The Detroit Three auto makers have fired an early salvo at their unionized Canadian work force, warning that they are determined to hold the line on wages and other fixed costs in contract negotiations that begin next month.
Each of the companies sent a letter to the Canadian Auto Workers asking the union to forego a small wage increase, known as cost of living adjustment (COLA), that went into effect this month. The auto makers want the workers to agree instead to lump-sum payments, and are warning that such automatic wage increases would further damage the competitive positions of their Canadian plants.
The auto makers' declarations offer a glimpse of their key goal in bargaining – holding down their hourly labour costs, one of the key fixed costs they can control. They also want wages to be more closely tied to profitability. That sets the stage for difficult bargaining, because the union is intent on raising wages and recovering some benefits they surrendered during the 2008-2009 auto crisis.
"One of GM's main objectives for 2012 bargaining is to ensure that we maintain our break-even point by not adding fixed costs," David Wenner, general director of labour relations of General Motors of Canada Ltd., told CAW head Ken Lewenza in his letter.
The union rejected the request to trade the COLA increase for lump-sum payments or bonuses, which means workers will get their first wage increase since 2007 – even though it's only 28 cents a hour on wages of about $32.
The companies' proposal frustrated Mr. Lewenza, who noted the union agreed to freeze cost-of-living adjustments – and base wage rates – until the final quarter of the cost-saving contracts it signed during the crisis.
Those agreements helped secure federal and Ontario contributions of about $14-billion to the bailouts of General Motors Corp. and Chrysler LLC.
Ford Motor Co. did not seek a bailout, but many of the cost-saving initiatives in the GM and Chrysler contracts were extended to Ford.
"That was part of the sacrifices and at the very first opportunity, they're looking at mechanisms to pay out differently or in some cases, which isn't in writing, eliminate it totally," Mr. Lewenza said in an interview.
In a sign of how far apart the union and the companies are even before bargaining that covers about 18,000 employees starts next month, they can't agree on the size of the gap in all-in hourly labour costs between Canadian and U.S. plants.
Ford's Canadian plants were operating at a $15 an hour disadvantage to U.S. plants, Michael Hyland, Ford Motor Co. of Canada Ltd. labour affairs manager said in his letter to the CAW.
Restoring the COLA payment will help increase that gap to $30 an hour by the end of 2012, Mr. Hyland said.
"It is the company's opinion that together we must do all that we can to reduce this disparity and restore some of Canada's cost competitiveness, not erode it further," he wrote.
But the $30-an-hour figure is "absolutely ridiculous," Mr. Lewenza said.
The figures for all-in labour costs are closely guarded secrets at the companies, but the Center for Automotive Research in Ann Arbor, Mich., pegs Chrysler factory costs at $52 (U.S.) an hour in the United States, those of GM at $56 and Ford's at $58.
Costs at Chrysler factories in Canada are $10 (Canadian) higher than they are in the United States and a COLA clause in a new four-year contract would add another $4.80 to the gap, said a letter to Mr. Lewenza from Todd Bested, Chrysler Canada Inc.'s director of labour relations.
Sergio Marchionne, chief executive officer of Chrysler, has been the most vocal among executives about Canadian costs, but each of the companies wants the CAW to shift compensation to pay based on company profit, rather than annual percentage increases.
The CAW has rejected pay based on profit.