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Cuts slow lower-wage hires
Big 3's struggles prevent Visteon, Delphi from hiring workers at second-tier pay scale.
It was heralded as a major concession last fall when the United Auto Workers allowed several automotive suppliers to offer lower pay and less generous benefits for new blue-collar workers.
But production cuts at GM and Ford have severely crimped efforts by Delphi Corp., Visteon Corp. and American Axle & Manufacturing Inc. to hire a new wave of workers at a second-tier pay scale.
The controversial agreement to permanently lower wages for new hires was a bitter pill for the UAW given its history of equal pay for equal work but one that was designed to preserve jobs by making the suppliers more competitive with non-union parts makers.
"Because of production cuts by the Big Three over the last year or so, suppliers more reliant on (Ford Motor Co., General Motors Corp. and DaimlerChrysler AG's Chrysler Group) weren't hiring unless they got new business from (foreign automakers)," said Bruce Belzowski, an analyst at the Office for the Study of Automotive Transportation at the University of Michigan.
Troy-based Delphi, the nation's biggest auto parts supplier with about 30,000 UAW workers, has been able to hire only about 187 workers since the two-tier wage scale kicked in last spring.
"It's a volume issue," said Rodney O'Neal, Delphi's president and chief operating officer. "It's a good agreement, but we just haven't been able to trigger it."
Even as it continues to rely less on GM for sales, Delphi lost $36 million last year and is expecting to lose about $200 million in 2005, forcing it to shed another 8,500 positions this year. Delphi has cut more than 10,000 UAW jobs since the late 1990s.
Before Delphi and Visteon can hire a large number of second-tier workers, the suppliers need to send employees back to their respective former parent companies, GM and Ford.
But with GM and Ford reducing car and truck production and trimming their work forces, the suppliers have been unable to transfer workers back to the automakers under agreements negotiated when the companies were spun off in 1999 and 2000.
At Delphi, new production workers hired under the two-tier wage contract approved last year start at $14 per hour, compared with about $27 per hour under a previous agreement. After benefits are added, the total compensation of second-tier workers is less than half of the pay of current workers at the company.
The two-tier wage scale would be a boon to Delphi, said IRN Inc. analyst Erich Merkle, if the automakers were expanding, not shrinking.
"You really have to be hiring people to take advantage of it," he said.
By transferring approximately 1,000 workers to former parent Ford, Van Buren Township-based Visteon has been able to replace them with about 900 new hires at the lower pay scale, said spokesman Jim Fisher.
He said the company has realized a "significant savings" by taking advantage of the new wage scale.
Still, Visteon has not posted an annual profit since its spinoff from Ford in 2000 and remains saddled with a surplus of workers. It ended 2004 with about 20,000 UAW workers and reported a preliminary $1.5 billion loss last year despite a $1 billion boost in revenues.
Earlier this month, Moody's Investors Service lowered Visteon's credit rating in part because of the supplier's lagging efforts to lower labor costs.
Visteon and Ford are holding talks to craft a restructuring plan that will allow the auto parts maker to shed noncore businesses such as steering systems, chassis parts and powertrain components.
Brian Pannebecker, an hourly worker at Visteon's Sterling Heights plant, says 50-60 workers have been hired under the lower wage since 2004. But the prospect of hiring additional workers looks bleak because of the company's restructuring plans.
"Everything's on hold right now as far as hiring any more workers," Pannebecker said.
Michigan Works' Wayne Service Center last screened about 90 candidates for second-tier jobs at Visteon back in the summer, according to Robert McDonnell, a business services representative at the agency. Since then, there have been no requests.
"The job market in general is bad for all categories," he said. "Industrial jobs are next to impossible to find."
Detroit-based American Axle & Manufacturing has implemented a two-tier wage scale at plants in Three Rivers, Mich., and Cheektowaga, N.Y. It is expected to adopt similar pay scales at other factories soon. A new national agreement with the UAW in March 2004 allows the axle and driveshaft maker the power to expand the program.
"We have the opportunity to do it throughout all of our facilities, but we just have them at Three Rivers and Cheektowaga at this point," said Renee Rogers, a spokeswoman for American Axle. She declined to say how many workers have been hired at the second tier.
Workers at American Axle briefly went on strike last February in an effort to keep the two-tier wage scale out of the national contract, but later agreed to the proposal, believing it would help preserve jobs in the long run.
American Axle will test workers again this year, when a new expansion of its Three Rivers plant begins producing axles for the Hummer H3 SUV. The new work is expected to create new jobs, but the jobs will pay even less than those at the second wage tier, setting up the situation of having plant employees working side by side at three different pay rates.
Jim Gillette, who heads supplier analysis for Farmington Hills consultants CSM Worldwide, says the U.S. automakers are likely to continue vehicle production cutbacks this year, meaning Delphi and Visteon won't need to hire very many new workers.
"There's a lot of slack out there so they just shift things around so they don't hire anyone new," he said.
Belzowski of the Office for the Study of Automotive Transportattion warns that it's too early to fully assess the success of the two-tier wage system.
You can reach Ed Garsten at (313) 223-3217 or egarsten@detnews.com.
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