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Did Iacobelli exit so Sergio could lead labor talks?

by Bill Cawthon on

When Fiat Chrysler announced that Al Iacobelli had retired, effective immediately, a week after General Motors’ Rex Blackwell retired, it was a bit of a shock.

Iacobelli, 55, had been with the company for 22 years, and was the lead negotiator in past labor talks. In the opinion of industry insiders, Iacobelli secured the best deal of any of the Detroit automakers in 2011. FCA’s labor costs have risen by only about 1% per year, half the rate at Ford and GM. Mr. Iacobelli had a lot of help: it took heavy arm-twisting by then-UAW president Bob King and the late General Holiefield to get the Chrysler contract ratified.

Labor-FCA-Knight

While Mr. Iacobelli was eligible for retirement, he wasn’t close to the mandatory retirement age. His replacement, Glen Shagena, is just a couple of years younger.

There has been no public explanation for either Iacobelli’s or Blackwell’s retirement. This has led some to question whether their exits were entirely voluntary.

Contract negotiations with the United Auto Workers union, to begin next month, are likely to be the toughest in a decade. The exit of the top bargainers from the two companies that have the most to lose is likely related to the contracts, especially since both Sergio Marchionne and Mary Barra have said they plan to be actively involved.

The contracts of 2007 and 2009 were negotiated under duress, and the UAW made huge but necessary concessions, including a “no-strike” deal.

One concession was the two-tier wage structure, with new hires being paid about half of existing union workers’ “scale.” The union got the number of Tier 2 workers capped at 25% of the workforce, but it waived those caps for Chrysler LLC and the old GM when they entered bankruptcy in 2009.

Better days have returned for the auto industry and the UAW wants a share. The waivers and no strike agreement expire at midnight on September 15.

According to the Center for Automotive Research, GM has the highest hourly labor costs of the three Detroit automakers. FCA’s estimated hourly costs are about $10 less than GM’s, due to the Tier 2 workers. Chrysler Group paid out millions of dollars to persuade senior UAW employees to retire and replaced them with lower-paid new hires. Around 45% of FCA hourly workers are now estimated to be Tier 2.

Unless the UAW agrees to new concessions, the original 25% cap will be restored, and the company will have to start paying more than 40% of those Tier 2 employees at regular UAW scale.

At the March UAW Special Convention on Collective Bargaining in Detroit, members gave new union president Dennis Williams a mandate: end the two-tier system and bring everyone up to full union scale. Moreover, the rank-and-file want full union scale to increase.

Marchionne is a tough negotiator. When he took on the Italian unions, he claimed a “scorched earth” strategy. Either the unions accepted the new contract or Fiat would move production to other countries.

He might be tempted to do the same thing with the UAW. The result could be a strike that cripples Fiat Chrysler Automobile’s worldwide profit engine. At the end of May, FCA said it had a 69-day supply of vehicles, so look for production schedules to ramp up.

One strategy popular with the transplant automakers is using contract workers instead of direct employees, but GM tried outsourcing non-assembly jobs to contract services, and the UAW forced GM to accept restrictions on contracting in its 2011 contract.

This puts Marchionne in a bind. FCA US has the lowest profit margins of the three Detroit automakers, so it has to control labor costs.  There are rumors that this is one of the reasons Marchionne has been pushing so hard to find a merger partner with some money.

GM’s Mary Barra also has to hold the line on concessions. The company already has the highest hourly costs of the Detroit automakers and is under pressure from activist stockholders to improve share value.

One more thing that might come back on both Marchionne and Barra is the size of their compensation. Marchionne’s $72 million haul from 2014 would add nearly a dollar an hour to the wages of every one of FCA US’ 37,500 hourly workers for an entire year. Marchionne’s comment about workers needing to accept “genteel poverty” to keep their jobs may ring pretty hollow with the rank-and-file.

It may be that the departures of Iacobelli and Blackwell signal the intent of Marchionne and Barra to each rally their teams around a custom-fitted plan and to personally lead the charge.

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 just-auto.com, 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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