Workers at FCA's Jefferson North Assembly Plant assemble Dodge and Jeep SUVs. FCA's unionized U.S. workers will vote on a new contract this week. Image source: Fiat Chrysler Automobiles
What: Unionized factory workers at Fiat Chrysler Automobiles' U.S. facilities began voting Tuesday on a tentative contract. It's the second attempt at an agreement between FCA and workers represented by the United Auto Workers. The first agreement failed to win approval. Negotiations in the wake of its failure produced this agreement, narrowly averting a damaging strike.
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All of the workers will vote on Tuesday or Wednesday. If a majority approve, the new contract will be effective for four years, starting immediately.
Why it's important: It has been many years since any of the Detroit automakers have faced a protracted strike in the U.S. A long strike against any of the Detroit Three would have huge financial consequences, something that I think many investors don't fully appreciate.
Historically, the UAW was quite willing to go to battle against the automakers. But the near-death experiences of the last decade have changed the tenor of the discussions. The UAW's current leadership takes a more collaborative approach, trying to work together with management teams to keep the automakers competitive while satisfying their members' desire for good wages and job security.
That can be a tricky balance to maintain, as we saw when workers felt the first iteration of the contract with FCA didn't adequately address their most important concerns. But the union leadership heard the objections, went back to the bargaining table, and came back with what it thought was an improved agreement.
Will it pass? Social media chatter and reports in the Detroit newspapers suggest that FCA's workers are a lot happier with this version of the agreement. Workers understand that their demands need to be constrained by the ability of the company to meet them while staying competitive -- but at the same time, their key concerns have been largely addressed.
Workers say that they feel that the UAW's leadership heard their concerns and made a strong effort to address them. They also say that the leadership has done a better job of presenting the contract to them and explaining its fine points.
Long story short: It looks set to pass.
What happens next: Historically, the UAW has focused on striking a deal with one of the three Detroit automakers, and then used that deal as a "template" or "pattern" for its negotiations with the other two.
Something like that may happen this time around. But the UAW's leaders have been careful to say that each automaker's situation is different, and the deals may not all be the same.
FCA, for instance, has lower labor costs than Ford or General Motors in the United States because of extra concessions made in past contracts when Chrysler was on the verge of collapse.
That means workers may not be able to win large wage increases from Ford or GM. On the other hand, both Ford and GM have much better profit margins in North America than does FCA -- and workers feel that they ought to be rewarded for their contribution to those profits.
The upshot for investors: It's likely that FCA will win four years of U.S. labor peace at a price it can afford. That's good news for shareholders. It's also probably good news for Ford and GM, if only because the new FCA contract will positively affect the tenor of their discussions with the UAW.
It's still possible that the UAW's negotiations with Ford or GM could go awry, and that workers could feel the need to strike in order to put pressure on the companies. Ford and GM investors should keep a careful eye on reports of the negotiations.
But right now, at least, I'm cautiously optimistic that all three automakers will get labor deals that satisfy workers without busting their budgets. If so, that's unlikely to give the stocks a major boost -- but it still beats the alternatives.
The article Will Detroit Win Four More Years of Labor Peace? 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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