Tuesday, September 11, 2012

Union Slams Detroit Three's Pension Offer?

The Canadian Press reports, Union slams Detroit Three's offer:
The Canadian Auto Workers union says it's facing "unprecedented" demands from General Motors, Chrysler and Ford that would create a two-tiered workforce, eliminate cost-of-living adjustments and make dramatic changes to their pension plans.

The union said the automakers want the elimination of full pensions for employees with 30 years service, a shift to a defined contribution pension plan for current workers, and cuts to prescription drug benefits.

The CAW also said the companies are refusing to commit to any new investments at its operations in Canada.

Each company has insisted that any reward or bonus will be paid for by additional cuts to other areas of the pact, it said.

"The union recognizes the fragility of the industry and the need to stabilize fixed costs, while finding a solution that rewards members' work," the CAW bargaining committees said Monday in an update to members.

"Unfortunately, our efforts have not been met with equal willingness by the companies to negotiate fair terms.

The automakers could not immediately be reached for comment on Monday.

General Motors, Chrysler and Ford are on the road to recovery after benefiting from cuts made during the crisis negotiations of 2009, but the CAW says it has no intention of making these kinds of deep cuts again.

The union has set a strike deadline of midnight on Sept. 17, but it has not yet announced which of the automakers will be targeted.

Tony Faria, an automotive expert at the University of Windsor, earlier predicted Chrysler will be chosen because it has the largest Canadian foot-print of the Detroit Three and therefore has the most at stake.

To reach a deal, the committees said it was crucial to continue having faith in their elected representatives and support their bargaining committees, it concluded.

The last CAW strike was in 1996, against General Motors.

Ford has said hourly wages for CAW assemblers are about $34 an hour, while assemblers in the U.S. are paid about $28 per hour. Ford said all-in labour costs, which include pensions and health care, are approximately $79 per hour in Canada, versus $64 per hour in the U.S.

Ontario has seen the U.S. car-makers cut thousands of jobs in the last decade as their parent companies restructured in the United States.
Scott Deveau of the National Post reports, CAW strike threat has improved tenor of talks:
The Canadian Auto Workers’ threat to walk off the job at all three Detroit automakers if a deal cannot be reached by next week’s deadline has led to more constructive dialogue with General Motors and Ford over the past week. But those with knowledge of the situation say Chrysler has dug in its heels, refusing to budge from its initial position.

The Detroit Three have shown a united front thus far in the CAW talks, attempting to address the discrepancy in compensation between U.S. and Canadian workers.

The union said in a leaflet distributed to its membership Monday the Detroit Three continue to seek “dramatic changes” in their contracts, including implementing two-tier wages, eliminating cost of living increases, moving new hires into a cheaper defined-contribution pension and eliminating its so-called 30-and-out pension.

At the same time, the union said none of the Detroit Three are committing to any new investment, which the CAW argues puts its members’ jobs in jeopardy.

“All three bargaining committees are determined to reject these demands and reach a fair deal with General Motors, Chrysler and Ford,” the union told its membership. “A week from the deadline, anxiety levels are understandably high and rising.”

But a sliver of hope has emerged in the talks that a target could be identified or a deal met with at least one automaker ahead of the strike deadline of 11:59 p.m. Sept. 17.

“Since we announced the potential of taking out all three companies there has been more constructive conversations. But that hasn’t led to results,” said Ken Lewenza, CAW president, in an interview Monday. “A couple of the companies are being a little more constructive.”

While he would not comment on which of the automakers was digging in its heels, those with knowledge of the situation said Chrysler is taking the hardest line.

Chrysler, which is in the most precarious financial position, took a hard line in the U.S. talks last year before a deal was struck with GM, forming a pattern for the other two.

The fact that the CAW’s talks have turned more constructive with GM and Ford raises the possibility a deal could be struck with either before the strike deadline.

Mr. Lewenza said it was too early to say whether that would be possible. But he believed if any of the Detroit Three softened their stance, a deal could be reached quickly.

“When the automakers get over their overzealous demands, we can probably get a deal. But if they don’t, we have a problem,” he said.

The threat of a strike at the Detroit Three’s Canadian operations would have a significant impact on the country’s economy, particular in Ontario, said Carlos Gomes, Scotiabank senior economist. He said if the CAW were to shut down their Canadian operations, it would reduce Canada’s gross domestic product by 0.6% on a month-to-month basis.

“That would represent the sharpest monthly decline since March 2009, when the global economic downturn was in full force,” Mr. Gomes said.

The Detroit Three have accounted for 61% of the motor vehicle assembly in Canada so far this year, he said. If the CAW were to shut down the Detroit Three’s plants in Canada, excluding GM’s Ingersoll, Ont. plant which is not part of the talks, it would also lead to a 30% drop in auto parts production for the duration of the strike, Mr. Gomes said.

Both GM and Ford produce engines and other components in Canada that are used in vehicles produced in the U.S., said Kristin Dziczek, director of the labour and industry group at the Center for Automotive Research. “It’s that kind of ripple effect that makes [the threat of a strike] more impactful,” she said.

Brad Duguid, Ontario minister of economic development and innovation, would not speculate on what the government may do in the event of a strike with the talks ongoing.

“This solution has to be found between the workers and the companies,” he said. “It’s really not a solution that government would have any desire to speculate on.”
The solution has to come between workers and companies but the ripple effects of a CAW strike will be felt most in Ontario, the epicenter of car manufacturing in Canada. The Ontario government has a huge stake and can play a significant role (see below).

The main sticking point for the Detroit Three is the discrepancy in labor costs between American and Canadian workers. From the first article:
Ford has said hourly wages for CAW assemblers are about $34 an hour, while assemblers in the U.S. are paid about $28 per hour. Ford said all-in labour costs, which include pensions and health care, are approximately $79 per hour in Canada, versus $64 per hour in the U.S.
Assuming these figures are correct, it's not hard to see why these car manufacturers want to negotiate away defined-benefit pension plans for their Canadian workforce. Go back to read my comment on GM and Ford's pensions jubilee to understand the major shift going on in this industry to reduce labor costs.

The problem is that while it makes perfect sense for companies to offload retirement risk onto workers, it makes absolutely no sense for workers. They are right to be fuming over these proposals as it will lower their standard of living and increase their retirement angst. And longer term, such shortsighted measures will reduce productivity in an already ailing industry.

Unfortunately, the demise of retirement security and job security has been the norm in recent years. Companies will claim these measures are necessary to compete with emerging markets but the excessive focus on cost-cutting has limits and it will be counterproductive to the industry.

What is government's role in all this? Well, one proposal would be for the Ontario government to move in and assume the risk of Detroit Three's defined-benefit pensions. By creating a separate public entity, or simply having these pensions managed by an already existing entity (for example, OMERS in Ontario), the government will send a signal to workers and car manufacturers: "We will assume the risk of these defined-benefit pensions but you focus on investment and producing cars consumers want to buy."

Perhaps I am dreaming but this is the only way I see Detroit Three surviving in the future. My proposal will have many critics, including taxpayers' federations, but it will please both unions who want to protect retirement benefits and companies struggling to lower labor costs. The car industry can be a test pilot. If it works, you can expand to other industries where defined-benefit plans are an issue.

Ultimately, I'm of the school of thought that all pensions, both public and private, should be defined-benefit pensions managed by large, well-governed public pension plans. Forget PRPPs, forget RRSPs, forget 401(k)s, these are not a real solution, they only contribute to pension poverty and inequality. The retirement crisis has sparked new thinking but few are listening.

Below, CAW economist Jim Stanford explains the National Auto Policy on the Lang & O'Leary Exchange. Interesting discussion but nothing on how to secure defined-benefit pensions over the long-run.