Fiat Chrysler has come to a tentative agreement regarding a new four-year contract for employees of the United Auto Workers union, as well as planning a related USD5.3 billion investment into its North American Free Trade Agreement (NAFTA) investment footprint. Several sources have reported various details of the contract, though the final document has not been seen at time of writing.
The new agreement for 39,000 at FCA employees is expected to be a template for agreements with Ford and GM as well. According to various media reports, the new contract provides for raises hourly rates and reduces the gap between tier one and tier two employees, which was a significant goal for the UAW leadership. The tier one employees have not had raises in several years, and under this contract, tier two employees (entry-level) will reportedly see the base pay increase from USD17 per hour to USD25 per hour over the period of the contract agreement, for employees with more than eight years of service. Workers hired before 2007, when the two-tier system was implemented to stave off bankruptcy, their first raise in about a decade. The pay raises will deliver an hourly rate increase between 75 and 84 cents per hour, says the Detroit Free Press. Additionally, the contract is said to revise profit sharing. Entry-level workers will receive larger profit-sharing payments than workers hired before 2007, if the automakers profits pass a certain threshold – though the way the threshold is calculated is unclear.
Other signing bonuses and gains are expected to be part of the agreement, including Bloomberg reports of a USD3,000 ratification agreement bonus. That bonus is smaller than in some prior years. It has also been reported that the new contract includes a revision to the profit-sharing approach that would give entry-level workers larger profit-sharing payments than workers hired before 2007 – depending on automaker profits. The calculation basis for those payments is unclear, however. Reports have also indicated that the new contract includes creating a co-op for health insurance benefits, though details are not clear.
The Detroit Free Press quotes UAW president Dennis Williams as saying, "The UAW set three goals when we started this process. One, we wanted to start giving a path to our membership – we wanted to reward the UAW members for their sacrifices over the past several years and finally, we wanted to find a way to deal with escalating costs of health care. We believe that we have met those goals, but ultimately our membership will make that decision."
According to media reports, changes to manufacturing include concentrating production of cars in Mexico and trucks in North America – which also means lower-profit-margin vehicles in lower-cost plants and higher-cost vehicles in plants more expensive to operate.
Production of the Chrysler 200 and Dodge Dart, one in Sterling Heights Assembly Plant in Michigan and the other at Belvidere, Illinois, would be shifted to FCA’s plant in Toluca, Mexico. The Belvidere plant also builds the Jeep Compass and Patriot, two C-segment SUVs already expected to be phased out in 2017 and replaced by a single new product. Media reports suggest the new product may be built in Mexico, however, IHS Automotive also believes production of the C-SUV in an FCA plant outside of the US is possible.
In addition, FCA is reported to be moving production of the Ram 1500 to the Sterling Heights plant, which will open up capacity at the 1500’s current plant in Warren, Michigan. Production of the 2500 and 3500 are expected to continue at Saltillo, Mexico. Ram production is currently in three shifts; the truck is among the company’s most popular vehicles. Moving assembly of the 1500 from Warren to Sterling Heights enables FCA to potentially convert Warren to a unibody production system, perhaps supporting the next-generation Jeep Grand Cherokee as well as a long-reported and oft-delayed seven-seat Grand Wagoneer.
Sterling Heights had been earmarked for closures in 2009 but later received more than USD1 billion in retooling. Moving Ram production to Sterling Heights, depending on timing, could provide an opportunity to install tooling and ramp up production of a new-generation of vehicle while not reducing or losing production of the prior model, particularly important for the high-profit Ram as well as the Jeep Wrangler.
Production changes also affect the Jeep line, including previously reported moves of the Cherokee and potential Wrangler-based pickup. That move increases capacity at the Toledo, Ohio, two-plant facilities for more Jeep Wranglers—and, depending on timing, could keep the current Wrangler in production while the current unibody plant is converted to body-on-frame for a higher-intensive, all-new Wrangler. Rumours have also been flying that a new Wrangler-based pickup is part of this massive plan, though that has not been confirmed.
The Cherokee is expected to move to the Belvidere, Illinois, facility. Additionally, this plan also creates potential for the Jeep Grand Wagoneer (a seven-seat Grand Cherokee, due in 2018) to be built at the Warren, Michigan, plant which currently builds the Ram, as well as enabling Warren to take on a role of providing overflow production of the Grand Cherokee as necessary.
These moves would also need to be approved by FCA’s Group Executive Council, as well as a need for union approval of the payment contract. Those approvals are not reported to be secure, though it seems unlikely that FCA’s negotiating team would have proposed the possibilities if the GEC would be resistant to approving them.
Outlook and implications
These reports of elements of the UAW agreement suggest that the union was successful in getting much of what it wanted, while FCA CEO Sergio Marchionne appears to have tied some compensation to corporate goals and performance, as reported to be an FCA goal. The production moves seem to move production of high-margin products to higher-cost plants, but also suggest moves which would impact vehicle sourcing of other models as well. The USD5.3-billion amount reported by media may also include update to transmission, engine and other supporting facilities. At time of this writing, neither the production moves nor UAW contract changes have been confirmed by FCA or the UAW.
IHS Automotive production forecast analyst Joe Langley says that the reported production moves would also have implications for other future products, and create the possibility for the company to move the next-generation Dodge Charger and Challenger from the current production location at Brampton, Windsor, Canada, to the Warren plant alongside the Jeep products. We forecast all four products (Grand Cherokee, Grand Wagoneer, Challenger and Charger) will move to a version of the rear-wheel drive platform being developed for Alfa Romeo, which would indicate sharing a production location is also an option. Brampton plant might then be closed—rather than seeing FCA invest in updating both plants to handle vehicles from the same platform. We also will review the possibility that the planned new C-SUV from Jeep (a replacement for both Patriot and Compass) could be produced at FCA’s plant in Serbia, though that move has not been reported and is not confirmed.
Relative to the conditions of the UAW contract, the union appears to have achieved the pay increases it was looking for, while the plant changes and significant investment into the US production facilities provide assurances for ongoing future products and some degree of job security.
