Global Insight Perspective | |
Significance | No announcement has yet been made by the United Auto Workers' union (UAW) regarding its tentative agreement with Chrysler LLC and, as such, details of the new contract have come through third-party sources to local media outlets. An examination of those details reveals an agreement that seems to favour the automaker over the union, as compared with the General Motors (GM) contract. |
Implications | The conditions of the contract that are known indicate that the pattern established at GM was maintained at Chrysler, in that there is a VEBA, a two-tier wage system, and some job guarantees, but Chrysler seems to have given much less back to the union than was seen at GM. |
Outlook | Only when the agreement is made public, probably sometime early next week when the Chrysler ratification process begins, will the full details of the agreement and how it differs from the GM contract be truly known. |
As of late yesterday evening, neither the United Auto Workers' union (UAW) nor Chrysler LLC has held a press conference to discuss the recently agreed-to, new four-year contract settlement that ended a six-hour strike seen on Wednesday (10 October) at Chrysler. However, several sources throughout the Detroit area have spoken with media outlets, and some facts have been gleaned about the new agreement that suggest that the contract may be a bigger win for Chrysler than it was for the UAW.
- Two-Tier Wages: Chrysler won the right to replace non-core production workers with new hires at greatly reduced wages, nearly half the US$28 per hour that the typical UAW member receives. There is some conflict as to whether it applies to all non-core production personnel, or just to the Mopar Transport trucking system that is internal to Chrysler and employs UAW members.
- VEBA: Reports from Chrysler confirm that the company agreed to a Voluntary Employee Benefits Association (VEBA) trust that will transfer retiree healthcare liabilities to an independently run fund, just like the GM agreement. However, initial reports have put the level of funding at US$10-11 billion out of a current total of US$19 billion in liabilities. If the reports are true, it would mean that Chrysler won a VEBA deal at just US$0.53 on the dollar, as opposed to the US$0.70 on the dollar seen at GM.
- Product Commitments: Unlike the GM deal, which specified specific next-generation products at nearly all of GM's 14 U.S. assembly plants through 2013 and beyond, Chrysler reportedly will not be giving nearly the same level of commitment. The current generation of Chrysler products are reportedly guaranteed to remain in their current locations, but next-generation products are not specified.
- Wage Increases: As with the GM deal, workers will forgo cost-of-living increases for specified bonuses. The exact amount of the bonuses is not known.
Outlook and Implications
Neither the UAW nor Chrysler has called a press conference, much to the confusion of the automotive press. After the settlement was announced with General Motors (GM), the UAW called a press conference to announce the deal and details were made available later that same day. For the Chrysler deal, nothing beyond a couple of statements from the UAW and Chrysler has been released. This has resulted in the details of the new contract coming to light through third-party sources, with some of the above information gleaned from media sources close to the negotiations. At first glance, the deal seems to favour Chrysler greatly over the UAW, with the company successfully resisting committing to new products but still achieving a two-tier wage deal. The resistance to new product commitment allows the company to have an increased flexibility in determining what products it will need to build and where to build them through the next several years. With the long-term product plan probably under review with the new arrival of chief executive officer (CEO) Bob Nardelli and top marketing chief Jim Press.
The VEBA report would represent the least expensive VEBA (in terms of percentage of liabilities that will be funded by the corporation) for an auto company that has yet been presented. Goodyear was able to negotiate a VEBA with the United Steelworkers' union for US$0.83 on the dollar, and Dana was able to do the same with the UAW for US$0.71 on the dollar. The deal that GM was able to establish allowed the company to negotiate US$50 billion in retiree healthcare liabilities down to a total outlay of US$35 billion, or roughly US$0.70 on the dollar. The Chrysler deal, according to reports, knocks Chrysler's US$19 billion in retiree liabilities down to a level somewhere between US$10 billion and US$11 billion, which would put it at roughly US$0.54 on the dollar, a significant concession by the union. One can speculate that Chrysler, with its new focus on cash flow instead of balance sheet health under private ownership, held out for a much better deal than that seen at GM.
The actual agreement must be examined before final comparisons to the GM deal can be made. The union leadership maintains that pattern bargaining is still alive and well, but truly the only pattern here is that the same basic topics are encompassed in both the GM and Chrysler agreements; the details seem to differ fairly significantly. One suspects that the lack of information coming from the UAW thus far hints that the leadership may feel that some work needs to be done before Chrysler employees can be fully informed of the conditions of the new agreement. With the GM contract passing by an average of 65% in favour, far less than the landslide the union leadership hoped for, a contract even less favourable to union membership at Chrysler may be more of a ratification challenge.