Global Insight Perspective | |
Significance | UAW members have ratified the four-year contract with Chrysler by a narrow margin, with just 56% of production workers and 51% of skilled tradesmen in favour; the deal was helped by the fact that an overwhelming majority of UAW-represented office, clerical, and engineering workers approved the pact. |
Implications | All eyes will now turn to Ford this week, arguably the company in most dire need of a favourable outcome to the negotiations; the union has already given in to concessions and Ford is likely to push the boundaries as it struggles to regain profitability. |
Outlook | Ford is likely to offer further buyout packages and increase the scope of non-core UAW jobs, enabling it to reduce outgoings on new hires, but pushing the UAW further could result in further industrial action. The setting up of a voluntary employees' beneficiary association now seems inevitable, turning the UAW overnight into the largest private purchaser of healthcare in the United States. |
Chrysler Deal Ratified
Chrysler LLC has confirmed a new 2007 national labour agreement with the United Auto Workers (UAW), after final results showed that union members had voted to ratify the deal. The contract was eventually ratified by a narrow margin, underlining the resistance among the UAW rank and file. The UAW ratified the four-year contract with just 56% of production workers and 51% of skilled tradesmen voting in favour, although the deal was helped by the fact that an overwhelming majority of UAW-represented office, clerical, and engineering workers approved the pact.
"We are pleased that our UAW employees recognize that the new agreement meets the needs of the company and its employees by providing a framework to improve our long-term manufacturing competitiveness", said Tom LaSorda, vice-chairman and president of Chrysler LLC. The Chrysler deal is similar to the General Motors (GM) contract approved last month and will see Chrysler able to classify a range of positions as ”non-core” and thus hire employees on lower wages and benefits than enjoyed by current UAW workers. The agreement also includes a voluntary employees' beneficiary association (VEBA), or independent retiree healthcare trust.
The setting up of a VEBA, something Chrysler was not certain to do, allows the company to shift billions of dollars in retiree healthcare obligations off its books to union-run trusts, a move that has turned the UAW almost overnight into the largest purchaser of healthcare in the United States.
Ford Conundrum
The UAW now turns its attention to Ford this week as the company struggles to turn around its U.S. operations, in the face of sliding market share and huge losses, and it is likely to push the union for even greater concessions this week. It is in the arena of job security that the UAW will struggle to convince members of the merits of any potential deal.
Ford is expected to offer a further round of buyouts to UAW workers, which will coincide with a decision as to which of the six additional plants the company is looking to close. The setting up of another VEBA for Ford's workforce and retirees seems a forgone conclusion, but Ford is expected to further push the boundaries with regards to what is considered a ”non-core“ UAW job. Furthermore, it is expected that Ford will not be able to guarantee work for the remaining plants in the same way that GM did, seen as the major stumbling block in the ratification of the Chrysler deal.
Ford is expected to try and deflect opposition to the contract by offering incentives such as a profit-sharing plan, but it may still face stiff opposition and the possibility of strike action. That said, the mindset of the Ford workers is already one of a willingness to compromise given the dire financial condition of the company’s North American operations.
Outlook and Implications
The opposition to the Chrysler deal was palpable and workers at a number of facilities voted against the contract. The narrow margin of approval will no doubt cause some angst among the rank and file, but it is unclear whether this will spill over to Ford. The likelihood of another VEBA being set up at Ford now appears very high, turning the UAW into the largest private purchaser of healthcare in the country almost overnight. Quite what the implications for the union will be is still unclear since it is entering uncharted territory, but a lot of attention from Wall Street is expected. How these somewhat incongruous bedfellows will get on in the future is far from clear, however.
Ford is currently in a much weaker position than Chrysler, having lost US$12.6 billion last year and having seen its sales slide 13.3% in the January-September period this year. Further bad news is expected this week and another double-digit percentage sales decline is expected for October. Although a percentage of this is down to the fact that Ford has backed away from unprofitable business, the biggest worry is the fall in sales of its profit driver, the F-Series pick-up, and further huge declines for its large sports-utility vehicle (SUV) range. Additionally, Ford's capacity utilisation rate in North America is only around the 80% mark, an issue it has to address quickly.
This may be enough to convince the UAW workers at Ford, but following the resistance to the Chrysler deal, which failed to offer commitments to future products in return for concessions, this cannot be guaranteed. But sadly Ford is in no shape to be offering commitments and will need all the help it can get from the UAW and every other source it can muster. It is shaping up to be a long week at the negotiating table for Ford and the UAW.