By Nora Naughton and Mike Colias
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 28, 2019).
The new labor deal secured at General Motors Co. this past week
to end a 40-day strike will not only add to the auto maker's labor
costs but could also pose problems for its Detroit rivals.
The United Auto Workers will use the agreement at GM as a
template that is expected to reach similar terms on wages and
benefits in separate contract talks with Ford Motor Co. and Fiat
Chrysler Automobiles NV, under the union's traditional pattern
bargaining.
GM workers won considerable gains in this latest contract,
including across-the-board wage increases, an accelerated timetable
for new hires to reach top hourly pay and a path to full-time
status for temporary workers.
The labor agreement approved by union members Friday after the
UAW called a nationwide strike that lasted six weeks also held
steady employees' out-of-pocket contribution for health benefits at
about 3%, a fraction of what private-sector workers pay.
The new contract, covering more than 46,000 UAW-represented
workers at GM, is likely to add roughly $350 million in annual
labor costs to the company's finances by the end of its four-year
term, Barclays analyst Brian Johnson wrote in an investor note.
That is equivalent to about 3% of the annual operating profit GM
has posted in recent years.
Any such labor-cost inflation would be more difficult to absorb
at Ford and Fiat Chrysler, which are less profitable than GM and
operating on thinner margins in North America, a region that
delivers much or all of their profit, industry analysts say. The
UAW said Friday it will bargain with Ford next, saving Fiat
Chrysler negotiations for last.
The Detroit car companies usually wrap up labor talks with the
UAW in the fall, but the extended strike at GM has delayed that
timeline. Bargaining could still wrap up before the end of the year
if there isn't another strike.
Ford has the second-highest labor costs of the three Detroit car
makers, spending an average of $61 an hour on wages, benefits and
other expenses for the company's unionized workforce, according to
the Center for Automotive Research. Fiat Chrysler spends $55 an
hour, and GM, $63.
Ford shares came under pressure last week after the company cut
its profit forecast for the year, citing higher warranty costs,
weakness in China and growing pressures in the U.S. market. Its
profit margin in North America slipped to 7.1%, from 7.4% a year
earlier.
Chief Executive Jim Hackett is trying to boost free cash flow to
ease investors' concerns about how the company would fare as the
U.S. auto industry prepares for an expected downturn in car-market
sales.
Moody's Investors Service last month cut Ford's bond rating to
junk status, citing weak cash generation and Ford's ability to
weather a cyclical downturn. Standard & Poor's on Friday cut
its rating on Ford to one notch above junk.
Ford executives are concerned about rising health-care costs for
its 56,000 UAW-represented workers, which is a larger number than
at GM. Ford's health-care tab is expected to top $1 billion next
year for the first time, according to people close to the
talks.
If forced to maintain the status-quo on health benefits, Ford
bargainers are likely to push to offset with savings in other
areas, these people say. One option could be to press for a smaller
signing bonus than the $11,000 payout that GM workers are to
receive for ratifying their contract, the people close to the talks
said.
Matthew Schulte, a worker at Ford's truck plant in Dearborn,
Mich., said he isn't too concerned about Ford matching that hefty
signing bonus. But he expects the company to hold the line on
bigger issues such as health care.
"With GM workers doing 40 days on strike, that's perhaps a sign
for the auto makers that this is the pattern we established, and
you need to take it," Mr. Schulte said.
For Fiat Chrysler, the Italian-American auto maker could have
more trouble with the changes to new-hire pay and temporary
workers' status, because many of the company's 47,200
UAW-represented workers were hired within the past decade and
haven't yet reached the highest pay rung.
The GM contract cuts in half the time it takes for new hires to
reach the new top rate of about $32 an hour, from eight years to
four, meaning many Fiat Chrysler employees could top out much
sooner and cost the company more for labor. New hires now start at
roughly $17 an hour.
As is typical in pattern bargaining, the main economic gains
made by the union in the first round of negotiations, such as on
wages and health care, are largely carried over to the next two
companies -- sometimes with minor changes to meet each auto maker's
unique financial needs.
But after four years of steady profits, those tweaks will likely
be more difficult for company bargainers at Ford and Fiat Chrysler
to make, labor experts say.
If the other two companies push back on deals reached with GM on
temporary workers or health care in particular, that could trigger
another walkout because the UAW isn't likely to bend on terms that
it fought hard for by striking GM, said Colin Lightbody, a former
Fiat Chrysler negotiator and labor consultant.
"On economics, there is usually very little wiggle room, but
this could be more of a strict pattern than we have seen in quite a
while," Mr. Lightbody said.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
October 28, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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