UAW Effects Labor Agreement With General Motors

The United Auto Workers union and General Motors (NYSE:GM) have effected a four-year labor agreement that ties workers’ job security and pay to the health of the company while returning thousands of union jobs lost in recent years.

As part of the new contracts, UAW workers will be given richer profit-sharing checks, while GM also promises to create more jobs. In return, workers will forgo cost-of-living increases that have, until recently been the standard for Detroit’s auto workers. Higher-wage workers would receive inducements to leave in order to clear the way for lesser paid new hires. Lower-wage workers would then get a bump in pay.

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The contract inextricably links the health of the company to the fortunes of its employees, and could provide a template for the rest of the industry. GM is the largest of Detroit’s big three automakers — the union is still negotiating contracts with Ford (NYSE:F) and Chrysler Group LLC.

The contract will allow GM to fend off permanent increases in labor costs, while also creating more jobs in Michigan, which has one of the nation’s highest unemployment rates. GM’s labor expense would increase by less than 1% over the life of the contract. “If the 2007 agreement was about cutting costs and cutting union members, then this agreement is about expanding jobs and some benefits tied to the company’s performance,” said Kristin Dziczek, a labor expert with the Center for Automotive Research in Ann Arbor, Michigan.

According to Dziczek, GM could actually see its total labor costs reduced, but those savings will depend on the number and speed of hiring lower-paid workers. GM would be able to hire more workers because they would earn less if the company isn’t profitable, which also means that, in times of economic hardship, the company would be less likely to lay off workers, or at the very least, wouldn’t have to lay off as many as it did in 2007 when they negotiated their last labor contract.

While many think the contract’s approval would be a victory, some workers disagree. “It essentially makes the lower wage the new wage at GM,” said Nick Waun, one of 48,500 workers at GM. The contract would create 6,400 new jobs, the vast majority of which would likely be lower-wage positions.

Under the terms of the contract, workers would get a $5,000 signing bonus, a $250-a-year bonus for meeting quality objectives, and $1,000 a year in inflation payments. When combined, that total is still less than what workers would have made with regular cost-of-living increases. However, they would also receive profit-sharing pay, ranging between $12,500 and $25,000 over the life of the contract. The higher end of the range would be met if GM earns $5 billion a year or more. Last year, GM earned $4.7 billion. Workers would also get $5,000 in educational assistance as part of the proposed contract.

There’s no denying that the contract benefits entry-level workers the most. Not only does it create thousands of new entry-level jobs, but entry-level workers would see improved healthcare benefits, including unlimited physician office visits with a $25 co-payment and no co-payment for emergency room visits.

In order to offset those costs, GM plans a buyout program that would usher out up to 17,000 veteran workers, making room for more low-wage workers. Skilled trades workers, the highest paid GM employees, would be offered $75,000 to leave the company. Veteran line workers, who earn roughly twice the salary of their younger counterparts, would be offered $10,000 to go. Currently only about 4% of GM’s hourly workers are paid the lower wage, which would rise to $19.28 an hour from its current rate between $14 and $16 an hour.

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Of course, the ability to execute the contract would depend on how many veteran workers GM could coax to leave. More than 60,000 GM employees have taken buyouts since 2005, but those packages offered more than those currently being offered, and in 2005, the nation’s unemployment rate wasn’t so high and workers had better hopes of finding another job.

The plan, though agreed upon by the UAW and GM, still must be ratified in a vote by union members. “The membership will decide if they think this contract is right, and I think they will,” said the UAW’s King. “We really came into this agreement focused not just on taking care of UAW members, but in creating jobs for America.”