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Economic Outlook: CAW on a roll

By ANTHONY HALL, United Press International   |   Sept. 21, 2012 at 10:03 AM
The United Auto Workers union is certainly taking note of developments in Canada, where talks with General Motors and Ford have achieved tentative deals with employees.

UAW workers have to be wondering why they ratified contracts that allow the Big Three automakers to pay new hires at a lower wage than established workers in a two-tiered system that will culminate with older workers aging out of their jobs and new hires at a cheaper rate replacing them.

The Canadian Auto Workers have tentative deals with GM and Ford that are critically different than the contract signed by the UAW.

If the contracts are ratified, new hires in Canada will be paid 60 percent of the full wages for 10 years, but then they will receive full pay, which is now $34 per hour compared with the United States, where to top pay is about $28 per hour.

Chrysler, which is still at the negotiating table, has not yet read the writing on the wall, which is covered by a well-established union strategy.

The CAW insists that contracts with all three automakers maintain the same core principles, a strategy called "pattern bargaining," meant to ensure the union is not responsible for giving one company a competitive edge over another.

Mostly, however, the strategy gives the union an enormous public relations advantage. On that score, the union can always question a company so out of step it would not agree to core principles agreed to by its rivals.

Chrysler Chief Executive Officer Sergio Marchionne has been chanting a familiar refrain by threatening to move production to another country. He tried this in Italy and the United States and ended up leaving production where it was due to political pressure and something called profit margin.

In Canada, Marchionne also has to contend with the sympathetic point that the Canadian government helped bail out Chrysler in the dark days of the last recession. The union in this case holds all the cards from an emotional perspective.

Analysts are saying the CAW won this round of talks hands down, despite the point that it did not manage to wrangle a wage increase out of GM or Ford.

There are signing bonuses in the contracts and an annual cost-of-living check and changes in the union's pension plan. In the tentative deals, union leaders did change the new-hire rate of pay parity, agreeing that new hires would be given 60 percent of pay and take 10 years to get up to full pay, rather than the previous deal, which gave them 70 percent of pay and six years to reach full wages.

So what is Chrysler waiting for? The Canadian auto business came about in the first place because of favorable currency exchange rates, but the Canadian and U.S. dollars are now of nearly equal value, which has canceled out some of the advantage of building cars north of the border. With that in mind, what Marchionne is really looking for is something the union cannot give him, which is a better exchange rate.

Add it all up and the CAW should be pleased with the negotiations, all things considered. Ford and GM are onboard and Marchionne is bluffing. That's what it looks like from here.

All that said, CAW members should also tip their hats to U.S. union workers who have made their share of compromises, which have helped keep the U.S. economy from falling apart.

No, the U.S. recovery hasn't been much to brag about, but it is a recovery all the same and if there is one thing that will trump a favorable exchange rate any day of the week it is having no customers buying cars.

For now, consumers are still buying cars slowly, but surely. Without that, the CAW would be stuck in the mud.

In international markets Friday, the Nikkei 225 index in Japan gained 0.25 percent and the Shanghai composite index in China was flat, rising 0.09 percent. The Hang Seng index in Hong Kong climbed 0.7 percent and the Sensex in India surged 2.2 percent.

The S&P/ASX 200 in Australia advanced 0.25 percent.

In midday trading in Europe, the FTSE 100 index in Britain was little changed, up 0.02 percent while the DAX 30 in Germany rose 1.14 percent. The CAC 40 in France added 0.68 percent and the Stoxx Europe 600 added 0.52 percent.

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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