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Federal investigation could complicate UAW negotiations with automakers

The Market Intelligence Platform


Federal investigation could complicate UAW negotiations with automakers

Distrust in the wake of an ongoing federal corruption investigation linked to the United Auto Workers could make it more difficult for the union to strike a deal with automakers, according to experts.

The U.S. Justice Department has been investigating the union as part of a bribery scandal involving U.S. automakers as bargaining negotiations continue between the UAW and Fiat Chrysler Automobiles NV, General Motors Co. and Ford Motor Co. The current four-year union contracts are set to expire Sept. 14.

Negotiations are "always difficult at best," said Michelle Krebs, executive analyst at Autotrader, adding that the previous round of talks led to a short strike.

"This ongoing investigation is making a complicated matter even more so," Krebs said.

Union leadership could face more difficulty during this round of negotiations "with the trust between the union leadership and the rank and file so badly damaged," she said.

Art Wheaton, an auto and labor expert at Cornell University's Worker Institute, agreed that the investigation and distrust could impact the ability to get a deal ratified, more so at Fiat Chrysler than GM.

Fiat Chrysler could have bigger issues since management was indicted, Wheaton said, but the addition of GM in the investigation "means more distractions and distrust of union leadership."

"I think the GM case was less systemic and more isolated bad apples," he said.

SNL ImageGary Jones is the current president of the UAW. On Aug. 28, the FBI raided his home in Michigan in relation to the federal investigation into corruption at the union.

Source: The Associated Press

Eight people linked to either UAW or Fiat Chrysler were found guilty of participating in a conspiracy to give or receive bribes to potentially influence the automaker's benefits in union bargaining negotiations. On Aug. 9, another former UAW official was charged with conspiracy to commit wire fraud and money laundering related to the UAW-GM Center for Human Resources, marking the first connection to General Motors in the investigation. On Aug. 28, the FBI conducted a "series of raids" across Michigan, including at the home of UAW President Gary Jones.

Fiat Chrysler and GM declined to comment on potential impacts from the investigation, and Ford did not respond to a request for comment from S&P Global Market Intelligence.

The tricky negotiations are less likely to impact automakers in terms of earnings because labor costs usually make up less than 10% of a company's total costs, Wheaton said.

"It costs more for paint and advertising than building vehicles," he added.

The UAW on Sept. 3 announced it would negotiate a contract with GM first to lay the groundwork for negotiations with the other two Michigan automakers. GM said in a statement that it was looking "forward to having constructive discussions with the UAW on reaching an agreement that builds a strong future for our employees and our business."

"The union has to be cognizant of the fact that membership is going to be watching with a somewhat skeptical eye anything the leadership does in these negotiations," Marick Masters, professor of business at Wayne State University, said in an interview.

Workers must be informed of what is taking place during the negotiations, and it "implies a level of diligence and dedication above and beyond what might be normal," Masters said.

"I would say that in terms of the negotiation process, what happens in situations like this is that it reduces degrees of freedom," he said, adding that there is not as much leverage or choice. "If you have to do something that's unpopular, it's harder to go back and explain to membership if you're under a cloud."

Training funds are probably on the table as a negotiation issue, Masters said, and the joint training programs connected to the UAW and automakers could be impacted since they are funded by automakers.

"It's almost unimaginable to believe companies won't want to say, 'I think maybe we should take a look at these programs,'" he said, adding that the automakers want the money to be well-spent.

Automakers are "facing challenging times" as the industry changes and companies are trying to free up capital to invest in new technologies, Masters said. On the other side, the union wants to maintain its gains from the 2015 negotiations in terms of wage increases and healthcare.

On Sept. 3, the UAW announced that workers at GM, Fiat Chrysler and Ford voted to authorize a strike if necessary.

"If you have a strike, that could harm the companies and do serious damage," Masters said.