Labor Costs to Skyrocket for American Cars

Report: UAW contracts will raise labor costs 5 to 20 percent at Big Three

General Motors Pontiac Metal Center in Pontiac, Michigan / AP

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New union contracts negotiated at American auto manufacturers will lead to a spike in labor costs after years of belt tightening.

The United Auto Workers approved significant contract adjustments at Ford and General Motors on Friday after months of tense negotiations. Those decisions—one by membership vote, the other by union leadership—come soon after Fiat Chrysler approved a new deal with dramatic pay boosts. Each of the contracts could reverse "much of the savings achieved by the companies over the last eight years," according to a study first published in the Wall Street Journal.

The new GM deal would raise labor costs from $55 to $60 an hour, a 9 percent hike, according to a study of the deals from Kristin Dziczek of the Center for Automotive Research and Art Schwartz, a former GM labor executive and president of Labor and Economic Associates. The union contract at Ford also reached the $60 hourly rate over the next four years, a 5 percent increase from its current rate of $57. Those hike pales in comparison with Chrysler, where average hourly wages will spike nearly 20 percent from $47 to $56.

The Detroit automakers were forced to impose labor cuts in the wake of the 2008 recession that led to a multi-billion dollar taxpayer bailout of GM, which entered bankruptcy, and Chrysler, which was sold to Fiat. Ford turned down bailout assistance.

The new contracts would reverse many of the pay freezes adopted to control costs, as well as offset the tiered payment systems that allowed the automakers to hire new employees at lower pay and benefits than previous generations of union members.

Edward Niedermeyer, an auto epert who has closely followed UAW negotiations, told the Washington Free Beacon that the talks have ended up splintering workers, while driving up labor expenses at a fragile time. American-owned companies can afford short-term hikes because of high demand and large profitability of SUVs and trucks—classes of vehicles that are vulnerable to global fuel prices, which have been steadily falling.

"Workers better make smart investments with their new wage and bonus increases, because they come at the cost of their long-term position. They’ve weakened their long-term job security and they’ve failed to bandage the festering wound that is two-tier wages," Niedermeyer said.

The union ran into snags getting the deal approved by its membership at GM and Ford plants. At GM overall membership approved the new contract 55-45, but skilled workers voted down the deal by a significant margin.

"Following receipt of these ratification results, meetings were held with the UAW skilled trades membership at each GM worksite in order to determine the issues for their rejection of the tentative agreement. Based on this feedback from the skilled trades membership, I have determined that further discussion with the company was needed," Dennis Williams, the union’s president, said in a Nov. 13 press release.

After meeting with the company and skilled workers, the UAW executive council announced that it would ratify the new contract on Friday. Hours later, UAW membership at Ford narrowly voted to approve its deal.

"The voice of the majority has secured a strong future that will provide job security and economic stability for themselves and their families," Williams said in a release.

Niedermeyer said that economic stability is largely dependent on gas prices and lending rates remaining low—something that may not be true in the future. Spiking labor costs only a few years into economic recovery could bring about the same conditions that led to the collapse of American auto manufacturing in the first place.

"This is a cyclical business, and the UAW has prioritized maximizing its position now at the risk of losing out big in the next downturn," Niedermeyer said.

Bill McMorris   Email Bill | Full Bio | RSS
Bill McMorris is a staff writer for the Washington Free Beacon. He joins the Beacon from the Franklin Center for Government and Public Integrity, where he was managing editor of Old Dominion Watchdog. He was a 2010 Robert Novak Fellow with the Phillips Foundation, where he studied state pension shortfalls. His work has been featured on CNN, Fox News, The Economist, Colbert Report, and numerous print publications and radio stations. He lives in Alexandria, Va, with his wife and three daughters. His Twitter handle is @FBillMcMorris. His email address is mcmorris@freebeacon.com.

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