Auto worker benefits – long rising – begin to wane

Two labor strikes this fall have been short, but the outcome is still tough for auto workers: After years of rising pay and benefits, the tide has turned the other way.

The next generation of United Auto Workers will receive lower pay and benefits than their predecessors, judging by the contracts reached or ratified this week.

If there's a big pattern in the current round of auto-industry bargaining, that's it.

Officially, pay cuts aren't part of the deals. But the launch of a two-tier system, offering many new hires lower wages, raises the curtain on an era when overall pay will be lower.

In benefits, a new contract ratified by UAW workers this week allows General Motors to contribute to a cash-balance retirement plan for new entry-level workers, rather than providing a guaranteed pension.

Meanwhile, in deals cut this year and in 2005, union workers and retirees will be shouldering more of the rising costs for healthcare, and the companies less.

All this marks a major shift for a union that has often set a standard for organized labor nationwide. This time, too, the labor trend in Detroit could have spillover effects beyond the auto industry.

"The real focus here is to get a competitive structure" against nonunion rivals, by moving away from a defined-benefit model of compensation, says David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "This may be a visible enough step where we can really see this begin to move into other parts of the economy."

Of course, the shift toward 401(k) plans and higher medical copayments by workers has been gathering force in America's private sector for years. But when the UAW migrates in that direction, Mr. Cole says, it's possible that other powerful unions – think teachers and government employees – may end up following.

In the case of other union workers, the pressure may not come from Toyota or Honda, but from budgetary pressures as state and local governments confront the same medical inflation that besets GM.

For now, what's clearest is that 2007 marks a transformational year for labor in the auto industry.

So far, the union has gone on strike briefly at GM and Chrysler, which means a similar walkout could happen at Ford as well. But deals have been reached quickly in all cases, providing significant reductions in labor costs. The picket lines at Chrysler lasted just seven hours on Wednesday.

Deal may shave $1,000 off a GM car

Not everything shifts in a single contract. But the accord at GM – the one contract where details have emerged – could save the company $1,000 per car, Cole estimates. That goes a long way toward closing the cost gap with Toyota.

The biggest issue is healthcare. The rising liability for retiree healthcare will be capped – as GM agreed to a one-time payment to create a union-administered trust fund for those costs. Chrysler reached a similar agreement for such a trust.

Also, new hires in GM's "noncore" jobs such as subassembly and handling materials will start at pay rates as low as $14 an hour. GM is expected to undertake a new round of worker buyouts, so that as much as one-third of its union workforce may be paid on this lower scale.

Finally, new workers will have cash-balance retirement accounts, not a traditional pension. That doesn't mean future workers will have a poorer retirement, but it does remove a system of company-guaranteed benefits. Company contributions will total 6.4 percent of employee wages, and the accounts will earn interest tied to US Treasury bonds, according to details posted on the UAW website.

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