The current contracts between the International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America (UAW) and the Detroit Three automakers – FCA, Ford, and General Motors – expire at midnight on 14 September 2019. During the last few weeks of national negotiations, the talks typically focus on the broad economic contours of the tentative agreements that the leadership will take to the membership for ratification. The significant economic issues in every UAW-Detroit Three negotiation include labor costs and the components thereof: wages, benefits – especially health care insurance. Job and income security, sourcing, and the use of temporary workers in the plants are also top UAW concerns. In an era of solidly profitable operations, the automakers are seeking to contain labor cost growth while the UAW is looking to make economic gains and secure its members’ jobs and future income. This feature story provides an overview of the main economic issues in the 2019 UAW-Detroit Three negotiations.

Wages

UAW members are expecting a base wage increase in this round of negotiations. Average wages in the U.S. motor vehicle manufacturing industry have fallen 2.1 percent in nominal terms and 16.0 percent in real (inflation-adjusted) terms since the data’s most recent peak in September 2010. The most senior UAW workers have had only two 3 percent wage increases in that period – in 2015 and 2017. Workers hired after 2007 still have a wage gap with those employed before 2007.

U.S. Nominal & Real (Inflation-Adjusted) Hourly Wages Have Fallen for Production & Non-Supervisory Workers in Motor Vehicle Manufacturing (January 1990 – July 2018, $1990)

Source: U.S. Bureau of Labor Statistics; Adjusted using CPI-W

The automakers have been very profitable since the Great Recession, and UAW members have shared in those profits through a profit-sharing program that paid out its first checks in 1983. There have been many years where the companies’ profit-sharing programs did not pay out at all, but GM and Ford UAW members have received their largest-ever profit-sharing payouts during the past three years. The UAW and the Detroit Three companies revised the profit-sharing formulas in 2011, but what changed more than the formula in the post-recessionary period is that the companies themselves are now not only profitable but are posting record profits. Since 2011, UAW-Detroit Three profit-sharing checks averaged over USD 6,600 per worker at each of the companies – the equivalent of an additional USD 3.18 per hour – and GM’s record-setting USD 12,000 profit-sharing check in 2017 equates to an additional USD 5.77 per hour. The automakers favor contingent pay strategies such as profit-sharing and lump sums that allow the companies to reward workers when the company is doing well without locking the companies into paying higher base wages when the market softens.

U.S. Auto Profit Sharing Payouts: Ford, Chrysler/FCA, GM, 1983-2019

Source: Center for Automotive Research compilation

The Detroit Three automakers each have a significant gap between their companies and the international automakers in the United States in terms of average hourly labor costs – the sum of all labor costs divided by the number of UAW hours worked. GM has the most substantial gap with the estimated weighted average of U.S. international producers and is at a USD 13.00 per hour disadvantage; the difference at Ford is USD 11.00 per hour and USD 5.00 per hour at FCA. The automakers will be seeking to improve their competitive position vis-à-vis the international automakers in the United States during these negotiations.

Projected Cost Competitiveness in 2019: UAW Average Hourly Labor Costs vs. Internationals

Source: Center for Automotive Research estimates

Benefits

The UAW has negotiated a robust benefits package for its members, including health benefits, pensions, paid vacations, life insurance, and pensions/401K plans. Health care stands alone as not only the most costly benefit on a per hour basis but also the benefit that has the most substantial year-over-year cost increases. Government data for all union workers show that the average hourly cost of health care benefits is more than USD 6.00 per hour, but the UAW Detroit Three benefits cost roughly 150 percent more than the U.S. average. Ford and GM claim that they spend upwards of USD 1 billion per year on active UAW worker health care.

Private Industry Employer Health Care Hourly Cost for Union Workers; All Industries, 2009-2019 Q1

Source: Bureau of Labor Statistics

The automakers point out that the average U.S. worker pays 28 percent of their health care costs (Henry J. Kaiser Family Foundation, 2018), but UAW workers pay only about 3 percent (Naughton, 2019). The automakers want some relief from the escalating costs and would like to shift more of the health care cost burden to their UAW-represented workforce. The UAW argues that shifting a greater share of health care costs onto workers does nothing systemically to lower overall costs or improve health care outcomes. The UAW has long supported single-payer health care and other broader policies to reform the U.S. health care system.

The Detroit Three automakers are among the largest purchasers of private health care insurance in the United States. The UAW and the Detroit Three automakers have worked together for decades to work on innovative solutions to combat rising health care costs. In 2007, the UAW and the three companies established and funded the National Institute for Health Care Reform to study how to improve health care outcomes and lower overall costs. Based in part on the NIHCR research, the negotiators explored creating a health care purchasing pool or co-operative organization during 2015 contract talks. The UAW-FCA negotiators included the health care co-op language in the first tentative agreement with FCA – an agreement that the membership did not ratify. The second UAW-FCA agreement that the members approved did not include this language. While health care concessions are unlikely in 2019, the parties may explore other cost-containment and quality-of-care improvement measures.

Job and Income Security, Sourcing, and Temporary Workers

Job and income security issues are paramount to UAW members in any negotiation, and 2019 is no different. Members may have an even greater interest in these contract provisions this year for two reasons: 1) the next four years will likely include a downturn in the automotive industry, and 2) UAW-GM members are all too aware of GM’s November 2018 announcement that it was “unallocating product” at four U.S. manufacturing plants – Detroit-Hamtramck Assembly, Lordstown Assembly, Baltimore Operations, and Warren Transmission – despite having a “Plant Closing and Sale Moratorium” letter in the current UAW-GM contract. GM’s plant actions took many by surprise because U.S. auto sales were at a very healthy 17.2 million-unit level in 2018.

The UAW focus on securing plant and product investments and insourcing parts and component work is a form of job security for its members. As in past contracts, the UAW will work hard to maintain employment at all current Detroit Three facilities, and will not agree to close a plant permanently without getting some substantial gains in return.

The automakers rely on the use of temporary workers to meet production peaks and backfill workers who may be absent due to vacations or holiday periods. The UAW has long fought both to convert temporary workers to permanent status and to limit the length of time a temporary worker may be employed. The company maintains that temporary workers are necessary to staff their plants and be more competitive with international producers in the United States that also rely on lower-cost temporary employees in their manufacturing plants.

Wrap-Up

The 2019 UAW-Detroit Three negotiations raise many contentious issues that challenge the bargaining teams on both sides of the table to reach an agreement. The wage, benefit, and job and income security challenges presented above may be difficult, but the collective bargaining process has successfully resolved labor and management conflicts between these parties for more than 80 years and will do so again in this round of negotiations, as well. 

Kristin Dziczek

Vice President – Industry, Labor, & Economics

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