The union that once set the gold standard for American wages is giving up pay raises in exchange for a piece of the auto industry's profits and the promise of thousands of new jobs.
Under agreements struck with Ford and General Motors, most of the companies' factory workers will get profit-sharing checks instead of annual raises. They'll also get a signing bonus. In turn, the automakers will increase their workforces and invest billions more dollars in their factories.
It's an unusual turnabout for the United Auto Workers. For decades, its members' pay and benefits were the envy of workers around the world, and it wouldn't hesitate to strike to protect them. But the agreement signals a new reality. After the industry nearly collapsed two years ago, a sobered UAW is no longer fighting the Big Three but fighting to compete against rivals who pay their workers far less.
"We are aware of the competition that Ford and General Motors and Chrysler face," UAW President Bob King said Tuesday after announcing terms of a new four-year contract with Ford. "If we are going to succeed in the long run and really be able to have long-run security and decent income for our membership, we can't put Ford and GM and Chrysler at a competitive disadvantage."
Ford Motor Co. and the UAW agreed on a four-year contract Tuesday, three weeks after the union reached a similar agreement with General Motors Co. The companies are promising at least 17,000 new U.S. jobs over the life of the contracts, and are offering workers signing bonuses and profit-sharing payments. The companies save money because they won't pay annual raises to their U.S. factory workers and they'll hire thousands of the new workers at lower wage rates.
King expects some workers will be unhappy. But he thinks they can live with the terms. GM workers have already ratified their agreement; Ford workers are expected to wrap up voting by Oct. 14.
"They know the competitive structure as well as I do. They know their family and friends who are underemployed (and) unemployed," King said. "They know how important it is to have long-term jobs so they can be back in 2015 (for the next contract negotiations). Maybe we will be able to do some fixed cost increases then."
Ford workers will get at least $16,700 over the four-year contract, in the form of a $6,000 signing bonus, $7,000 in lump-sum and inflation protection payments and at least $3,700 in profit-sharing this year. That's more generous than GM's agreement, which guarantees workers at least $11,500.
Ford plans to add 5,750 U.S. factory jobs under the deal, on top of 6,250 it announced earlier this year, for a total of 12,000 jobs by 2015. It also pledged to invest $4.8 billion in its U.S. factories. When combined with $1.4 billion in investments previously announced, Ford plans to invest $6.2 billion by 2015.
Ford union leaders approved the deal around noon Tuesday after a meeting in Detroit. The deal is subject to a vote by Ford's workers.
If they agree to the contract, Ford's 41,000 hourly workers will get $1,000 more as a signing bonus than the $5,000 bonus GM workers got. The GM deal also gives most workers profit-sharing payments instead of annual raises and promises 6,400 new or retained jobs.
John Fleming, Ford vice president of manufacturing, said most of the 5,750 additional hires will start at $15.78 per hour, a fraction of the $28 hourly wage of Ford's older workers. They'll get $19.28 after four years. Ford currently has 70 entry-level workers, but will hire thousands more. The union agreed to the lower wage in 2007 when Ford was losing billions of dollars.
The deal will increase Ford's labor costs at first, but bring them down as more entry-level workers are hired. The company has the highest labor cost in the U.S. auto industry.
Ford's hourly labor cost, including wages, benefits and pensions, was $58 last year. GM's was $56 and Toyota's was $55, according to the Center for Automotive Research. Volkswagen, with a new plant in Chattanooga, Tenn., had the lowest cost at $38, followed by Hyundai at $44.
"The tentative agreement will enable us to improve our overall competitiveness here in the United States," Fleming told reporters.
Ford also will save money by offering retirement-eligible production workers $50,000 to leave the company by March 31, and $100,000 for skilled trades workers such as pipe fitters or electricians. The retirements would clear the way for more workers at the lower wage, but their numbers are limited to 20 percent of the workforce.
Approval of the contract could be a problem. Workers still harbor some anger at CEO Alan Mulally's $26.5 million pay package from last year. Many workers also feel Ford is healthy enough to offer annual raises. Ford earned $6.6 billion last year.
Gary Walkowicz is a worker at Ford's Dearborn truck plant. He helped shoot down a round of concessions at Ford in 2009, and said he's against this deal because it doesn't restore pay raises and other concessions the workers made since 2007. He contends that it also makes the entry-level wage permanent.
"They say `OK, take this, and forget about everything we took away,'" he said of Ford.
But Rick McDonald, an electrician at a transmission plant in Livonia, Mich., said that although he hasn't seen all the details, he likes what he's heard so far.
"I think it's pretty fair," he said. "Would more money be nice? Of course. I feel as though I make a pretty good hourly rate."
McDonald, though, has concerns about 10 percent of the profit-sharing checks being sent to a trust fund for retiree health care and some other provisions.
Up next is Chrysler Group LLC, where the talks could be more contentious. The company isn't as profitable as Ford and GM and probably can't afford the same deals. Chrysler workers stayed on the job under a contract extension that expires Oct. 19.
The UAW talks are watched closely because they set wages for more than 112,000 workers in the auto industry and set the bar for pay at auto parts makers and foreign-owned automakers.
Ford shares closed Tuesday up 71 cents, or 7.6 percent, at $10.08. GM shares rose 8 percent, or 71 cents, to $10.08 in afternoon trading Tuesday. GM shares gained $1.69, or 8.6 percent, closing at $21.42.