Contentious Negotiations Ahead for Detroit 3 and UAW

Within the next two weeks, the GM, Ford, and Fiat-Chrysler will begin the serious negotiations for new collective bargaining agreements.  The ceremonial opening of these negotiations occurred last month.  The current agreements expire on September 14, and all sides face serious issues.

During the 2011 negotiations, two of the three companies were being bailed out by the U.S. taxpayers.  As part of the 2011 bailout and the bankruptcies, the UAW was forced to give up its right to strike.  The UAW now has its strike rights back, and the three companies are profitable.

Two significant issues will likely dominate the negotiations:

• Wages: As part of the 2011 bailout, the UAW agreed to a two-tiered wage system.  New hires are paid about $10 less than the existing UAW members.  The new hires are paid around $17 per hour, and the top-tier receives about $28 per hour.  The UAW wants pay back for agreeing to this lower wage tier when the companies were down.  What will happen to the two-tier wage system?  Will the upper tier get a raise?
• Health Insurance: Under the Affordable Care Act (ACA or ObamaCare), health insurance plans with rich benefits and high costs will be taxed in 2018.  The so-called “Cadillac Tax” under the ACA is not a tax on luxury cars, but is a 40% excise tax on “luxury” health insurance plans.  Generally, the tax is 40% of the cost of a health insurance plan in excess of $10,200 for single coverage or $27,500 for family coverage.  The IRS is currently determining how to compute the tax.  All employers would like to avoid this Cadillac Tax.  Whether the Detroit 3 and UAW can fashion a way to avoid, or at least minimize, the tax remains to be seen.

The UAW just received several pieces of stinging news.  Mitsubishi will close its UAW plant in Normal, Illinois.  It was originally a joint venture with Chrysler.  With the closure, 1,200 UAW members will be laid off.  Also, Ford announced that it is expanding its manufacturing operations in Mexico.

The UAW wants to deliver some good news to its membership, and the Detroit 3 wants to stay profitable.  It should be an interesting set of negotiations.