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Chrysler unified wage proposal clarified

by Bill Cawthon on

Both Detroit news papers are reporting some clarifications of Chrysler’s $22/hour wage proposal revealed last week by Bryce Hoffman of the Detroit News.

Sergio Marchionne’s proposal was to bring Tier II employees up to $22.00 per hour over an eight-year period in exchange for a removal of the 25% cap on the lower-wage classification. Regular employees making the standard union wage would not have gotten a raise, but would not be asked to take a pay cut.

The cap, which goes into full effect in 2015, does not limit Chrysler’s ability to hire workers at the Tier II rate. However, when the cap is reached, Chrysler must move enough workers into the standard UAW Tier I pay scale that the total percentage of workers making the lower wage does not exceed 25 percent of the hourly workforce.

With the elimination of the cap, Marchionne’s plan would lower Chrysler’s labor cost as senior employees retired or left the company to the point the $22/hour rate would become the new de facto standard. The ultimate aggregate savings would still amount to nearly $250 million annually.

The chart below is only a very simplified approximation. It does not include variables such as varying pay rates based on experience, the higher rate paid to skilled trades workers. However, it does serve to illustrate the impact of Marchionne’s proposal over time. The averages shown are weighted by the percentage of employees receiving Tier I and Tier II wages.

Among the flaws in the proposal is the assumption that Tier I workers are going to be satisfied with their current wage for an extended period of time: 16-20 years based on the Chrysler proposal. Another flawed assumption is that Tier II workers will be equally satisfied with $22.00/hour.

The fatal flaw, however, is the assumption that no one in the United Auto Workers union is capable of simple arithmetic or setting up a spreadsheet. Chrysler’s hourly labor costs are already the lowest of the five major automakers with facilities in the United States. The belief that the UAW is prepared to accept a wage structure that will trim an additional 18% is unrealistic, at best. Even under the new contract, experienced workers at the Hyundai plant in Montgomery, Alabama, will make more after a few years on the job than Chrysler, Ford or General Motors Tier II workers. The UAW wants to organize the Toyota, Honda, Nissan and Hyundai plants, not be laughed out of them.

Mix Wage Class Hourly Wage
85% Tier I $29.11
15% Tier II $14.89
  Average $26.98
  Baseline Cost $1,346,691,840.00
New Contract, 25% Cap on Tier II
75% Tier I $29.11
25% Tier II $19.28
  Average $26.65
  Change -$16,199,040.00
Marchionne’s Proposal, Phase I (Cap removed)
75% Tier I $29.11
25% Tier II $22.00
  Average $27.33
  Change +$17,746,560.00
Marchionne’s Proposal, Phase II (Cap removed)
50% Tier I $29.11
50% Tier II $22.00
  Average $25.56
  Change -$70,986,240.00
Marchionne’s Proposal, Phase III (Cap removed)
25% Tier I $29.11
75% Tier II $22.00
  Average $23.78
  Change -$159,719,040.00
Marchionne’s Proposal, Phase IV (Cap removed)
15% Tier I $29.11
85% Tier II $22.00
  Average $23.07
  Change -$195,212,160.00
Marchionne’s Ultimate Goal
0% Tier I $29.11
100% Tier II $22.00
  Average $22.00
  Change -$248,451,840.00

Bill Cawthon grew up in the auto industry in the 1950s. His Dad worked for Chrysler and Bill spent a number of Saturdays down on the plant floor at Dodge Main in Hamtramck. Bill is also the U.S. market correspondent for, a British auto industry publication, and a member of the Texas Auto Writers Association, which has named the Jeep Grand Cherokee the “SUV of Texas” several times and named the Ram 1500 as the “Truck of Texas” two years running.

Bill has owned five Plymouths (including the only 1962 “Texan”), one Dodge and one Chrysler and is still trying to figure out how to justify a Wrangler. He also has owned at least one of every 1:87 scale model of a Chrysler product. You can reach him directly at (206) 888-7324 or by using the form.

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