling the good times yet.

Like thousands of newly hired unionized auto workers brought in at half the wages of existing hires, he and others like him are looking for new contracts between the United Auto Workers and the Detroit automakers to share the wealth.

"I can make a car payment, and my student loan," said LeBeau, a recent graduate of Purdue University. But he doesn't have enough for a place of his own, he said.

UAW officials meet next week in Detroit to map out a final bargaining strategy for the first round of contract negotiations with Ford, General Motors Co, and Chrysler Group LLC since 2007.

They will square off against bargaining teams from GM, Ford and Fiat-controlled Chrysler who want to use this contract to break away from the industry's long-criticized practice of coming out of a boom with the kinds of higher fixed costs that contribute to the next crushing bust.

"The biggest question for me is will the UAW and the companies fall back into their old ways," said Tom Saybolt, a former Ford lawyer who now teaches at the University of Detroit-Mercy.

In the four years since the two sides last negotiated a labor contract, the Detroit automakers were pushed into crisis by collapsing vehicle demand and the financial convulsion of 2008. Both GM and Chrysler, now managed by Italy's Fiat SpA, were bailed out by the Obama administration.

The controversial federal bailout helped the UAW secure funding for retiree healthcare by giving a union trust fund an ownership stake in both GM and Chrysler at the same time that it barred the union from striking at those automakers.

It also set the stage for a different kind of labor negotiations that will play out in Detroit over the next several months for some 112,000 autoworkers.

The outcome of the talks will be watched as a key indicator of how much of the wrenching change intended to make the U.S. auto industry more competitive in recent years will stick as the crisis fades.

The U.S. automakers are ready to offer bonuses, including one-time signing bonuses, to UAW workers at the same time that they look to bring down overall payroll costs by pushing union workers to pay more for healthcare and bring them in line with workers in other industries, according to executives and analysts interviewed by Reuters.

UAW President Bob King, 64, now in his second year at the helm of the union, has promised a collaborative "UAW for the 21st Century" approach to negotiation aimed at making the U.S. automakers competitive and suggested he is open to bonus-type payments.


For the UAW, whose membership has dropped 42 percent since 2004, the contract talks also represent a crucial opportunity to score commitments to keep factories open or to reopen shut assembly lines with new products like the Spring Hill, Tennessee plant, where GM launched the Saturn brand in 1985.

"For the UAW I think it will be jobs, jobs, jobs with a little bit in the background of 'We need a reward for what we did.' And for the companies, it's going to be 'We're not out of the woods yet. We need to be competitive,'" said Art Schwartz, a former GM labor negotiator and consultant.

The 2007 talks reworked retiree healthcare, created a controversial two-tier pay scale for workers and put UAW representatives that manage the retiree healthcare trust on the boards of directors of GM and Chrysler.

Now King and UAW leadership also face a grass-roots clamor from workers who say the union went too far in allowing the Detroit automakers to hire thousands of workers at a "second-tier" wage of about $30,000, compared with about $58,000 for established workers, before overtime.

For perspective, that means that LeBeau, who makes the Ford Explorer, a hot-selling SUV, cannot afford to buy the vehicle that he is making. The top-of-the-line Explorer prices out at almost $40,000.


Union dissidents say the second-tier wages have upended a basic tenet of the industry that dates to Henry Ford's decision to double the pay for his workers to $5 a day in 1914. Part of Ford's justification was to create a market for the Model T by paying workers enough to buy a new model on about four months of pay.

But hiring new workers at $15 per hour, the UAW has allowed GM, Ford and Chrysler to close the gap with Japanese competitors operating factories in the United States. That was a point that Republican critics of the bailout had insisted on early in the 2008 bailout debate. The Detroit automakers now have an average all-in labor cost of about $49 an hour for Chrysler, $58 per hour for Ford and a reported $60 for GM, compared with between $50 and $55 per hour for Toyota's U.S. plants.

Driving fixed labor costs down was probably the biggest gain made by the automakers in 2007. After those talks and the establishment of the retiree healthcare trust, hourly labor costs including benefits fell from around $75 per hour in 2007.

When President Barack Obama championed the success of the $80 billion bailout of the auto industry in 2009, he chose to do so at the Chrysler plant that makes the Jeep Grand Cherokee. That plant, known as Jefferson North, has the largest contingent of workers at the lower wage of any Chrysler plant.

But the two-tier system of wages is a continued sticking point with many UAW workers, who will be asked to ratify new contracts. Some say they doubt that the union leadership has their best interests in view, an unusual degree of rancor in a union that has prided itself on "solidarity" since its founding in 1935.

"We're not seeing eye-to-eye," said Rondo Turner, a 37-year-old GM worker who lost his job last month when GM closed its Indianapolis stamping plant. "The UAW will come out and say we will get your rights back. But from the way I see, they are setting up our negotiations so it's OK to have more second-tier workers."

UAW leader King wants permanent union representation on all of the company boards of directors, as is the case with many unions in Europe.

King, who earned a law degree from the University of Detroit-Mercy while working as an electrician's apprentice at Ford, says the "UAW for the 21st Century" is less adversarial with the companies while also protecting worker rights, work rules, wages and benefits.

King, who lives in the university town of Ann Arbor, Michigan, has refocused the UAW's view on wider social issues and human rights, and speaks without hint of irony about working for world peace.


The cerebral King and his lieutenants at UAW have said that given the choice between higher wages and securing and creating jobs, they would take the jobs.

Analysts expect King and the UAW to remain pragmatic because the union has little choice. Ford is the strongest of the Detroit automakers and it would be the target for bargaining in a typical negotiating round. But this time, "a Ford strike would be messy," and the UAW has no way to force GM and Chrysler to accept the same terms without the ability to strike those companies, said Logan Robinson, a former auto executive who teaches at University of Detroit-Mercy.

"It's like showing up without your battleship," he said.

Harley Shaiken, a professor at the University of California-Berkeley who has been a confidant of King, said the UAW leadership understood that the new contract would have to keep Detroit's recovery on track, meaning any pay increase would probably be in the form of a bonus.

(Editing by Kevin Krolicki)