Auto workers have rejected Fiat Chrysler CEO’s labor strategy

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Fiat Chrysler Automobiles (FCA) CEO Sergio Marchionne and United Auto Workers union President Dennis Williams shake hands during a news conference in Detroit
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Thomson Reuters

A few weeks ago Fiat Chrysler Automobiles CEO Sergio Marchionne looked like a genius.

The United Auto Workers had made an unexpected choice in choosing to negotiate a new labor contract with FCA before General Motors or Ford.

FCA is viewed as the weakest of the Big 3 Detroit automakers, but Marchionne is seen as a tough negotiator.

When The UAW and FCA negotiated a contract in relatively short order, it looked as if Marchionne were carefully picking his battles and trying to avoid overshadowing FCA’s IPO spinoff of Ferrari in late October.

But now FCA’s US workers have soundly rejected a four-year contract, the UAW said on Thursday.

UAW President Dennis Williams will convene the union’s representatives of Fiat Chrysler local branches in suburban Detroit later on Thursday to consider what to do after the overwhelming rejection by its 40,000 unionized Fiat Chrysler workers.

“We will gather the issues together and notify FCA that further discussions are needed,” Williams said in a statement.

Fiat Chrysler reached the tentative deal with the union on Sept. 15 and its workers at 37 U.S. plants have been voting on the contract through Wednesday.

Results from some of the biggest plants have been revealed by local leaders of rank-and-file members officially, or unofficially, on social media.

The fourth-largest U.S. automaker by sales, Fiat Chrysler, may be brought back to the talks table by the UAW, or the union can decide to turn its attention to one of the other Detroit Three companies – General Motors Co or Ford Motor Co.

Alternatively, the union may send some or all of its Fiat Chrysler workers out on strike, which union locals have been preparing to do this week.

The sticking point is mainly the two wage levels that FCA workers are paid. More experienced workers are paid Tier 1 wages, while newer hires are paid Tier 1 wages.

In a nutshell, Tier 2 workers are hired at about $16 and hours and top out at about $20. Tier 1 workers get in at a higher starting wage and typically earn around $28 an hour.

The UAW’s goal, after getting its membership through the financial crisis and seeing workers receive no raises for a decade, has been to do away with the two-tier system and converge pay to around $25 and hour for all workers. The down-voted contract with FCA proposed a pathway from $19 to $25 an hour for Tier 2, but evidently that wasn’t what the workforce wanted.

FCA has hired a much higher percentage of workers at Tier 2 than either GM or Ford. And in Ford’s case, the number of Tier 2 workers in capped, so as the car maker hired more workers at Tier 2, it has to move more experienced workers to Tier 1.

For the UAW, the labor principle at issue is that Tier 2 workers could be doing the same job as Tier 1 workers, bit for less pay.

A strike could be in the offing.

“A general strike of FCA could easily cost the carmaker $500 million a week in lost vehicle production, about half of the amount a weeklong strike would cost GM or Ford, said a source familiar with Detroit 3 production,” according to Automotive News.

On balance, Marchionne’s reaction to being picked as the UAW’s first automaker to negotiate with was smart: he came up with a plan that the UAW thought it could sell to its membership. If it had succeeded, the FCA agreement would have established a template for GM and Ford contracts.

But now it seems that Marchionne underestimated FCA’s workers’ dislike of the two-tier system, which has enabled FCA to keep its labor costs down as the US auto market has recovered dramatically from the downturn.

(Reporting by Arunima Banerjee in Bengaluru and Bernie Woodall in Detroit; Editing by Sriraj Kalluvila)