What the D3-UAW contracts mean for U.S. auto manufacturingKristin Dziczek – Vice President, Business Group2020 Automotive Insights ConferenceFederal Reserve Bank of Chicago—Detroit Branch16 January 2020
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Topics
• Summary of the 2019 agreements• Competitive labor cost positions• Implications for U.S. auto manufacturing• Supplier considerations
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Summary of the 2019 UAW agreements
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2019 Ratification Timeline
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Expire
TentativeAgreement
Ratification
Strike
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• Job security =• Income security =• Benefit security =• Investments in US +*• Temps made permanent +**
Guarantees & Certainty
• Contingent pay =• Contingent work (some)• Lump sums =• Plant closures +*** • Footprint decisions =• Health cost sharing X
Flexibility
* DHAM closure reversed; $22.7B total D3 US investments **Temp-to-permanent pathway @ Ford & GM only*** GM: Lordstown Assembly, Baltimore & Warren Transmission; Ford: Romeo Engine
TALE TAPEOFTHE
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2019 UAW Contract Summary
Signing Bonus $9,000 for permanent workers$3,500 for temporary workers
$9,000 for permanent workers$3,500 for temporary workers
$11,000 for permanent workers$4,500 for temps
Wages <2007: 4% lump, 3%, 4% lump, 3%2007-2019: 4-year grow-in to top wage>2019 $15.78-19.28 temp wage
<2007: 4% lump, 3%, 4% lump, 3%2007-2019: 4-year grow-in to top wage>2019 $16.67 temp wage
<2007: 4% lump, 3%, 4% lump, 3%2007-2019: 4-year grow-in to $32.32>2019 $16.67 temp wage
Jobs +7,900;$4.5B new investment
+8,500 new &/or secured; $6B investment
$7.7B investment
RetirementIncentives
$60K targeted for production at Belvidere, Marysville Axle, Mt. Elliott, and Milwaukee PDC <2007 employees
$60K for retirement-eligible production workers & $75K for 200 skilled tradesPre-retirement & buyout programs
$60K for 2,000 retirement eligible production workers & 60 skilled trades$75/85K for unallocated/eligible
Profit-Sharing $900 for each margin point > 2%$12K cap removed
$1/$1 Million once margin >2%$12K cap removed
$1,000/$1 Billion once margin >2%$12K cap removed
RetirementBenefits
$1,000 to FCAUS LLC UAW Savings Plan accounts for legacy workers
$1,000 to TESPHE for legacy workers $1,000 to PSP for legacy workers
Other Bonuses
$500 annual performance bonus$1000 annual quality bonus
4 $1,500 annual inflation protection 4 $1K annual performance bonuses4 $500 annual quality bonuses
Health Care No change to worker contribution;Removed distinction between traditional and in-progression plans
No changes to worker contribution No changes to worker contribution
BOLD indicates a change from 2015 contract
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In-Progression Wage Increases for 2019 On-Roll Employees
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<1 atsigning
2 3 4 5 6 7 8 Legacy
GM
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
<1 atsigning
2 3 4 5 6 7 8 Legacy
FCA
<1 atsigning
2 3 4 5 6 7 8 Legacy
Ford
Source: CAR analysis of 2019 UAW-D3 Contracts
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Did they get rid of the tiers?
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Skilled Trades $32.45-43.66
Skilled Trades Apprentices $29.39-41.66
Production <2007:$30.46-32.32
>2007 “In Progression”$17.00-32.32>2019 “In Progression”$17.00-23.00 (*4 years)
Temporary 2015 < x < 2019$15.78-19.28
> 2019$16.67
GMCH < 2015$16.25-23.87
> 2015$16.25-22.50
CCA < 2015$17.00-$31.57
> 2015$17.00-25.00
Example: UAW-GM Wage Scales
Source: CAR analysis of 2019 UAW-D3 Contracts
For on-roll production workers—yes.
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Temporary-to-Permanent Pathway
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• Temporary FULL TIME (TFT) only
• 3+ years continuous service as TFT (breaks < 30 days, strike doesn’t count)
• Time as TFT counts toward seniority
• Enter wage progression at seniority step
• Temporary FULL TIME (TFT) with 2+ years continuous service as TFT (breaks < 30 days, strike doesn’t count)
• Time as TFT counts toward seniority
• Enter wage progression at seniority step
• Temporary PARTTIME (TPT) with 2+ years continuous service—at least last 12 months as a TFT (breaks < 30 days, strike doesn’t count)
• Time as TFT counts toward seniority (not sure about TPT status)
• Enter wage progression at seniority step
1/6/2020 1/1/2021 & thereafter
Did not agree to a set timeframe, but will give “supplemental” workers hiring preference overoff-the-street for the 7,900 new jobs promised in the 2019 agreement.
Ford
& G
M
GM Ford
FCA
Source: CAR analysis of 2019 UAW-D3 Contracts
Competitive labor cost positions
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What is in average hourly labor costs?
• Wages• Shift premiums• Overtime• PTO/Holiday• Income Security• Profit-sharing• Bonuses
• Health insurance• Life & disability insurance• Pension / 401(k) contributions• Statutory (payroll taxes, workers’
comp insurance, UI)• Other benefits (legal services, etc.)
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Weighted average by workforce composition (legacy production, in-progression production, skilled trades, apprentices, temporary/supplemental workers)
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Estimated Average Hourly Labor Cost Changes, 2015-2023
$47
$55
$66
$0$5
$10$15$20$25$30$35$40$45$50$55$60$65$70$75
2015 2019 2023
Aver
age
Hour
ly L
abor
Cos
t
$57$61
$69
2015 2019 2023
$55
$63
$71
2015 2019 2023
Source: Center for Automotive Research, preliminary estimates for 2023CENTER FOR AUTOMOTIVE RESEARCH
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Per Vehicle Labor Cost ChangesSelected years: 1999-2018, 2023e
$3,6
06 $4,1
67
$1,7
71
$2,5
18
$3,4
81
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
1999 2007 2014 2018 2023e
Aver
age
Per V
ehic
le L
abor
Cos
t
$2,4
66
$4,2
04
$2,4
01
$2,6
04 $3,1
31
1999 2007 2014 2018 2023e
$4,0
91 $4,4
98
$2,3
74
$2,7
00 $3,3
78
1999 2007 2014 2018 2023e
Source: Center for Automotive Research, preliminary estimates for 2023 CENTER FOR AUTOMOTIVE RESEARCH
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Projected Cost Competitiveness in 2019:UAW Average Hourly Labor Costs vs. Non-Union Automakers
$55$61 $63
$0
$10
$20
$30
$40
$50
$60
$70
$80
Aver
age
Hou
rly L
abor
Cos
t
Estimated Weighted Average of U.S. Non-Union Producers in 2019=$50
Source: UAW-Chrysler, UAW-Ford, and UAW-GM 2019 agreements and company reports; Company data and Center for Automotive Research estimates.CENTER FOR AUTOMOTIVE RESEARCH
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Projected Cost Competitiveness in 2023:UAW Average Hourly Labor Costs vs. Non-Union Automakers
$66 $69 $71
$0
$10
$20
$30
$40
$50
$60
$70
$80
Aver
age
Hou
rly L
abor
Cos
t
Estimated Weighted Average of U.S. Non-Union Producers in 2023=$52*
CENTER FOR AUTOMOTIVE RESEARCHSource: UAW-Chrysler, UAW-Ford, and UAW-GM 2019 agreements and company reports; Company data and Center for Automotive Research estimates.
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While nominal average hourly labor costs have increased, costs are still $16-27 below 2007 levels in real terms.
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$76
$66$68 $69
$78
$71
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2007 2011 2015 2019 2023e
Aver
age
Hour
ly L
abor
Cos
ts (U
SD)
Nominal
$76
$49
$68
$52
$78
$53
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2007 2011 2015 2019 2023e
Aver
age
Hour
ly L
abor
Cos
ts (U
SD)
Real
Source: Center for Automotive Research preliminary estimates for 2023Adjusted using CPI-W and assuming 2% inflation.
Implications for U.S. auto manufacturing
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Automotive investment announcements peak every four years, & have been slower between Q4 2015-Q3 2019.Quarterly Automaker Announced U.S. Investment; 2010 to Q4 2019
-$3
$2
$7
$12
$17
$22
Q1
2009
Q2
2009
Q3
2009
Q4
2009
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
Q1
2019
Q2
2019
Q3
2019
Q4
2019
Billi
ons
Source: Center for Automotive Research Book of DealsCENTER FOR AUTOMOTIVE RESEARCH
x ̄ = $3.4B/Quarter x ̄ = $3.4B/Quarter x ̄ = $1.5B/Quarter
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The Detroit Three are expected to increase their U.S. share of North American production of light vehicles, engines, & transmissions between 2019-2023.
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66%
57%
70%71%
59%
76%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Light Vehicle Engine Transmission
U.S
. pro
duct
ion
shar
e
2019 2023
Source: CAR analysis of IHS|Markit and LMC Automotive Compass data
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All automakers will increase U.S. share of North American production, & decrease shares in Canada and Mexico over the next four years.Change in Share of North American Production, 2019-2023
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66%
71%
64% 65%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
2019 2020 2021 2022 2023
Shar
e of
Nor
th A
mer
ican
Pro
duct
ion
United States
US D3 US Internationals
13%
10%11%
11%
2019 2020 2021 2022 2023
Canada
Canada D3 Canada Internationals
21%19%
26% 24%
2019 2020 2021 2022 2023
Mexico
Mexico D3 Mexico Internationals
Source: CAR analysis of IHS|Markit data
VolumesUS: +7.4%D3: +5.0%INT: +9.0%
VolumesCAN: -9.6%D3: -27.0%INT: +11.0%
VolumesMEX: -3.8%D3: -11.0%INT: +2.0%
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However, the Detroit Three automakers’ share of total U.S. light vehicle production is projected to fall, even as volumes increase between 2019-2023.
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45%
47%
49%
51%
53%
55%
2019 2020 2021 2022 2023
Shar
e of
U.S
. lig
ht v
ehic
le p
rodu
ctio
n
U.S. Light Vehicle Production Share
D3 Non-D3
5.0
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
2019 2020 2021 2022 2023
U.S
. lig
ht v
ehic
le p
rodu
ctio
n (m
illio
ns)
U.S. Light Vehicle Production Volume
D3 Non-D3
Source: CAR analysis of IHS|Markit and LMC Automotive Compass data
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The Detroit Three automakers are expected to hold U.S. hourly employment steady or increase it slightly over the next 4 years.
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-
20
40
60
80
100
120
140
160
2015 2016 2017 2018 2019 2020 2021 2022 2023
Empl
oym
ent (
thou
sand
s)
Source: CAR estimates & forecast based on proprietary data sources
Supplier considerations
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What should suppliers look for as a result of 2019 UAW-Detroit Three contract talks?
• More U.S.-based D3 investment & production
• Upward wage pressures for suppliers
• No “brave new healthcare” initiatives to use as a pattern to lower costs or improve health care outcomes
• Higher D3 labor costs may mean increased supplier price pressure
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Thank You