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The End of Two-Tiered Contracts in Auto?

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Between 2007 and 2009, the American auto industry was on the verge of collapse, with GM and Chrysler requiring government assistance to stay afloat. The industry took advantage of this situation to force two-tiered contracts on the United Auto Workers that set a new wage scale for new workers significantly below that of older workers and without any way for workers to ever reach the old wage scale. The UAW didn’t have much choice but to agree for two reasons. First, the auto industry had already outsourced so much production–to Mexico, to the nonunion South, to nonunion parts suppliers–that the threat to just bust the union and outsource most everything was real. Second, the companies were genuinely in real trouble and the UAW feared lost jobs. Some argued UAW president Bob King was a sellout, etc., during this period, but other than a massive strike that would have accomplished nothing and possibly led to the end of the union and which the UAW was simply not prepared for, I don’t see any other real choice it had at the time.

But the UAW, both leadership and rank and file, hated the two-tiered contracts. As the auto industry’s fortunes began improving, especially after 2011, it became a lot harder to justify these contracts. Of course the car companies loved them and had no intention of giving them up. But rank and file pressure from the UAW seems to have done the trick, or at least started the rollback. Last week, the UAW and what is now FiatChrysler agreed to a new contract that kept the two-tiered system. Except that the membership than rejected the contract pretty overwhelmingly and prepared to strike. I don’t know if this was the UAW plan from the beginning, in order to convince the auto companies this had to end, or whether it was a real rank and file rebellion. Maybe a little of both. In any case, in going back to the bargaining table, the UAW and FiatChrysler agreed to a second contract that rolls back the two-tiered contracts.

On Friday the UAW’s Chrysler council voted in support of the new proposal, but final approval depends on the general membership of the union’s general Fiat Chrysler branch. Negotiators reached a tentative agreement the day before, narrowly averting a planned strike at several Midwestern plants.

UAW workers overwhelmingly rejected another proposed Fiat Chrysler contract a week ago, in part because it would have left the tiered wage structure intact. Under the most recent contract between UAW and the carmaker, unionized workers hired after 2007 can earn a maximum of $19.28 per hour, whereas the first-tier workers, hired before the cutoff, earn closer to $28.50 per hour.

The UAW released details of the more recent proposal after the Chrysler council vote. Under this deal, all second-tier workers could earn up to $28 per hour after seven years of employment and what it termed a “traditional wage” by year eight.

Fiat Chrysler is not the only major auto company to have a tiered contract. General Motors and Ford, the others in Detroit’s Big Three, also inked tiered deals with UAW in 2007, when the whole industry was under severe economic pressure. First-tier workers at the Big Three account for 10 percent of autoworkers in the United States; 4 percent of autoworkers are second-tier workers in the Big Three, according to an analysis by the labor publication Labor Notes. Together, the contracts cover about 137,000 workers — including a lower-wage second tier that makes up 45 percent of the workforce at Chrysler, 25 percent at Ford and 20 percent at General Motors, according to the Center for Automotive Research.

I talked to Ned Resnikoff about this in the linked article above. It’s a big deal precisely because Chrysler relied so heavily on the contracts, far more than GM or Ford. If the UAW can push back on this with 45 percent of the workers at Chrysler on them, the argument that Ford and GM need to keep this arrangement is heavily undermined.

Now, there’s a lot of details to be hashed out and I have no doubt that Chrysler is going to try and keep these arrangements in some way. The very slow timeline to fix this problem and get workers on the top wage scale is less than ideal and extends beyond the end of this contract. But this is a real victory and deserves to be recognized as such.

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  • Aren’t there two-tiered contracts in other industries that have been around for a long time? (This is a vague memory, so I may be wrong several times in that one sentence.) And if so, doesn’t that imply that the car makers will drag this out as long as they can?

    • Yes, two-tiered systems are not that uncommon, unfortunately. And the car makers may well drag it out. But they are still being force to retreat at the very least.

  • Bruce Vail

    Yes, two-tier (or three-tier) arrangements are quite common in other industries.

    What had the UAW members up in arms in that the current auto contracts did not provide the means for workers to transition from second-tier to first-tier, no matter how long they worked. It essentially consigned the two tier men to permanent second-class status.

    This issue will drag out at UAW because no one believes that two-tier can be eliminated overnight. The worst features of the system can be phased out over time, but some elements are likely to remain for a long time.

  • Morse Code for J

    I guess the part where the UAW convinced the White House to take extraordinary measures to save Chrysler and General Motors is not part of the bargaining calculus.

    • joe from Lowell

      I don’t follow.

      Are you saying that the acceptance of two-tiered contracts was a White House ask?

  • efgoldman

    First, the auto industry had already outsourced so much production–to Mexico, to the nonunion South, to nonunion parts suppliers–that the threat to just bust the union and outsource most everything was real.

    What’s to prevent the companies from doing that, anyway?

    I guess the part where the UAW convinced the White House to take extraordinary measures to save Chrysler and General Motors is not part of the bargaining calculus.

    I don’t recall: did the bailouts have to get through Congress, or was it something the administration did on its own? Because if Congress was involved, even with both houses Democratic, I don’t think a provision like that would have passed.

    • Bruce Vail

      Congress did approve loans to Chrysler and GM. I’ll have to look it up, but I believe the loans were converted to stock, most of which was subsequently sold by the US government.

      I’ve heard claims that the government actually made a profit, but I’m a skeptical on that point.

      • Morse Code for J

        It profited on the financial services bailout. It lost about $11B on the GM and Chrysler bailouts because it sold its stock prior to the presidential election in 2012. Apparently the optics of selling stock at a loss were better than holding private company stock until it became profitable to sell.

    • There’s nothing specifically preventing the companies from outsourcing all the jobs except that the politics of it would be so awful for the car companies that it would undermine them. If all the jobs are in Mexico, or maybe even just non-union and outsourced, there’s probably no way the government does the bailout. Better for the Big Three to keep a rump of unionized workers.

      • Brett

        Wouldn’t they have to negotiate the shutdown with the UAW? And given that it would basically be ripping the heart out of the UAW, those negotiations would not be easy.

        Maybe that only applies while they have a current contract, though.

    • Morse Code for J

      The bailouts went through Congress, in the sense that they authorized the money to the Treasury to purchase “troubled assets.” The legislation passed in October of 2008, and Chrysler and GM sold substantially all their productive assets to new versions of themselves the following summer, with the Treasury being the cash purchaser in both transactions.

      My point is that the White House would probably not have thrown the resources it did at saving these companies, if one of the biggest remaining private-sector unions had not been involved. If there had been no UAW employees at Chrysler or GM in 2009, then the Treasury would have been much more inclined to watch both companies die and their productive assets sold on the courthouse steps.

      • Bruce Vail

        No, I don’t think the Obama Administration was ready to give up on GM and Chrysler, union or no union. Remember this was deep in the recession of 2009 and some estimates (perhaps alarmist) were that a million jobs would be lost without the bailouts. I don’t think the Obama folks ever seriously considered letting the American auto industry die on its watch.

        There is a long history of bipartisan government bailouts in American history. GM-Chrysler wasn’t the first and it won’t be the last.

        • Brien Jackson

          Another point also often made was that, if not for the banking crisis, GM and Chrysler wouldn’t have had much of a problem finding more traditional bankruptcy financing.

        • Morse Code for J

          The Treasury conditioned its help to the new Chrysler and GM on channeling some of their TARP funding along with stock shares into the VEBA trusts set up for UAW retiree benefits in 2007. Yes, it saved jobs, but a lot of people lost jobs during the recession, and there was only about $200B to spread around after the Treasury committed to stabilizing the financial services sector.

          Meanwhile, the Republicans were perfectly happy with letting the UAW twist in the wind, along with GM and Chrysler. Google any number of editorials to this effect at the time.

          • Bruce Vail

            Yes, I wonder whether there would have been a bailout in a McCain presidency. It was pretty disgusting to watch Southern Republicans with Japanese/Korean/German assembly plants in their own states root for the death of General Motors and the UAW.

  • ringtail

    I remember my young, conservative, Red State self in high school, arguing with one of my teachers about how ridiculous it was that UAW workers with high school diplomas were making over 20 dollars an hour! Why, that’s about $40K a year!!

    That teacher just looked at me like the idiot teenager I was and snorted “You try raising a family on $20/hr…”

    Now that I’ve actually paid bills and am generally not a petulant child I see what he was talking about.

    Why is it that so many of us see the UAW wages or the push for $15/hr minimum wage and say “What! I’ve never made that much, why do they deserve it?!” instead of “Hmmm, maybe my time was worth more than $9 or $7 in the first place?

    • werewitch

      Why is it that so many of us see the UAW wages or the push for $15/hr minimum wage and say “What! I’ve never made that much, why do they deserve it?!” instead of “Hmmm, maybe my time was worth more than $9 or $7 in the first place?

      I’ve talked to people about this, and right away they lay into their former $7-an-hour coworkers. Their coworkers were lazy this, unmotivated that, and they {the person you’re talking to} had to work extra hard to make up for coworkers’ idleness and shortcomings. And, if you can stop them and really press them on whether *their* time was worth more, you get some variant of “yeah that’s why I got out of there as soon as I could!”

      It’s depressing.

  • Steve LaBonne

    I’ll take any little bit of good labor news wherever I can find it.

    • Bruce Vail

      ‘Little bit’ is right and Erik was correct to put a question mark at the end of his headline.

      The FiatChrysler deal isn’t finished yet, and thee is no guarantee that the two American companies — GM and Ford — will go along. There are a couple innings left to go in this ball game.

      • I do feel a lot more confident in pushing back on GM and Ford because the percentages (and thus cost to the company of transitioning out of it) is so much higher for Chrysler.

        • Bruce Vail

          Yes, but the flip side is that GM can say “Well, the two-tier was a real problem for UAW at Chrysler, but out circumstances just aren’t the same.”

          The days when UAW could negotiate a contract with a target company and then expect the other two automakers to follow suit are over.

  • creature

    I worked for Ford, back in the early ’70’s- they had a ‘part-time worker’ program going on the had people come in on Mondays and Fridays, to cover a very real attendance problem. Production line wages were in the $5-8 per hour range, skilled trades were $8-10 per hour. Health benefits were completely covered by FoMoCo. The part-timers got the same hourly rate, and it took a year of weekend work to become eligible for UAW membership. I’m not sure when the system changed, I got drafted in late ’72, and never worked a production line again. The part-timers got abused regularly- and they couldn’t work more hours unless there were no full-timers available for a specific operation- which never happened when I was there. I can only hope that if the other ‘Big Three’ balk at this new contract, the strikes will serve to empower other workers, in other industries, with similar ‘structures’, to throw off the yoke of institutionalised discrimination.

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