Averting Auto Strike Hinges on Pay Raises to Cover Inflation

It’s been more than a decade since America’s carmakers have tied pay to inflation. Now workers want to change that after seeing prices surge over the past few years.

(Bloomberg) — It’s been more than a decade since America’s carmakers have tied pay to inflation. Now workers want to change that after seeing prices surge over the past few years.

General Motors Co., Ford Motor Co. and Stellantis NV are under pressure to meet the demands of the United Auto Workers, who are seeking a new contract that replaces one expiring in just two days. Talks to avoid a strike have stalled around pay, especially a cost-of-living allowance known as COLA. The union won this protection 75 years ago, only to give it up in 2009 when two of Detroit’s three car companies went bankrupt during the financial crisis. 

UAW President Shawn Fain kicked off talks with demands for a 46% pay increase and made reinstating COLA a cause celebre; the union even has signs that read: “COLA and Fair Pay Now.” His argument is that pay for the company’s chief executive officers rose 40% during the current four-year contract as vehicle prices and profits soared. Meanwhile, worker raises were chewed up by inflation. 

“It’s cost-of-living allowance that made sure working class communities strived for decades,” Fain told union members in a Facebook live video last month. “Taking that away hammered us, and it hammered our hometowns.”

A strike, even a short one, will ripple across the economy. That includes possibly pushing Michigan’s economy into a brief recession. It could make some car models scarce, which would increase prices after they recently started declining from record levels. Automakers would also lose production and see their results impacted. GM lost $3.6 billion from the 40-day strike in 2019.

To be clear, COLA may have gone away but union workers do get annual $1,500 checks for inflation protection. That comes to 2.2% for the top wage earners, who make $32 an hour and an even bigger percentage for factory workers who are still working their way up the pay scale.

Read More: UAW Demands Would Add $80 Billion to Labor Costs

Once inflation nears 3%, workers start to earn less than when they had more protection from rising prices. Under the old COLA formula, employees received a pay bump based on the Consumer Price Index, a key measure of US inflation, that was permanent and then compounded into future hourly pay rates.

That’s a big part of what the current fight is about. If prices go up and stay there, as they have, the lump sum payments don’t offer enough to offset inflation going forward. For automakers, they would rather do one-time cash payouts than make permanent additions to their long-term labor costs.

“A lump sum is one and done,” said Art Wheaton, a professor of labor studies for Cornell University.

Feeling Poorer

That’s also why workers feel poorer today. At the start of the four-year contract in 2019, inflation was minimal. It then surged about 6% in 2021 and nearly another 9% last year. 

During that span, the average cost of a new vehicle rose about $10,000 to more than $48,000, according to researcher Cox Automotive. Other basic goods are still very expensive, with eggs, sugar and lettuce up more than 50% over the past four years. Sirloin, chicken legs and coffee jumped more than 40% in that time.

That has hit autoworkers hard, even ones at a top wage of $32 an hour who can reach $100,000 a year with overtime. For entry-level workers starting at $18 an hour, inflation has been especially rough. 

“It’s all about a sustainable wage,” said Shannon Stewart, who works at a plant that makes engine parts for GM in Bay City, Michigan. “I live within my means but in order to sustain a decent life, try to save something for my retirement, I cannot afford one of our trucks and many other vehicles.”

The automakers have argued that the $1,500 payments covered inflation until the last few years. To make sure workers are covered, GM offered $11,000 in inflation protection over the next four years in a proposal Fain rejected. Ford pitched even more and was rebuffed. Stellantis offered $10,500.

Ford did make COLA part of its most recent proposal, but Fain said in an address to employees that the union rejected it because the formula would have amounted to no gains in 10 of the past 13 years.

The companies are also pitching better pay raises than the previous contract, and that’s not counting inflation protection and profit sharing.

For many workers, that could be enough to avoid a strike if the total pay package is a good one, said Rich LeTourneau, Shop Chairman of Local 2209, which represents workers at a GM truck plant in Fort Wayne, Indiana.

“There is likely 60% of the membership that doesn’t know what COLA is because they never had it,” LeTourneau said. “Give me a good raise for everybody that results in everyone making a living wage.” 

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