Bloomberg News

Chrysler to Pay $3,500 Signing Bonus to Its UAW Employees

October 12, 2011

(Updates with UAW official’s comment in third paragraph.)

Oct. 12 (Bloomberg) -- Chrysler Group LLC, which hasn’t turned an annual profit since its 2009 bankruptcy, agreed to pay a record $3,500 ratification bonus to United Auto Workers union members, hire 2,100 people and invest $4.5 billion.

The signing bonus, smaller than those offered by General Motors Co. and Ford Motor Co., will be paid in two phases: Half within 30 days of ratification, the rest after Chrysler achieves financial goals. Members will vote on the tentative four-year agreement within two weeks, General Holiefield, who runs the union’s Chrysler unit, told reporters today in Warren, Michigan.

“It was a jobs, jobs, jobs agenda,” Holiefield said. “We placed more focus on that than we did pretty much anything else.”

The tentative deal completes the UAW’s negotiations for 113,000 workers at GM, Ford and Fiat SpA-controlled Chrysler. The contracts are the first since GM and Chrysler went through U.S.-backed bankruptcies in 2009. The union said the agreement is patterned after those with GM and Ford that grant bonuses instead of raises for senior workers to hold down fixed labor costs at the automakers.

Workers will qualify for $1,000 in annual quality and performance bonuses and as much as $1,000 in annual bonuses tied to the automaker’s manufacturing system developed under Fiat. Chrysler will also pay a $300 bonus for workers who have perfect attendance, the union told members in a handout.

‘Gains Are Fewer’

“The gains are fewer at Chrysler because their situation is more uncertain,” said Harley Shaiken, labor professor at the University of California at Berkeley. “The numbers are very different from the other two contracts, but the pattern is very similar.”

The automaker will invest in Belvidere, Illinois, and Sterling Heights, Michigan, assembly plants, as well as engine, machining and other factories. The Illinois plant will get two new models, Holiefield said, while declining to specify the vehicles.

The two sides also agreed to a new profit-sharing plan that is expanded to include performance of all North America and will be based on 85 percent of Auburn Hills, Michigan-based Chrysler’s modified operating profits, the union said.

Chrysler, in a separate e-mailed statement, declined to discuss terms of the labor deal.

Arbitration Averted

The agreement, if ratified, avoids having an arbitrator decide differences between the company and union. The union agreed to a strike ban at Chrysler and GM in this year’s negotiations as part of the bankruptcies. Ford didn’t file for bankruptcy and UAW members there rejected a strike ban.

“Chrysler membership understands it’s not Ford,” Kristin Dziczek, a labor analyst with the Center for Automotive Research in Ann Arbor, Michigan, said in a phone interview. “It’s better to have a deal than to have the wild card of binding arbitration.”

Chrysler Chief Executive Officer Sergio Marchionne, who is also CEO of Fiat, told reporters in Montreal on Oct. 7 the automaker was prepared to go to arbitration.

“If we cannot resolve the issues we will go there,” Marchionne said of arbitration in Montreal.

The accord comes after Marchionne criticized UAW President Bob King in a Sept. 14 letter. Marchionne said then he was ready to complete negotiations while the union president had “competing engagements.” Chrysler later extended its labor contract deadline to Oct. 19.

GM, Ford Deals

The union reached new four-year labor agreements with GM on Sept. 16 and Ford on Oct. 4. UAW members at GM approved their contract last month. Voting at Ford will conclude by Oct. 18, the Detroit-based union said. King said today he expects it to be ratified.

GM agreed to pay a $5,000 signing bonus to its UAW employees while most Ford union members would receive $6,000. Ford agreed to additional payments to its UAW employees.

The UAW had sought signing bonuses of $8,000 to $10,000 for each member, four people familiar with discussions said last month, before any of the agreements had been reached.

Chrysler had balked at signing bonuses that high, wanting its bonus to be about $3,500, according to two people familiar with the discussions, who asked not to be identified because the negotiations are private.

Tier-Two Raises

All three accords boost pay for entry-level workers while senior production employees forgo raises. The starting wage had been about half the $28 an hour paid to long-time workers. New hires will now be paid $15.78 an hour and can earn as much as $19.28 by the end of the contract.

A raise for entry-level workers would have a larger effect at Chrysler compared with GM and Ford. Chrysler has said it has at least 12 percent of its workers at the entry-level rate. GM estimates 2 to 3 percent of its U.S. hourly workers are paid the entry-level wage while Ford has fewer than 100 such employees.

The number of workers paid at the entry-level wage will be capped at 25 percent in 2015 at Chrysler, King told reporters.

Chrysler had pushed in the negotiation to remove the cap, two people familiar with the talks said.

Chrysler failed to win removal of a cap on lower-wage workers representing more than 20 percent of the workforce, Shaiken said.

“They drew a line in the sand on that issue and they erased the line,” Shaiken said. “They did get other things, such as tying compensation to productivity and quality.”

No Chrysler Buyouts

Chrysler, unlike GM and Ford, isn’t offering buyouts, Holiefield said.

GM, under its new labor contract, will offer as much as $75,000 to its skilled-trades workers and $10,000 to production employees. Ford’s agreement includes buyout offers of $100,000 to skilled-trades workers and $50,000 to production employees. The automakers want to shed higher-paid employees and replace them with new hires earning the entry-level rate.

Chrysler, after a net loss of $652 million last year, aims to turn its first annual profit this year of $200 million to $500 million, excluding certain expenses. It reported a first- quarter net profit of $116 million and a $370 million net loss in the second quarter. Excluding costs from paying off U.S. and Canadian government loans early, Chrysler earned $181 million in the April-to-June quarter.

Chrysler’s U.S. sales gained 23 percent through September, beating the industry’s 10 percent growth rate, according to researcher Autodata Corp. as the automaker benefits from 16 new, redesigned or refreshed vehicles, including the Chrysler 300.

Fiat rose as much as 8.4 percent, making it the best performer in the FTSE Milan benchmark index today, and closed at 4.92 Euros in Milan, at the highest since Aug. 17.

If ratified, the new contract will expire at midnight Sept. 14, 2015.

--With assistance from Tommaso Ebhardt in Milan and Keith Naughton in Southfield, Michigan. Editors: Bill Koenig, Jamie Butters

To contact the reporter on this story: Tim Higgins in Detroit at thiggins21@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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