Why Fiat Chrysler's Labor Deal May Be Headed for Failure

An assembly line at Fiat Chrysler's Jefferson North Assembly Plant in Detroit. UAW members at the plant have voted to reject a new labor agreement by wide margins, according to reports. Source: Fiat Chrysler Automobiles.

Shares of Fiat Chrysler Automobiles have fallen over 10% in the last week. Part of that is due to broader investor worries about the auto business in general as the Volkswagen scandal plays out.

But part of it is due to concerns that the new contract negotiated between the FCA and the United Auto Workers might fail to get approved by workers.

Those concerns are rooted in reports that the contract has failed to pass in early voting among workers at several FCA factories. Is a failure likely? And if so, what happens next?

Some UAW locals have already rejectedthe contract, and not by close marginsAccording to reports in The Detroit News, workers at several FCA facilities have already voted to reject the contract -- in some cases, by overwhelming margins.

FCA's Jefferson North Assembly Plant in Detroit is a very busy factory that works nearly around the clock building the popular Jeep Grand Cherokee and Dodge Durango SUVs. Workers there know well that demand for high-profit Jeep models is extremely strong right now.

Those workers, members of UAW Local 7, were apparently the first to vote on the new deal, and they apparently thought that FCA could do better: They rejected the new contract by over 2 to 1, according to the News.

That wasn't the only bad news for the deal. Workers at FCA's giant transmission factory in Kokomo, Indiana, voted down the deal by almost 3 to 1. It passed -- but just barely -- at FCA's Warren Truck plant, where Ram pickups are made.

The contract isn't doomed yet. UAW leaders are lobbying hard to get the contract passed at the facilities that have yet to vote. A simple majority of all UAW members employed by FCA is sufficient to get the contract passed.

But it's hard to know what will happen if the contract doesn't pass.

If the deal fails, strikes are very possibleWorkers at Chrysler last rejected a national contract in 1982, according to the Detroit Free Press.

It's possible that a rejection would simply bring the parties back to the negotiating table to give the agreement a few tweaks. But it's also possible that a rejection could have big ramifications.

Ford workers rejected a national contract in 1976 and went on strike for 28 days. Such a strike at FCA's busy truck and SUV factories would be a huge financial blow to the company.

It might also hit FCA's local rivals, because it's not impossible that such a disruption could spread. Workers at Ford and General Motors don't yet have a new deal. As it has done in the past, the UAW plans to use its deal with FCA as a template for deals with the other automakers. But if UAW members at FCA reject the agreement and then vote to strike, workers at Ford and GM could choose to take actions in sympathy.

Protracted strikes would cost the companies a fortune. But the workers could lose in the long run if the Detroit Three were to respond by moving more production to Mexico.

The stakes are high here.

Not everyone is buying into the UAW's new collaborative approachOnce upon a time, the UAW was extremely aggressive in its contract negotiations with the automakers. That worked well: It won very generous pay rates and benefits.

But those wins eventually came back to haunt them after all three of the Detroit automakers fell on hard times last decade. In the wake of the economic crisis, the UAW's leadership has adopted a very different approach.

The UAW's current leadership still gives its members strong representation. But it acknowledges the reality of the current state of the global auto business: In order to stay competitive, the Detroit automakers need to keep their costs comparable to rivals'.

Taking that into account, UAW chief Dennis Williams is said to have proposed a deal: If the automakers agree to give workers a raise in wages, the UAW will work with them to find way to lower the costs of those still-lavish benefits -- particularly healthcare benefits.

Williams was able to strike a deal with FCA CEO Sergio Marchionne along those lines. It didn't give the workers everything they hoped for, but it gave them a fair bit: Real increases in hourly pay without cuts in benefits.

It seemed like a good deal all around. The UAW's leadership is lobbying to save it. It may yet pass.

But it sounds like some of FCA's workers aren't ready to accept the UAW leadership's desire to craft a compromise. Will the UAW be able to sell the deal and preserve Detroit's hard-won labor peace? We'll find out over the next couple of weeks.

The article Why Fiat Chrysler's Labor Deal May Be Headed for Failure originally appeared on Fool.com.

John Rosevear owns shares of -- and 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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