Temps, former tier 2 biggest challenge for FCA in labor talks

Fiat Chrysler Automobiles NV's large contingent of temporary and lower-paid production workers, a legacy of its bankruptcy a decade ago, might be the biggest challenge as the United Auto Workers pivots Monday to focus on labor talks with the Italian American automaker.

The ratified contracts at Ford Motor Co. and General Motors Co. provide current employees, both full-time and temporary, pathways to earn top wages by the end of the four-year agreement. Now the pressure is on at Fiat Chrysler, as these employees account for a greater percentage of its 47,200 UAW member workforce than its crosstown rivals.

Following their pattern would increase Fiat Chrysler's labor costs, possibly hurting its competitive position without an obvious measure to offset those costs. It also could challenge the UAW's competitive position in the global labor marketplace, especially if Fiat Chrysler merges with French automaker Groupe PSA. Breaking with the pattern, however, could jeopardize ratification because a majority of voting UAW-FCA members must approve it.

"That is the dilemma Chrysler is in with having more of these workers that represent a bigger portion of the voting public when it comes to ratification," said Art Schwartz, a former labor negotiator at GM and president of Labor and Economics Associates in Ann Arbor. "I expect Chrysler is going to look for some relief, and I don’t think they’re going to get it."

Temporary and in-progression employees do the same jobs as other workers, but must support themselves and their families on lower wages, said Jerome Dobson, a 26-year Chrysler employee working in quality at Sterling Heights Assembly Plant.

"We have a lot of part-timers over there," he said. "I’d be interested in letting them have the opportunity to become full-time. They come to work regularly, doing exactly the same work. It proves that they want and need a job."

Fiat Chrysler's $55 average hourly labor costs, including benefits, is $8 less than GM's costs, $6 less than Ford's costs and just $5 more than the costs of foreign automakers producing in the United States, according to the Center for Automotive Research in Ann Arbor.

FCA has "kept up their labor costs below the other two," said Kristin Dziczek, vice president of industry, labor and economics for the research center. "It might be that it's time to pay the difference on that average hourly labor cost advantage that the company has enjoyed a decade here. It'll be hard to get that implemented."

Labor costs represent only about 5% of the total cost of a vehicle, according to the Center for Automotive Research. But "in this business, you have to be competitive on all aspects," Schwartz said. "As long as Toyota, Honda and Nissan have this cost advantage, ... it helps them when they price their vehicles. It helps them in the market."

In a statement, UAW spokesman Brian Rothenberg noted Fiat Chrysler attributed its 5% adjusted pre-tax earnings growth in the third quarter to North America's record results.

"You cannot brag about your earnings to Wall Street and at the same time ignore the sacrifice of your workforce that put you in that profitable position," he said.

In-progression employees

Fiat Chrysler's costs differ from its crosstown rivals because full-time UAW-represented employees hired after their colleagues, now earning the top production wage of about $30 per hour, represent a greater percentage of its workforce. These lower-paid employees were previously called "tier two" and are known now as "in-progression" workers.

In-progression employees account for 59% of Fiat Chrysler's hourly manufacturing workforce, which does not include its skilled trades employees or salaried workers. In-progression employees represent more than 40% of GM's 48,000 UAW-represented employees and 43% of the nearly 55,500 UAW-Ford employees.

If a settlement at Fiat Chrysler follows the economics of the contracts at GM and Ford, all current in-progression employees would earn the top wage of about $32 per hour by the end of the four-year agreement. Normally it takes eight years, but the newest hires could reach the top in just four.

The change also could increase health-care costs: Unlike at the other two companies, in-progression employees do not have the same health-care benefits as their top-earning production colleagues.

Leaving bankruptcy in 2009, Fiat Chrysler offered numerous retirement and severance packages, and its jobs bank dwindled, said Colin Lightbody, a former Fiat Chrysler labor negotiator and president of consulting firm HR and Labor Guru Inc. As a result, the company brought in many new faces who it pays less under its contract.

Since the last contract was ratified in 2015, Fiat Chrysler has been on a hiring spree. It has announced nearly $3 billion more in U.S. investments than the $5.3 billion to which it committed. As a result, the company has hired more than 15,000 temporary employees and converted 44% of them to in-progression status.

A UAW spokeswoman referred to a previous statement from the company saying that contract negotiations continue "with the goal of reaching an agreement that will allow us to continue investing in our future while creating opportunities for our employees, their families and the communities where we live and work."

Temporary employees

Temporary employees now account for 13% of Fiat Chrysler's hourly manufacturing workforce. They represent 7% of all UAW-GM employees and 6% of UAW-Ford members. Temps make up an average 20% of employees at foreign automakers operating in the United States, according to the Center for Automotive Research.

The use of temporary employees may fluctuate throughout the year. Automakers typically use them when launching a new vehicle and to cover vacation time and absenteeism. Employees may be temporary for years before being hired permanently. The contracts at GM and FCA require they be hired after two or three years with seniority.

Given that Fiat Chrysler has a healthy capacity utilization of 86% in the United States, according to industry forecaster LMC Automotive, some plants run seven days a week. That contributes to increased rates of absenteeism that can reach as high as 20%.

Employees at the automakers are not required to take unpaid Family and Medical Leave Act time off concurrently with paid vacation entitlements, which doesn't deter misuse of FMLA where employees may arrive late or not show, Lightbody said. Changing that could be the "single most effective deterrent," he said, and allow Fiat Chrysler to rely on fewer temporary employees.

Rory Gamble, a UAW vice president who led its Ford Department, became acting president of the union 10 days ago when embattled President Gary Jones was placed on paid leave. The agreement Gamble negotiated at Ford also caps the use of temporary employees at 8% of the workforce and 10% at each plant.

"Historically, Ford has been more strict with respect to the utilization of temporary employees than their UAW counterparts at GM and FCA," Lightbody said. "Will that impact FCA's ability to have flexibility with respect to temporary employees, or will Rory bring the Ford approach to the table?"

'Win now and lose later'

But the UAW also must be cautious, said Art Wheaton, an automotive industry specialist at Cornell University's Industrial and Labor Relations School. Fiat Chrysler can afford a labor cost increase, he said, but the potential merger with Peugeot's PSA could pit workers in Europe and the United States against each other for product allocation.

FCA and PSA declined to share their labor expenses in Europe. Average hourly labor costs for the motor vehicle manufacturing sector were $43.37 in France, $54.87 in Germany, $30.78 in Italy and $33.27 overall in the European Union in 2016, according to the most recent data available on Eurostat.

"I think the UAW is going to have to be careful not to get every penny in this contract, but not have the same leverage to maintain it," Wheaton said. "You could win now and lose later, which is different from GM and Ford."

Wheaton expects in-progression employees at Fiat Chrysler will push for more gains. CEO Mike Manley suggested during the company's third-quarter earnings calls that Fiat Chrysler is looking for different terms than the settlements at GM and Ford.

"What I would say is obviously each of us, each of the Big Three in Detroit are in different conditions in terms of labor workforce," he said, declining to go into detail.

The UAW is allowing GM to close three plants and a parts distribution center during its contract. Ford will close its Romeo Engine Plant, though the 600 hourly employees who work there would be offered jobs at the Van Dyke Transmission Plant about 15 miles away.

Fiat Chrysler, however, is expanding its footprint by transforming its Mack Avenue Engine Complex on Detroit's east side into a new assembly plant as a part of a $4.5 billion investment in Michigan plants announced in February.

"GM will save billions of dollars by those capacity actions," Dziczek said. "Ford will save maybe not billions, but a lot by being able to shutter Romeo Engine. FCA doesn't really have an offset of that similar size."

Still, pattern bargaining is "never cookie-cutter," Dziczek said, though the third company typically has the least flexibility. Fiat Chrysler could have room to negotiate on ratification bonuses and its investment plans.

But some workers are demanding changes and are willing to strike if needed.

"I'm expecting payback," said John Barbosa, a 14-year FCA machinist leading a team at Dundee Engine Plant. "I will not be voting or supporting a contract that doesn't eliminate the tiers. The temporary employee situation is wrong. It's exploiting workers. It uses and abuses the American worker."

bnoble@detroitnews.com

Twitter: @BreanaCNoble