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Auto Work Force Gets Dividend From Industry’s Rebound

The sweeping overhaul and surprising recovery of the American auto industry is about to pay off handsomely for the blue-collar workers at Ford and General Motors.

AP

The two big Detroit carmakers will announce profit-sharing checks this month for their hourly workers, perhaps the largest in a decade, company officials and industry analysts say.

While the payouts — expected to top $5,000 at Ford — underscore the turnaround being celebrated at the Detroit auto show this week, they also foreshadow the enormous challenge awaiting the rebounding companies: how to maintain and build on their financial health while keeping their historically restive work force in line.

All three Detroit car companies are preparing to negotiate new contracts with the United Automobile Workers union this summer. Hovering over the talks will be both the dark days leading up to the federal bailouts of G.M. and Chrysler in 2009, and the renewed sense of optimism permeating the domestic industry.

With sales rising and promising new vehicles on the way, the automakers are solidly positioned for future profits. But in the past, Detroit has tended to reward workers in good times, only to demand givebacks when fortunes changed.

Labor talks in Detroit are a ritual in which both sides talk tough and ultimately square off on the hard issues of wages and benefits. But there are some early indications that this year might be different, and that practical considerations about the industry’s overall competitiveness could replace the combative tone of previous negotiations.

The gap in labor costs between Detroit and the foreign-owned factories in the United States has narrowed considerably. Ford’s total labor cost for a worker — a combination of wages, benefits and pensions — has been reduced more than 20 percent and is now about $59 an hour, compared to $56 at Toyota, according to the Center for Automotive Research in Ann Arbor, Mich.

And some new ideas about compensation are surfacing. On Tuesday G.M.’s chief executive, Daniel F. Akerson, suggested that bonuses for hourly workers should be tied to vehicle quality and overall company performance.

The union’s president, Bob King, responded that workers would have an open mind as long as they got a piece of the profits in the new contracts. The current four-year contracts expire in the fall.

Detroit Auto Show 2011 - A CNBC Special Report
Detroit Auto Show 2011 - A CNBC Special Report

“What’s going to be important is that members feel they are being respected and that they are getting their fair share of the upside,” Mr. King said Wednesday. The traditional profit-sharing plan for the union has put little money in workers’ pockets in recent years. Ford was the only profitable Detroit carmaker in 2009, and its workers got $450 each as their share of the company’s earnings.

But both G.M. and Ford enjoyed strong years in 2010 and are expected to report big profits this month. Industry analysts estimate that Ford’s 42,000 union workers will get profit-sharing checks of at least $5,000, based on the company’s performance last year in the North American market. That would be the biggest payout since the $8,000 checks that Ford handed out in 2000.

Workers at G.M. are likely to get less than their peers at Ford because the company didn’t do quite as well. Also, G.M. has a bigger pool of union workers — 54,000 — to compensate. But to rank-and-file employees who lived through the company’s financial collapse and subsequent government rescue, the checks will be tangible evidence that G.M. is well back on its feet.

“That would be a great bonus, especially with the overtime pay that we’ve lost and the years that our wages were frozen,” said Bill Parker, a G.M. worker at the plant here that builds the Chevrolet Volt.

Real bonus? Having a job ...

But in the next breath, Mr. Parker said that regardless of the size of the bonus checks, he felt fortunate to still have a job after G.M. cut more than 40,000 union positions in the last five years. “I’m happy to be here in this building,” he said.

Chrysler, which has taken longer to restructure its balance sheet and restock its product lineup, is still losing money and probably will not issue bonuses.

In G.M.’s case, the company has had no profits to speak of in its home market since early in the last decade. But its cost structure has been reduced substantially, first through worker buyouts and plant closings and then by eliminating debt during its bankruptcy. The company, along with Ford and Chrysler, has also reduced its health care obligation by paying into a trust to cover the medical bills of its retired hourly workers.

“In 2007, our hourly labor costs in the U.S. were $16 billion a year, and today it’s $5 billion to $6 billion,” said Steve Girsky, G.M.’s vice chairman and the board member who represents the interests of the U.A.W. retiree trust.

Mr. Girsky conceded that G.M. and the union “had a history of mistrust” that had often made previous negotiations hostile. But that has gradually changed since the two sides were forced to frankly confront the company’s problems. “One of the things the bankruptcy did was force transparency on the situation,” he said. “You can’t hide anything anymore.”

But Mr. King has been very vocal about how the union should get back some of the economic benefits it gave up to bolster the Big Three. He estimates that each union member has sacrificed $7,000 to $30,000 in annual compensation, either in pay or benefits, since 2005.

G.M. isn’t interested in turning back the clock, however. Rather than restore some benefits to workers, the company would like to apply its bonus criteria for salaried employees to factory workers as well. Mr. Girsky said G.M. might also offer stock to union members as part of a new bonus plan. “I get 90 percent of my compensation in stock,” he said. “It’s open for discussion whether the hourly workers should get stock too.”

In the end, the challenge for both management and labor is to come up with a formula to spread the newfound wealth without breaking the bank.

“The companies don’t want to be tied to wage increases and would rather put more money into incentive plans,” said Ron Harbour, head of the auto division of the consulting firm Oliver Wyman. “But they have to be careful to save enough cash for a rainy day.”

The coming contract talks will also be influenced by “no strike” pledges given by the union to both G.M. and Chrysler, as a condition for the Obama administration’s support of government assistance. Ford does not have such a guarantee.

Analysts don’t see much chance of a labor strike given that Ford is leading Detroit’s comeback in the marketplace. “I could not imagine the U.A.W. doing anything as stupid as striking after what the industry has gone through,” said Mr. Harbour. “That would sink them forever in the public’s mind.”

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