UAW bonuses approach records on rising Detroit 3 profits

UAW bonuses approach records on rising Detroit 3 profits
Keith Naughton
Automotive News | February 13, 2013 – 6:19 am EST

DETROIT (Bloomberg) — U.S. automakers are close to handing out record profit-sharing checks, bringing new meaning to the term “bonus baby” for Ford Motor Co. hourly worker Nino Pace.

When Pace arrived home from work one evening, his wife had spelled out “baby” in wooden blocks, decorated with sparkles, on the kitchen table.

Pace took the “not-so-subtle hint” and intends to sock away half of his $8,300 profit-sharing check from Ford for the baby he and his wife of 14 months now are planning, he said.

With the other half, the production worker at Ford’s axle plant in Sterling Heights, Mich., intends to take his wife on one last, child-free vacation.

Thanks to record North American profits, the Detroit automakers plan to hand out checks totaling more than $750 million to about 122,000 workers.

Besides Ford’s $8,300, the most ever by a Detroit automaker, Chrysler Group is paying hourly workers $2,250.

For new Ford hires, who are paid about half what senior workers make, $8,300 adds 23 percent to their annual compensation of $36,000.

If General Motors’ payout surpasses $7,325 when it reports year-end earnings on Thursday, that would top the cumulative record of $17,875 set in 1999, when Detroit was awash in SUV profits, said Kristin Dziczek, director of the labor and industry group at the Center for Automotive Research.

Economic impact

In Michigan alone, the checks will contribute $350 million to the economy and generate 3,500 jobs, said Donald Grimes, a senior research specialist at the University of Michigan, who studies labor and the economy.

“This is a much bigger deal than the tax refunds people get,” Grimes said. “It’s a much bigger check.”

GM earned $5.48 billion in North America in the first nine months of last year and may have made $1.17 billion before interest and taxes in the fourth quarter, the average of four analysts’ estimates.

That would suggest a profit-sharing payment of $6,600. While that would be shy of the record, it’s a sizeable sum given U.S. auto sales were 15 percent below 1999 levels, Dziczek said.

“The automakers are profitable now at much lower sales volumes,” Dziczek said. “That bodes well for the next few years of seeing checks like this.”

Last year, GM paid $7,000, Ford paid $6,200 and Chrysler $1,500.

SUV days

That last time autoworkers received checks as big as this year’s, U.S. auto sales reached a then-record 16.96 million and Detroit’s SUVs ruled the roads.

Last year, automakers sold 14.49 million cars and light trucks in the United States, the most since 2007, the year before the fall of Lehman Brothers sent the economy spiraling into the worst recession since the Great Depression.

Carmakers earn more money on fewer sales because they cut their costs during the recession, in part by winning concessions from the UAW.

A lower break-even level helped GM earn 51 cents a share in the fourth quarter, excluding some items, up from 39 cents a year earlier, according to the average of 16 estimates compiled by Bloomberg.

The 2009 government-backed bankruptcies of GM and Chrysler cleansed their debts.

All three automakers lowered costs by cleaving almost 200,000 workers from their payrolls since 1999, Dziczek said.

“We did what was necessary to save the companies,” UAW President Bob King said in an interview Monday.

In 2011 bargaining, “we wanted to make sure that if the company did well, our members would do really well. This is like four bucks an hour for people at Ford. That’s huge.”

Sober approach

The workers who survived Detroit’s downsizing take a sober approach to spending those big checks. Many are still recovering from the financial hardships of the recession.

With one son in college and another on the way, auto worker Brian Pannebecker doesn’t plan to go crazy with the biggest bonus check he has ever received from Ford. Instead, he’ll use it to pay off credit cards.

“I’m not doing anything sexy like going to Disney World,” says Pannebecker, 54, a hoist operator at the Sterling Heights axle factory. “I’m trying to get both my boys through college without any student-loan debt.”

That doesn’t mean there won’t be an economic impact next month when checks are distributed to workers, mostly in the Midwestern states of Michigan, Ohio, Indiana and Illinois.

“It is a small stimulus program that serves as an example in an economy where jobs are still a central issue,” said Harley Shaiken, labor professor at the University of California at Berkeley. “And it improves the companies’ competitiveness because better workers are attracted and morale is higher.”

Membership declines

Those checks are distributed to far fewer workers than in the heyday of the SUV.

The Detroit automakers employed 318,000 U.S. hourly workers in 1999, compared to 122,000 last year, Dziczek said.

UAW membership fell to 380,719 at the end of 2011, from a peak of 1.5 million in 1979, according to the U.S. Labor Department.

In 1989, when GM had net income of $4.22 billion, the automaker handed out profit-sharing checks of $50 to each of its U.S. hourly workers, according to the Center for Automotive Research.

In 2003, when GM had net income of $3.8 billion, workers received $170 each.

That was only slightly less than the $195 Ford handed out that year and considerably more than what Chrysler gave workers in 2003: nothing.

In the three decades since the UAW agreed to profit sharing in exchange for smaller raises or no increase to base pay, GM has failed to award bonuses 13 times, Ford has not paid nine times and Chrysler skipped 12 years of payments.

While some of those payouts were missed because the automakers were losing money, the union had argued the profit-sharing formula was overly complex and often unfair.

Shared objectives

The UAW’s King made sharing a bigger slice of profits a central theme of contract talks in 2011.

He extracted a new formula from the automakers that pays about $1,000 for each billion in North American earnings.

Automakers don’t have to pay if North American earnings fall below $1.25 billion, and the payout is capped at $12,000, Dziczek said.

Making profit sharing “more transparent and understandable was huge to us,” King said. “Workers had made tremendous sacrifices, and we didn’t want the games that were sometimes played in the past with the old formula.”

‘Winning together’

Giving workers more-generous profit-sharing payouts was aimed at aligning their interests more closely with the company and its shareholders.

“Flexible compensation, profit sharing will definitely be part of the auto industry” in the future, King said. “The auto industry is very competitive. You’ve got to have everybody focused on winning together.”

GM and Ford have each risen more than 10 percent since Oct. 31, when they began outlining plans for European restructuring and continued North American profitability.

GM rose less than 0.1 percent to $28.55 at the close Tuesday.

Ford slipped 0.2 percent to $13.08.

Ford posted a record North America pretax profit of $8.34 billion last year, which translated to $8,300 in profit sharing.

For Vincenza Milana, who started working at Ford’s Sterling Heights factory last May, the extra money was unexpected and most welcome.

Milana, who makes almost $16 an hour assembling axles for Ford’s Expedition and Lincoln Navigator SUVs, is using her check for necessities like making mortgage payments and keeping her car repaired and on the road.

‘Means the world’

“It’s something I wasn’t expecting and every dollar makes a difference,” said Milana, 50, a single mother of two daughters in college. “However I can help them, even just food on the table, doing laundry and having heat in the house, it means the world to us.”

For senior workers, who make about $70,000, excluding overtime pay, Ford’s profit sharing represents a 12 percent bonus, Dziczek said.

That disparity may dictate how workers spend their windfall, Shaiken said.

“For some, it may be the deferred purchase of a car or getting a new second car,” Shaiken said. “For others, it may be catching up on bills.”

To get the more-generous bonus checks, the UAW gave up traditional wage increases for senior workers and cost-of-living adjustments.

Senior workers haven’t received a raise since 2005. Many are still hoping to win back an annual raise in the next negotiations in 2015,Dziczek said.

Raises preferred

Profit sharing is “contingent, it’s flexible, so people don’t see this as security,” Dziczek said. “Most every worker on the line would really rather have an annual wage increase that’s there every year and compounds.”

Linking autoworkers’ compensation more closely with profits caused controversy when the union struck the deal in 2011.

Members rejected the contract at five Ford factories, including assembly plants in Chicago and Michigan that build the Taurus sedan, Explorer SUV and Focus small car.

The contract was ultimately ratified by fewer than two-thirds of Ford workers.

“In the depths of the industry’s problems, taking increased compensation in the form of profit sharing was a risk,” Shaiken said. “But for the UAW, this is a risk that has paid off.”

King, 66, wouldn’t say the big profit-sharing checks make up for all the concessions workers gave up. He also doesn’t rule out the union seeking a traditional raise in future negotiations.

“This doesn’t mean that we’ll never in the future look at some wage increase because you’ve got to keep up with inflation in some way,” King said. “But like we did this time, we will be very conscious and very strategic in making sure we get good gains for our membership and we keep the companies competitive.”

Bright future

Now with U.S. automakers on the upswing, autoworkers are on pace for several years of record profit sharing, Dziczek said.

While the prospect of even fatter checks lifts the spirits on the assembly line, workers probably won’t return to their free-spending ways of the late 1990s, Pannebecker said.

Back then, factories ran around the clock and workers earned enough overtime pay to push their annual income above $100,000. When a big bonus check came, it often went for a new snowmobile or a cabin in northern Michigan.

“Ten or 12 years ago, it seemed like the money would never stop coming,” Pannebecker said. “But it did stop and that was a real wake-up call. Now people are talking about saving money and paying off debts, not buying a new stereo.”

Veteran workers have warned their younger colleagues like Pace, the 28-year-old presumed father-to-be, not to use their bonus checks to live beyond their means.

“Many of them have told me to just look at it as a bonus,” Pace said “And bonuses are here today, gone tomorrow.”

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