U.S. Automakers and Union Hard at Work as Contract Expiration Date Nears

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Researched by Industrial Info Resources (Sugar Land, Texas)--How quickly four years have passed; it seems like only yesterday that the U.S. automakers and the United Autoworkers Union (UAW) (Detroit, Michigan) were laying the groundwork for a game-changing contract that would enable the automakers to survive through the economic downturn. Now, four years, one recession and two bankruptcies later, the American automakers and the union find themselves back at the table working hard to come to some kind of agreement before the current contract expires on September 14.

Shortly after details were worked out for the current contract, both General Motors Company (NYSE:GM) (GM) (Detroit) and Chrysler Group LLC (Auburn Hills, Michigan) were forced to seek bankruptcy protection, while Ford Motor Company (NYSE:F) (Dearborn, Michigan) was laying low as the American automotive market collapsed around it. Now both GM and Chrysler have recovered quite well. In fact, both automakers are well on their way to much better times, as the automotive market continues its rebound.

However, we may be seeing the calm before the storm for the U.S. automotive sector. All three American automakers are knee-deep in negotiations with the UAW as both sides attempt to keep the momentum going within the automotive sector. While the last negotiated agreement bars GM and Chrysler workers from striking, Ford workers are currently voting on whether or not to authorize a strike if negotiations bog down. Most analysts feel it is highly unlikely that this round of negotiations will become contentious enough for Ford to take such a drastic a step, but the vote must be taken to give them the option.

One of the main points being negotiated this year is the potential increase of the tier-two wages for new workers. According to the current agreement, which was negotiated in 2007, new workers are paid between $14 and $16 per hour, roughly half of what first-tier UAW workers earn hourly. The UAW would like to see this base wage increased. The automakers have not committed to increasing any wages, but appear willing to consider improving the profit-sharing formulas currently in use.

There will probably be some sort of incentive to sign the deal when the negotiations are complete. Most likely, this will be a one-time cash payout to the workers for approving the re-worked contract. However, automakers are also hoping to get some portion of their workers to accept buyouts or early retirement offers in order to lower the number of tier-one workers, which would allow the automakers to turn around and hire more tier-two workers at the reduced rate.

While negotiations have been civil thus far, with the deadline looming, lengthier and more intense negotiation sessions are being planned. While all sides would like to get out of these negotiations without having to go through another long, contentious negotiation process, it is going to take significant time to get all of the details worked out and to make all sides happy with the outcome. Additional money will have to be given to the workers, whether in the form of an hourly increase, a one-time payout or profit-sharing, but this is simply the cost of doing business these days. The U.S. automotive sector has been relatively peaceful for many years, and neither side is going to want to rock the boat too much at this point. All indications are that negotiations will be completed on time, but when the UAW and the automakers meet and discuss, anything can happen.

Industrial Info Resources (IIR), with world headquarters in Sugar Land, Texas, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.