The funny thing about the car business, or indeed nearly every business, is that it’s very much about people. Whether those people happen to be the famous ones that run a company (Sergio Marchionne, Carlos Ghosn), ones that run a company’s marketing (Jim Farley
, Joel Ewanick), or ones who actually provide the labor to build the cars that we love to write about, talk about, and drive, people are always and have always been an important part of this business. So, with the master agreements between Canada’s CAW and the Detroit 3 expiring next month, the sides remain far apart in their expectations of what form a new agreement may look like. Talks begin tomorrow in Toronto.
The union, which has had a history of a less-cooperative, more “militant” attitude in recent years, hopes to regain some of the concessions that it agreed to in the 2008-2009 crisis years. They’re looking for additional vacation time, cost-of-living payments, and other benefits that had to be relinquished in order for their companies to qualify for government bailouts. Despite the givebacks, though, CAW labor is prohibitively expensive compared to their US counterparts, thanks in part to mass buyouts, layoffs, and the two-tier wage system approved by the UAW several years ago. GM CEO Dan Akerson described Canada as “the most expensive place to build a car in the world right now.”
Given Akerson’s statement, it’s not hard to see what the automakers are hoping to wring from the CAW in these talks. They’re looking for lower fixed costs (but likely with the possibility of enhanced profit sharing, as GM, Ford, and Chrysler pay to UAW members in good years) and would love to roll out the controversial two-tier wage structure. That, however, seems to be a non-starter with the CAW.
The stakes are huge for both sides. The CAW desperately needs to secure future product guarantees for its workforce, or there won’t be any membership to represent. In the most recent round of UAW negotiations last year, future-product guarantees were prioritized over individual wage and benefit increases. Expect to see a similar thought process from the CAW this time.
Meanwhile, the automakers can ill afford a production shutdown caused by a strike after the contract is agreed to. Despite there not being as many manufacturing plants in Canada as there were years ago, just the loss of a single critical component made in a CAW-represented plant could easily halt production across the border, resulting in short-term financial pain.
The key with the negotiations, as it has probably always been, is for both sides to decide how much pain they can tolerate, and how deeply to draw their lines in the sand. Would Ford, for instance, be willing to absorb a strike if doing so eventually could mean a more competitive cost structure in Canada? Rolling over to union demands went a long way toward making GM, Chrysler, and Ford uncompetitive in earlier decades.
I don’t think I am exaggerating when I say that the outcome of these contract talks will quite literally determine the future of the auto industry in Canada. Without concessions on fixed costs, expect the work there to shrivel up and depart in coming years. CAW leadership needs to recognize economic reality and be prepared to horse trade.