Bonuses, new jobs keys to auto deal

August 26, 2011

Bonuses, new jobs keys to auto deal

Ford works to find formula UAW can sell to members


To hear ranking Detroit auto industry executives tell it privately, a new contract with the United Auto Workers would come next month without base wage increases or cost-of-living adjustments, a bitter pill for rank-and-file workers.

How would they sell it, particularly at a Ford Motor Co. unfettered by federal bailout conditions? By offering lump-sum signing bonuses and delivering a four-year plan to reinvest billions in U.S. plants and hire thousands of new hourly employees, a ranking industry executive close to the situation said this week. The trade-off would be a win for the UAW, for the automakers and for Michigan, still the nation’s leading auto producer despite the Great Meltdown.

The promise to add American jobs building new vehicles in exchange for competitive labor rates and flexible work rules would achieve a crucial goal laid down by UAW President Bob King: reversing the union’s plunging membership and evaporating revenue by creating new dues-paying jobs in U.S. plants.

To offset the alarming decline to 376,612 members last year from a high of 1.5 million in 1979, King has tried to organize foreign-owned automakers operating in the United States, and tried to expand the union’s reach into such new “markets” as casino gaming staff, graduate assistants and other public employees. None of these is enough to stanch the imposed exodus of the UAW’s core membership.

The union, its image tarnished by the congressional inquisitions of 2008 and the bailouts of ’09, could credibly claim credit for the investment moves. And King and his leadership team could tout the commitments to help ratify any tentative agreement, chiefly at Ford, as well as theoretically bolster efforts to organize nonunion plants down South.

Because General Motors Co. and Chrysler Group LLC were rescued from bankruptcy with taxpayer dollars and Ford mortgaged itself to the hilt, the grand bargain would show investors a new kind of fiscal rectitude in Detroit. It also could offset the automakers’ growing investment abroad with evidence of new commitments back home.

“We prefer to invest in the United States,” the executive said, a logical parallel to the build-them-where-you-sell-them practice generally used in today’s global auto industry.

New investment at home

But during the course of the past decade, the prospect of sourcing American metal from American plants and expanding payrolls grew increasingly remote as costs rose, market share dropped and financials weakened badly. The first big steps in slowing the downward spiral came in the watershed negotiations of 2007.

In exchange for conditional product commitments for U.S. plants, particularly at GM, bargaining delivered a second wage tier for new hires and created a health care trust fund to off-load retiree health care costs. Multiple restructurings over the past five years, including twin bankruptcies, radically reshaped the companies’ fixed costs and closed the competitive gap with foreign-owned rivals.

Among the challenges in this year’s talks are maintaining momentum and winnowing the cost gap further amid an uncertain economy, near-record profits at Ford and GM and the high expectations of hourly workers — namely at a Ford that didn’t “take the money” used by the Obama Treasury Department to rescue GM, Chrysler and the UAW from oblivion.

Enter a detailed plan for new investment in U.S. plants. Without industry-competitive fixed costs, the business case to pump capital into American facilities doesn’t pencil or pass muster with recession-hardened directors. With competitive fixed costs, the rationale goes, Ford could justify incremental investment at home and deliver for the UAW.

We’ve been here before. In the ’07 talks, union bargainers included GM’s product investment plan in their tentative contract “highlighter,” a brief document traditionally used to share details with members, build support for ratification and brief news media. GM voiced heated objections, which the UAW staff politely ignored.

Why? Because then-President Ron Gettelfinger feared he and his team would be unable to persuade a majority of GM’s rank and file to ratify a deal that established a second-tier starting wage and off-loaded retiree health care to a union-controlled trust. The contract passed, but not before a brief strike.

“That was a big deal to the UAW,” said Art Schwartz, a retired GM bargainer and labor executive, referring to the public release of GM’s plans. “That was how they justified” the health care trust fund. “That was how they justified second tier.”

Ford may join in

Reinvesting in U.S. plants is vital to the union’s longer term viability. Its leaders are eager to see future plans for Ford’s Auto Alliance International plant in Flat Rock, which longtime partner Mazda Motor Corp. is abandoning, and to learn whether prospects are improving for GM to reinvest in its idled Spring Hill assembly in Tennessee.

“To reopen a plant or save a plant would be a big deal,” Schwartz added. “That could be tradable; I could see them doing it. But it’s going to have caveats on it, I’d bet you that” — starting with the vitality of the U.S. economy and car market.

The lessons aren’t lost on Ford, whose bargainers understand that the automaker’s fat profits and even fatter bonuses for CEO Alan Mulally pose significant obstacles to reaching an agreement. That’s why the automaker is quietly discussing with the UAW a multiyear plan to invest in U.S. plants, as GM and Chrysler already have.

In May, GM said it would invest $2 billion in 17 facilities in eight states and create 4,000 jobs. Since June 2009, Fiat SpA-controlled Chrysler has invested $3.2 billion in U.S. facilities and created 2,000 jobs in Michigan, charting a path for Ford to follow when it most needs cover.

In this year’s talks, Ford is the main attraction. Under terms of the federal bailouts, union members cannot strike GM or Chrysler until 2015 and contract disputes this time around can be submitted to arbitration. None of that applies at Ford, where hourly employees rightly expect to share in the success of the past two years.

The challenge is to figure out how, without squandering the momentum driving Detroit’s second chance.

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