By Danni Santana

For the better part of a decade, newer autoworkers in the U.S. have earned half the wages of their veteran co-workers who do the same job.

In September, the United Auto Workers is determined to close the gap when union leaders negotiate new contracts with U.S. automakers.

UAW eyes wage increases for both entry-level tier 2 workers and veteran tier 1 workers who have not seen a raise in a decade. Automakers, however, will walk into negotiations with a settlement number in mind to keep labor costs down.

“It’s difficult for companies to plead poverty when they are making money,”  said Arthur Schwartz, professor of labor relations at Wayne State University and former negotiator for General Motors. “Unions want to narrow the gap between the two tiers, but depending on what they ask for it’s going to put too many jobs in jeopardy.”

The two-tier system, established in 2007 to help Detroit’s Big 3 cut labor costs ahead of The Great Recession, has aided GM, Ford and Fiat Chrysler in hiring at least 39,000 tier 2 workers as of mid-February.

After a record low 10.4 million vehicles sold in 2009, the lowest output since 1982, the U.S. auto industry has been booming. Sales have increased each of the last five years, topping out at 16.4 million units sold in 2014. Some economists project over 17 million vehicles sold for automakers this year, the most since 2001.

Automakers are also more profitable. Each of Detroit’s big 3 reported strong earnings in 2014; General Motors leading the way at $6.5 billion. Ford Motor and Fiat Chrysler reported earnings of $6.3 billion and $3.9 billion as well. Union leaders now want a piece of the profits.

“I truly believe that our companies know that we can be both creative and thoughtful,” said UAW president Dennis Williams, at the union’s two-day bargaining convention in March. “But make no doubt about it, they also know, that as we share in the bad times, we must equally share in the good times.”

Despite increased revenue, the problem for U.S. manufacturers remains cutting labor costs, which account for wages and health benefits paid hourly per worker. Second tier workers cost $35 to $42 per hour while first tier workers cost $58 to $64.

GM, Ford and Chrysler rank second, third and fifth among major automakers in labor costs. Mercedes-Benz costs are highest , at $65 per hour, followed by $58 at GM, $57 at Ford, $49 at Honda and $48 at Chrysler, According to the Center of Automotive Research. Chrysler has benefited the most from the new system.


“Chrysler has been able to hire over 40 percent of their current workforce since 2007 and therefore has a blended average hourly labor cost that is very much in line with the international producers’ costs,” said Kristin Dziczek, director of the Industry & labor group at CAR. “Ford and GM have hired relatively fewer workers and are not yet in that territory.”

According to Dziczek, the second tier makes up 45 percent of Chrysler’s current labor force, 20 percent of GM’s and 25 percent of Ford’s. In all, about 137,000 of UAW’s members are second tier.

Tier 2 workers were originally not supposed to work on the assembly line. They were to only deliver product and clean up plants, thus could be paid less. Now they work side by side with veterans assembling cars, often at half the pay.

“The guy next to me on the line makes $14.50 an hour, I make $30,” said Steve Lanier, an autoworker at GM’s plant in Fort Wayne, Indiana. “Unions have always been in support of the middle class, but as long as the two-tier system exists that lifestyle is not possible. You can barely afford the product you make.”

In addition to wages, potential added costs of healthcare for employers will be a hot-button topic in September.

Cadillac taxes, as part of the Affordable Care Act, will take effect in 2018. Under the provision, companies are only allowed to spend $10,200 on an individual’s health care and $27,500 on an entire family. Overspending warrants a 40 percent tax by the federal government, which aims to limit usage of healthcare by employees to cut spending.

“Companies will try to alter health care to avoid the tax, but UAW has been very reluctant in the past to modify it,” Schwartz said.

According to Schwartz, Union members might also ask for a cap on the number of tier 2 workers hired by companies. He believes If the goal is still to better compete in labor costs, the two-tier system is as good of an idea now as it was before. Companies will and should fight against a cap.

“The problem facing automakers is we have a lot of history. We pay for a lot of retiree’s pensions. It’s hard to manage costs because of that.”

Achieved wage increases for union workers might prompt automakers to further outsource jobs down south to Mexico where hourly wages range from $5.35 to $8.24 per hour compared to $14 to $19 for tier 2 workers and $28 for tier 1 workers.

Mexico is now the world’s seventh largest automobile producer, thanks in large to a 40 percent rise in auto-making jobs since 2008, according to IHS Automotive. There are currently 18 manufacturing plants in Mexico; five more will be built by 2019 when the country is expected to move to fifth.


“The whole industry seems to be moving to Mexico. That’s all workers in Michigan and Ohio are talking about in the plants right now,” said Sean McAlinden, a chief economist at the Center for Automotive Research. “The giant sucking sound of NAFTA has started again. Automakers are saving more money by going south.”

With no better alternative to the two-tier system in place, negotiations in the fall are unlikely to result in the elimination of it. Heavy criticism of the system will also not result in any additional third tier automakers might ask for.

Instead, McAlinden and other CAR experts predict assembly wages for tier 2 workers will rise to $25 per hour. A combination of smaller wage increases and lump sums as opposed to annual raises is a possible alternative automakers will suggest. The gap between the two tiers, however, is not likely to close until the next round of negotiations in 2019.

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