Labor costs to be sticking point of UAW talks with automakers

As the UAW prepares to kick off national labor talks later this month, the hourly wage and benefits costs of the Detroit Three and their rivals once again will take center stage, just as they did during the 2009 bankruptcy restructurings of General Motors Co. and Chrysler.

But the massive, $20-plus hourly labor cost gap that existed between the Detroit automakers and some foreign rivals during 2007 negotiations has nearly vanished, and Chrysler’s low labor costs now are drawing attention.

“Never have labor costs diverged so much between the Detroit Three,” said Sean McAlinden, chief economist for the Center for Automotive Research.

Chrysler’s average hourly labor cost per worker was $49 in 2010 — making it highly competitive with Asian automakers, which pay $44 to $55 for U.S. workers’ wages and benefits, according to the research center.

GM and Ford Motor Co. aren’t there.

Ford says its hourly labor cost per worker was $58 in 2010. GM’s is about $56, the center estimates.

Given the small gap that exists between GM and Ford and the top-paying Asian automakers, “the companies will not have a very strong case if they ask for concessions,” said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass. “The union will be able to say, ‘Well, we became leaner … so it is up to you guys now.’”

The automakers are expected to keep pressing to close the gap between their hourly labor costs and those of their rivals, even though the gap is much smaller than it was four years ago.

General Motors, Ford and Chrysler will probably argue that this is not the time to revert to old ways and let wage and benefit costs rise as the domestic industry competes with Asian rivals.

“They are not in a safe, secure zone yet,” McAlinden said. “Our companies are not off the edge of the cliff.”

Still, that’s a much different reality than the $20-plus discrepancy that existed in 2007 — the last time a new national contract was negotiated — or in 2009, when a government-backed bankruptcy of GM and Chrysler forced the companies to agree to emergency contract changes.

Chrysler, which saw its labor costs drop from $76 in 2006 to $49 in 2010, is benefitting from hiring a greater percentage of workers at a lower, entry-level wage, said Kristin Dziczek, director of the labor group at the Center for Automotive Research in Ann Arbor, Mich.

In 2007, UAW workers ratified contracts that allowed automakers to hire entry-level workers for $14 to $16 per hour — about half the traditional $28. That does not include the cost of benefits.

Chrysler has about 22,500 hourly workers in the U.S. By comparison, GM has 49,000 — more than twice as many — and Ford has 40,600.

Each automaker has reduced its labor costs as older workers accepted buyouts and by shifting liability for retiree health care to a UAW-managed fund. The UAW also agreed in 2009 to freeze cost-of-living benefits, some holiday pay and other perks.

“The structures of the agreements around wages and benefits are nearly identical,” even though Ford failed to win the same modifications as GM and Chrysler, Dziczek said.

Marty Mulloy, Ford vice president of labor affairs, said about $2 of Ford’s $58 hourly labor cost in 2010 came from the company’s decision to provide workers with a profit-sharing check that averaged $5,000 per worker. Ford could shave an additional $3 per hour off its costs by hiring more entry-level workers.

Meanwhile, UAW leaders and members are trying to push for higher entry-level wages and the reinstatement of cost-of-living adjustments.

“I think it’s going to be a hard bargaining session,” said Steve Stone, building chairman for UAW Local 862 at Ford’s truck plant in Louisville, Ky. “I feel we have to have cost-of-living back — without a doubt.”

Snavely writes for the Detroit Free Press/McClatchy.