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The Progressive Economics Forum

CAW Major Auto Bargaining 2012: Lessons Learned

I am now finally emerging from the mental fog induced by the 24-7 triennial marathon otherwise known as “CAW major auto bargaining.” To close the circle, here are my thoughts in retrospect on the bargaining: how the union prepared for it, the issues at stake, the contents of the final deal, and the challenges that remain ahead for the CAW (and for anyone else with an interest in the future of manufacturing here).

The 2012 auto talks (covering 20,000 CAW members at GM, Ford, and Chrysler) took place in the context of the decade-long deindustrialization that has hammered Canadian manufacturing. As we’ve discussed at length on this site, a side-effect of the resource boom has been a dramatic appreciation of the Canadian currency – which has risen 60 percent against the U.S. dollar in the last ten years. Canadian manufacturing costs thus look artificially high in international terms (even though actual domestic labor costs, relative to Canadian consumer prices, have been stagnant).

Opposing that shift to a resource-dominated economy, the CAW (and other progressives) have campaigned for a more balanced, sustainable approach to economic development. We called for strict limits on foreign takeovers of resource companies, strong environmental regulations to slow down tar sands expansion, interventions to limit appreciation of the exchange rate, and pro-active procurement strategies by government to support domestic manufacturing.

In the lead-up to bargaining, the CAW launched a more focused campaign for a new national industrial strategy for auto, called “Rethinking the Auto Industry.” In formal submissions to government officials, web and social media materials, and an Ontario-wide series of community town-hall meetings (involving some 3000 activists and community leaders), the CAW argued that labour costs are not the central determinant of manufacturing success in auto or any other sector. Instead of joining a global race-to-the-bottom in wages and labor standards, the CAW proposed a ten-point automotive policy aimed at maintaining a proportionate share of auto production in Canada. The union’s proposals included government ownership of minority equity shares in the major automakers, an end to free trade agreements, and support for environmental improvements in vehicles and manufacturing processes. Local activists collected tens of thousands of signatures on a “Good Jobs Pledge” supporting the concept of an interventionist national auto strategy. (All materials are available at www.rethinktheeconomy.ca). The CAW’s initiative generated significant national media attention. While conservative political and media commentators labelled the union’s ideas dangerous and radical, the campaign certainty succeeded in broadening debate about the future of Canada’s auto industry beyond just labor costs.

Ahead of bargaining, each of the three companies launched aggressive media campaigns arguing that Canadian auto wages were far higher than U.S. costs (in light of the escalation of the Canadian currency). Ford complained of a $15 per hour total cost gap, while Chrysler said CAW costs were 20 percent higher than in the U.S. Base production wages in the CAW contracts are $34 per hour, and have been largely frozen since 2007. Higher costs for wages and pensions are partly offset by savings resulting from Canada’s public health care system, and by higher average productivity in Canadian plants. But overall active labour costs are indeed modestly higher in Canada (when the currency is as high as it is now). If the dollar were at purchasing power parity (estimated by the OECD to equal 81 cents U.S.), we’d have a labour cost advantage here.

All three companies threatened disinvestment from Canadian operations if that cost gap (at a par currency) versus U.S. operations was not closed. They also demanded that the CAW accept a permanent two-tier wage structure for new employees (comparable to the system now in place in U.S. plants). Company officials and media commentators also predicted that this was the round of bargaining when the CAW would finally be forced to accept a profit-sharing system. (The CAW’s opposition to the profit-sharing philosophy was an important factor in its 1985 breakaway from the UAW.)

This was the first round of bargaining since the 2009 restructuring, when the Canadian and Ontario governments participated in the joint rescue of GM and Chrysler (led by the U.S. Treasury). The two Canadian governments contributed $14 billion (Cdn.) to those bailouts; many now argued the union should “pay back” this assistance by accepting wage concessions.

To prepare for the bargaining, the CAW convened a series of shop-floor leadership training events, culminating in a weekend-long conference at our educational centre at Port Elgin. At that session, 300 shop floor representatives and stewards participated in workshops on the arguments (including the problems with two-tier wage and profit-sharing systems), in-plant communications strategies, and strike readiness. The union also built a fast-response communications network linking the national union and all locals. Through this system, daily leaflets were distributed in the plants during the critical period of the bargaining, supplemented by extensive e-mail and social media outreach.

The previous contracts, negotiated during the 2009 restructuring of the industry, expired at midnight on September 17. The CAW retained the legal right to strike at all three companies (unlike in the U.S., where the right to strike at GM and Chrysler was suspended by the U.S. government until 2015 as part of the bankruptcy restructuring). This turned out to be important in the union’s ability to reach a mutually acceptable deal.

The union’s pre-bargaining positioning emphasized the need to reject further wage and benefit concessions, given the auto industry’s impressive (if fragile) turnaround since the 2009 crisis. Given the dollar’s impact on relative costs, the CAW signalled it would contemplate forms of compensation improvements (such as lump sum benefits) that would not increase the fixed cost gap between Canadian and U.S. plants. It also indicated its willingness to negotiate around the terms of the new-hire grow-in program, a long-standing feature of its collective agreements in the auto industry and elsewhere. Under a new hire wage grid, new hires start at a lower rate and “grow in” to full wages and benefits over some years.; the union argued this is preferable to a permanent two-tier wage structure. Given the impact of the Canadian currency on relative costs, this was seen as a way of enhancing the chances for future investment (and hence hiring) in Canadian plants without permanently reducing the level of compensation in the industry.

All three companies rejected this broad framework for an agreement, however. So as the September 17 deadline approached, the union adopted an unusual tactic: instead of selecting one “target” company to negotiate the first contract, it imposed a contract deadline on all three companies, threatening to stop work across the industry unless the companies abandoned their demands for concessions and accepted the union’s proposals. This unprecedented stance required a high degree of local readiness to underline the position of the union’s bargaining committees; strike committees readied for a potential work stoppage at all three companies.

Three days before the deadline, Ford Canada indicated its willingness to negotiate around the union’s preferred framework (including lump sum payments and no permanent two-tier system). So the CAW announced it would place its main emphasis on reaching a deal with Ford – but kept the strike deadline in place at the other two companies (so that no company could “abstain” from negotiations).

A tentative settlement was reached with Ford mid-day September 17. Talks also began moving quickly with GM and Chrysler, as the deadline approached at those companies, too. However, late that evening, the CAW agreed with GM and Chrysler to postpone the strike deadline indefinitely so long as progress continued to be made. By that point both remaining companies had indicated a willingness to engage around the pattern framework reached with Ford. But the union retained the right to reimpose a strike deadline in the event that talks reached an impasse, with 24 hours notice.

In the subsequent days, first GM and then Chrysler eventually came to accept the terms of the CAW-Ford pattern. This consisted of a four-year agreement, with a freeze in base wages, $9000 in lump sum bonuses, a freeze in pensions, and some incremental benefit improvements. The COLA system was suspended for most of the contract, but the union succeeded in keeping the COLA language in the collective agreement, and quarterly wage adjustments will come back into effect just before the contract ends; the existing COLA adjustment (33 cents per hour) was also retained.

New hires will begin work at 60 percent of base wages, growing in to full wages and benefits after ten years of seniority. They receive full health benefits, statutory holidays, and childcare subsidies as soon as they finish probation. At General Motors, on the strength of the new hire grid, the union also managed to close the door on a category of temporary workers (called SWEs) which the company had been abusing since 2009; now this category can only be used for its true intended purpose (providing supplemental workers only during launch periods).

On the difficult issue of pensions for new hires, the companies (like all employers these days) pushed hard to eliminate defined benefit pensions entirely, replacing them with individual savings accounts. All the companies claimed that they could not add any new pension liabilities to their balance sheets, given the financial pressures they face. The union resisted this demand, citing the well-known problems with defined contribution plans. In the end the two sides agreed on a two-part pension consisting of a smaller defined benefit supplemented by a group savings plan. (This “hybrid” model had been pioneered by the CAW a year earlier in an arbitration case with Air Canada.) The compromise system preserves the principle of the defined benefit pension, and hence keeps the door open for future improvements (depending on economic and financial conditions, of course). Compared to the experience at many major manufacturers in Canada where DB pensions have been eliminated entirely for new hires (like U.S. Steel, Vale-Inco, and St. Mary’s Cement), this was seen as a significant victory.

Each company also made commitments to production, investment, and employment at their various Canadian locations. Overall labour costs for existing workers will remain approximately stable under this deal. Given the three companies’ strong production and marketing performance in Canada, it is unlikely they would seriously contemplate disinvestment from Canadian facilities as a result of this deal. In fact, the savings from the new-hire grow-in system will enhance the appeal of the potential expansion of facilities (such as a possible third shift at Chrysler’s Brampton assembly plant, and others).

The agreement was ratified strongly by CAW members at all three companies – by an 82 percent margin at Ford, 73 percent at GM, and 90 percent at Chrysler. While the compensation improvements in the agreement are modest by any measure, union members recognized and endorsed the importance of defeating the companies’ demands for more concessions (despite the auto industry’s continuing recovery), for a profit-sharing system, and for a permanent second tier of new hires.

In the ratification meetings the CAW leadership stressed the importance of continuing the union’s campaign for a national auto policy, acknowledging that the union’s ability to confirm future investments through collective bargaining is limited. An active role by government is required to ensure that Canada retains a proportionate share of this valuable industry. Leaders also spoke of the need to strengthen ties (at both the national and the local level) with the UAW, in hopes of limiting the companies’ efforts to whipsaw one union against the other.

The next big challenge facing the CAW is to complete the proposed new union, in conjunction with the Communications Energy and Paperworkers union of Canada (CEP). This new organization will represent over 300,000 members in a wide range of industrial sectors, and would be the largest private-sector union in Canada. From the beginning this initiative has emphasized the urgent need for union renewal, and for a dramatic expansion of new organizing. The new union concept has been endorsed by conventions of both unions, and the two sides are now working toward the launch of the new union (its name to be determined) sometime in 2013. Materials related to this project are available at www.newunionproject.ca.

In my view the CAW’s 2012 round of bargaining reinforced several lessons that will be important for the new union, and all trade unionists, moving forward. These include:

• The value of a pattern bargaining system, which aims to impose a uniform compensation and cost structure across an industry, thus trying to “take wages out of competition” between firms. Without pattern bargaining, this deal would not have been reached at all three companies. The CEP is another union with a strong tradition of pattern or sectoral bargaining, and I think the new union will have a lot of potential to expand this practice.

• The importance of positioning collective bargaining in a broader context of working to enhance the well-being of our communities, and all workers. The CAW’s campaign for a national auto strategy helped define the issue as one of preserving a fair share of good jobs for Canadians (rather than solely an issue of defending autoworkers’ compensation). Unions need to position themselves as working for the broader good, wherever and whenever we credibly can.

• The right to free collective bargaining is essential. The risk of a work stoppage in the auto industry, at this critical juncture in our economic history, was obviously worrisome to all sides in the bargaining. But the fact that a work stoppage was possible, forced the employers and the union to face difficult choices and make optimal trade-offs. Government could have waded into the dispute (luckily the auto industry does not fall into federal labour jurisdiction!), but that would have messed up the bargaining in all kinds of intended and unintended ways. The parties were forced to come to a deal, and it was a deal both sides can live with. CAW President Ken Lewenza reiterated the importance of free collective bargaining, even during tough economic times, in a recent joint op-ed with OSSTF President Ken Coran.

A version of this commentary appeared recently in Labor Notes.

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Comments

Comment from Paul Tulloch
Time: October 23, 2012, 10:09 am

I do believe the contract was pretty decent considering the economic climate.

Sadly however, with the artificially high dollar, Is just such an impediment to secure long term investment. Harper has not shown even an ounce of acknowledgement that the dollar has done any damage, so ignoring the problem is most likely just going to make it much worse.

Need some big changes to come along before the next rounds of bargaining.

Comment from robert stevenson
Time: October 24, 2012, 5:54 am

why isnt the union going after the goverment to incress tarifs and nineral rights in canada. Manufacturing has been desimated in canada and resorces ls now our number one export and yet our fees are ridiculously low. If we could force the goverment to raise fees on resorces to a normal percent it would lower the dollar and increase tax revenues. It could kick start manufacturing and releave the tax burdon one the working class.

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