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Autoworkers strike new deal as industry shifts into high gear

Pras Subramanian
Fiat Chrysler Automobiles CEO Sergio Marchionne and United Auto Workers President Dennis Williams
Fiat Chrysler Automobiles CEO Sergio Marchionne and United Auto Workers President Dennis Williams

As the auto sector sees a renaissance in the U.S with sales booming, it’s putting labor on better footing as well. Case in point: late last night the United Auto Workers reached a tentative four-year labor deal with Fiat Chrysler (FCAU). In addition to addressing rising health care costs, the deal ends a controversial two-tier wage system.

Under that system, new auto workers were paid around $9 an hour less than more senior employees. The new agreed upon structure between the UAW and FCAU would phase out the two classes over time.

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As Yahoo Finance’s Mike Santoli explains, the story behind this two-tier wage system goes back to 2007 when the auto industry was stuck in a rut. “When the big three automakers were entering the phase of having big problems ahead of the global financial crisis, when the last auto cycle peaked, they were really overburdened with health care costs,” he says. “Before they had shed many of those health care liabilities they basically cut a deal with the UAW that did not cut existing workers' pay, but for newly hired ones they would have a lower pay scale.”

It was this “uncomfortable compromise” Santoli says that neither side thought was a great idea, but ended up settling on. But now the landscape has been shifting towards the workers. “It seems like that period when [automakers] could basically exploit the fact that the union was in a weaker position has passed,” Santoli says. The ramifications of this deal are such that once the agreement is approved by UAW workers at Fiat Chrysler, it could serve as a template for new labor deals that need to be struck between GM (GM) and Ford (F).

The turning tide in the auto sector is good news for both workers and the manufacturers. “The global auto cycle is back to those peak volumes that we saw before the crisis.” Santoli notes. Indeed the auto industry renaissance has been a boon to residents of the Motor City, with Detroit seeing it’s unemployment rate tumble from 16% in 2009 to 5.8% last month. Estimates show the pace of annual sales of cars and light trucks could top 17 million in the U.S., the highest it’s been since 2001.

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