America’s car companies and their workers, which are being upended by unprecedented technological disruption, are about to begin their most difficult labor negotiations in years. The result of talks will help shape the future of the industry.
Negotiations between the United Auto Workers union and the traditional Big Three automakers - General Motors, Ford (F) and Fiat Chrysler (FCAU) - will begin with negotiators from the two sides holding their first meetings Monday and Tuesday.
The last two contracts were reached during good times for the industry - rising sales, strong profits, with lots of money to go around.
But the companies are feeling under the gun right now, with slowing sales and the need to make massive investment in new, not yet profitable technologies, such as electric and self-driving cars. They’re facing competitive pressures not just from nonunion imports brands, but from new players such as Uber (UBER) and Tesla (TSLA), along with the risk that the industry could be upended by deep pocket tech companies such as Google (GOOG) parent Alphabet and perhaps even Amazon (AMZN).
“The expectations of the work force are very high right now, but the companies are facing new challenges by the new technologies,” said Gary Chaison, retired professor of labor relations at Clark University. “There could be a strike as a result.”
In response to the changes the industry is facing, GM is in the process of closing four US plants this year in order to free up money to develop next generation cars. Ford is in the process of an $11 billion restructuring plan, cutting 7,000 white collar jobs and is forming an alliance with Volkswagen to share research and development costs. Fiat Chrysler was rebuffed in its efforts to merge with Renault.
But the rank-and-file still see the companies are profitable and aren’t in a mood to settle for contracts that save costs for the companies, no matter the longer term outlook.
Contracts negotiated in 2015 gave hourly workers at all three companies their first pay raises in more than a decade. The union also won the elimination of a two-tier pay system that paid workers hired since the bailouts and bankruptcies of 2009 less than their veteran co-workers. Those contracts barely got the support of the majority of rank-and-file needed to ratify the deals.
“They have all hired a lot of workers since 2009, who have never been through a downturn before. Some have never been through a round of bargaining,” said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research.
She said there is likely to be a significant downturn in the industry sometime in next four years, making it unlikely the companies are going to be willing to meet demands for higher base wages or limits on the use of lower paid temporary workers. That kind of gap between the two sides could lead to a prolonged strike this time, Dziczek said.
There hasn’t been a strike in the industry since very brief work stoppages at GM and Chrysler in 2007, when the union was forced to accept concessions such as changes in the retiree health care coverage.
The companies are also worried about being able to reach a deal that keeps their costs flexible in case of a downturn while still being acceptable to the union members.
One person close to the talks, who spoke on condition of anonymity because of the sensitivity of the upcoming negotiations, said when most of the workers don’t have any experience with these kinds of difficult negotiations, it presents a challenge with the way people think about whether or not to vote for an agreement.
The companies also talk frequently about the need to rein in health care spending, which tops $1 billion a year at GM and Ford according to those companies. UAW members at the companies pay only 3% of the premium costs, while salaried staff at the companies pay 30%.
It’s a very, very rich plan the UAW folks have, said the person close to the talks. And management knows it’s very important to them – the union fought to keep that coverage even during the concession contract of 2009. But it’s something management needs to work on to make the companies more competitive, he said.
“Health care will be a battle royale this year,” said Dziczek.