What the UAW's Deal Means for Fiat Chrysler and Its Rivals

By John RosevearFool.com

UAW-represented workers at Fiat Chrysler Automobiles voted to approve their new contract this week, the union announced on Thursday. Image source: Fiat Chrysler Automobiles

Bullet dodged: U.S. factory workers at Fiat Chrysler Automobiles have voted to approve their new four-year contract.

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77% of FCA workers represented by the United Auto Workers union (UAW) voted to accept the agreement, the union said in a statement on Thursday.

What it means for FCA and its workersFor FCA, the new agreement means four years of labor peace in its United States facilities at a price that it's willing to pay.

Despite several years of strong sales gains, FCA's profit margins in North America still lag well behind those of Detroit rivals General Motors and Ford . Because of concessions made by the UAW when Chrysler was near collapse, FCA has a cost advantage over its larger rivals.

CEO Sergio Marchionne was determined to maintain that cost advantage at the outset of negotiations. It's unclear how much more the company will be paying under the new agreement, but the overall impact on its costs in the U.S. is expected to be modest.

For workers, the deal is a big improvement over the initial agreement that the UAW and FCA struck last month. Many workers felt that agreement didn't address their concerns about job security, scheduling, and wage parity, and it was rejected by a wide margin.

This new agreement, struck moments before a strike deadline, makes progress on all of those fronts. Most significantly, it provides a roadmap for phasing out the hated "two-tier" wage system over eight years. Workers seem to feel that that was a big win.

It also provides a detailed plan for future product production that is intended to let workers know that there will be plenty to keep their factories busy over the life of the agreement.

Workers had expressed big concerns about a plan floated by CEO Sergio Marchionne under which products would be shuffled between FCA's U.S. and Mexican plants over the next few years. The agreement appears to address those concerns.

What happens next: The UAW turns to Ford and GM Now, with one ratified contract in its pocket, the UAW will turn its attention to securing agreements with Ford and GM. The UAW's negotiators have continued to hold talks with Ford and GM while the FCA contract was being debated. It's believed that both teams are close to agreements.

Those agreements are likely to look different from the one the UAW struck with FCA. Ford and GM are both more profitable than FCA in North America, but both pay more in labor costs. Executives at both companies had hoped to close that gap in this round of contract talks. At the same time, workers who have seen their FCA counterparts get raises will want similar (or better) raises for themselves.

How will those differences be reconciled? That's up to the art of negotiation, but for Ford and GM shareholders it will be important to watch.

The article What the UAW's Deal Means for Fiat Chrysler and Its Rivals originally appeared on Fool.com.

John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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