Bloomberg, December 8, 2010, Wednesday

Bloomberg

December 8, 2010, Wednesday

Bloomberg

U.S. Automakers, UAW Explore Expanding Profit Sharing
By Tim Higgins, Keith Naughton and David Welch

General Motors Co., Ford Motor Co. and Chrysler Group LLC, in advance of next year’s labor contract negotiations, are exploring with the United Auto Workers changes that could give workers a bigger piece of growing profits.

“We want to find the best possible bang for all of the employees, across the board, not a program that would pay some and not the others,” said General Holiefield, head of the UAW’s Chrysler department under President Bob King.

While formal negotiations haven’t begun, union leaders and executives from the automakers have broached profit-sharing changes, said two people familiar with the efforts. High-level discussions began months ago because it was deemed a significant issue that would require more time, said one of the people, who asked not to be identified because the talks were private.

All of the companies have been “hinting” at profit- sharing changes, Holiefield said in an interview Dec. 6.

It was “not just within Chrysler but the Big Three,” he said. “Bob King has got to get his arms around it.”

The union made mid-contract concessions last year, such as giving up full pay for idled workers, before the bankruptcies of Chrysler LLC and General Motors Corp. The UAW’s four-year labor agreements with three automakers expire Sept. 14, 2011, the union has said. Formal negotiations typically begin several weeks before the contracts expire.

GM, Ford and Chrysler go into next year’s negotiations seeking a deal that keeps the companies’ competitive with foreign rivals, while the union aims to ensure workers share in the upswing after making sacrifices, labor experts said.

Worker Rewards

“The companies want to try and reward the hourly workforce without bringing back some of the cost items that made them non- competitive,” said Art Schwartz, a former GM negotiator now doing labor management consulting based in Ann Arbor, Michigan.

Chris Lee, a GM spokesman, and Shawn Morgan, a Chrysler spokeswoman, declined to comment yesterday.

“At this point, it’s premature to talk about 2011 negotiations seeing that they are several months away,” John Stoll, a Ford spokesman, said in an interview yesterday. “We believe all stakeholders should benefit from the company’s success.”

Ford, the world’s most profitable automaker, in October reported a third-quarter net income of $1.69 billion and GM, which went public again in November, reported a third-quarter net income of $2.16 billion.

While Chrysler reported a net loss of $453 million through three quarters, the Auburn Hills, Michigan-based automaker’s results have been improving and the company has said it will be profitable in 2011.

Pattern Bargaining

The UAW is probably having similar conversations with the three automakers, said Arthur Wheaton, a Cornell University labor expert.

“It’s been the historical trend,” said Wheaton, who is based in Buffalo, New York. “For basically the last 60 years it’s been pattern bargaining, so whatever one gets, the others follow along. There have been some minor exceptions.”

Companies like profit sharing because it’s a cost only if they’re making money, Wheaton said.

“The current profit-sharing formula has been pretty ineffective,” he said in a telephone interview.

Payments have been small and sporadic because the companies haven’t been consistently profitable. “Part of it’s also the formula and how they base it,” Wheaton said.

Payout History

The union reached profit-sharing agreements with the three automakers in the 1980s, the UAW said.

Ford, which earned $2.72 billion last year, paid UAW members an average of $450 in profit sharing this year, Stoll said. That was the first for the union since Chrysler paid workers an average of $650 in 2006, the Detroit Free Press has reported.

“Around 2000, they were bringing home profit-sharing checks like $7,000,” Wheaton said of Chrysler workers.

Both GM and the UAW want to change the profit-sharing plan to make it more consistent, said one person familiar with the discussions. GM’s plan has paid out very little over the past 10 years, so the union wants to lower the profit threshold that allows workers to get paid, the person said.

At the same time, there is no maximum payout, so management wants to limit how much the company will pay workers in good years, the person said. Management also wants to link the profit-sharing plans to hourly and salaried workers so that neither side feels unfairly compensated, the person said.

Fairness Issue

One of the hourly workers’ concerns with profit sharing is that they must bear the brunt of cost-cutting while not seeing a large return, said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Massachusetts.

“The fear of profit sharing to the UAW has always been one of: You’re the junior partner in success and senior partner in failure,” he said

A comment made at a Ford factory last week underscores the desire of workers to avoid further givebacks.

“It is time to turn the page on concessions and get back the sacrifices of the past,” Grant Morton, a UAW official at Ford’s Chicago assembly plant, told a cheering crowd at a ceremony Dec. 1 to celebrate the start of Explorer production.

Union and company leaders talk to each other regularly, they have said.

“These are just exploratory discussions,” Chaison said.

‘Surface Talk’

Chrysler and the union are discussing a variety of issues beyond profit sharing, Holiefield said.

“There’s been nothing written in concrete, just surface talk,” he said. “Not just that,” he said of profit sharing. “We talk about improving everything. That’s just one element of our discussion.”

He didn’t specify those discussions or say how the profit- sharing formula might be changed to benefit all stakeholders.

“They’re always thinking about ways to improve the processes, about ways to improve the products and about what it would take to naturally keep the company afloat,” Holiefield said. “How the state of Michigan would benefit from that and how the employees would benefit from everything we do.”

To contact the reporters on this story: Tim Higgins in Southfield, Michigan at thiggins21@bloomberg.net; Keith Naughton in Southfield, Michigan, at Knaughton3@bloomberg.net. David Welch in Southfield, Michigan at dwelch12@bloomberg.net.

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net