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Ramifications of the United Auto Workers’ Deal and the Kohler Employees Strike to Your Firm

At least four types of manufacturing leaders are mulling over the new labor contracts which just wrapped up between the Detroit Three automakers and the United Auto Workers. One issue they’re looking at closely is the likely cause-and-effect between the union’s huge financial gains in the new accords and the potential sacrifices it is making in job security and future membership levels.

They’re also pondering the implications of the deals for the shaky future of so-called “two-tier” wage deals that have helped the automakers and other U.S. manufacturers leverage lower compensation for new workers into a new cost advantage that has helped them beef up jobs here.

“Two-tier wage deals have helped automakers and other U.S. manufacturers leverage lower compensation for new workers.”

CEOs of other companies with UAW-represented employees are rapt about all of this, of course. Chiefs of auto-industry suppliers with unionized workforces also are engaged. Naturally, the CEOs of General Motors, Ford and Chrysler are picking through the pacts they’ve just reached. And union leaders across the country are interested in any UAW-established patterns they might be interested in pursuing.

Kohler employees strike on the heels of the new deal
In the immediate aftermath of the auto deals, the UAW has already struck Kohler Co., the giant Wisconsin-based manufacturer of toilets, faucets and other bathroom fixtures. And chief among the union’s complaints when it struck Kohler beginning in mid-November was the company’s continuation of a two-tier wage structure that was established five years ago amid the U.S. housing bust.

Now, workers at Kohler—like their counterparts at the automakers—believe their highly profitable employer should be able to eliminate two-tier wages just as the car companies did in new UAW contracts. But Kohler CEO David Kohler is resisting.

UAW members at the automakers face a similar reality. Their members got big bumps in compensation in the new contracts after seven years without a raise, and additional profit-sharing bonuses are as high as $10,000 a head. They also succeeded in getting GM, Ford and Chrysler to agree to gradually eliminate the lower tier of wages, a structure that currently covers about half of Chrysler’s hourly workforce.

But the UAW also pointedly gave up job security wholesale. Essentially, they agreed to let the automakers move all small-car production out of the U.S. to Mexico in exchange for pledges to keep production of high-profit large cars, SUVs and trucks in this country. The next time gasoline prices rise, therefore, the union could face widespread U.S. job losses.

In the meantime, analysts are saying that while purchasing a lot of new flexibility in terms of where they produce their vehicles, the Detroit Three got stuck with huge increases in U.S. labor costs, around $2 billion over the four-year life of the deals. Fortunately, analysts noted, the auto companies are enjoying record profits thanks to the buoyant U.S. auto market and should be able to absorb the labor-cost increases relatively easily, unless sales collapse.

The ripples continue from the auto companies’ new accommodation with their main union. Expect CEOs in other manufacturing verticals, as well as automotive suppliers, to be dealing with the effects of it for years.


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