Workers at Fiat Chrysler (NYSE:FCAU) look likely to reject the tentative contract that emerged from the United Auto Workers' negotiations with FCA's leadership.
UAW locals at two FCA factories voted to reject the contract by wide margins on Tuesday, according to the Detroit News. Those votes make it very unlikely that the UAW's leadership can win enough support to get the deal approved.
Detroit's auto workers haven't rejected a national contract in many years. But UAW members clearly aren't happy with this deal, and that means that things are about to get interesting.
What's happening: FCA workers are voting on a new labor deal
Detroit's labor contracts traditionally last for four years. At the end of a contract, UAW leaders typically push hard to negotiate a deal with one of the three Detroit automakers -- and then use that deal as a "template" to forge agreements with the others.
But the deal doesn't become an official contract until a majority of workers vote to accept it. UAW's locals at FCA facilities have been voting on the deal over the last several days. Many have already rejected the contract or approved it by very slim margins. Some have yet to vote -- but after Tuesday's results, an approval looks unlikely.
UAW president Dennis Williams and FCA CEO Sergio Marchionne were all smiles when they announced that they had come to a deal on September 15. As details began to emerge, the deal seemed like it might be a win for both sides: Workers got raises, but FCA would be able to keep costs under control.
But when the deal was presented to FCA's workers, it quickly became clear that they had two very big concerns.
Why UAW members don't like the deal with FCA
First and foremost, the deal doesn't do away with the hated "two-tier" system, under which new hires are paid significantly less than veterans -- with no opportunity to match veterans' pay rates over time.
The UAW very reluctantly accepted the two-tier system back in 2007, when the Detroit automakers were all fighting for survival. But it has created hard feelings among workers, who feel -- with some justification -- that new hires shouldn't be paid (a lot) less than existing workers doing the very same jobs.
FCA's workers are also concerned about a plan to radically shift the company's North American production over the next few years. The idea is to send production of lower-profit sedan models to lower-cost plants in Mexico while keeping U.S. factories busy with higher-profit trucks and SUVs.
But some factories will lose high-volume products, and workers at those plants fear that fewer shifts of workers will be required -- or put another way, that jobs will be cut.
According to the Detroit News, UAW locals at FCA's Sterling Heights and Toledo factories rejected the deal by huge margins in voting on Tuesday. Both are factories that are believed to be losing high-volume products under the terms of the deal.
What happens if workers reject the contract?
There's no clear and obvious answer, because this hasn't happened in a long time. But there are at least three possibilities:
- The UAW could resume negotiations with FCA to try to get a better deal;
- The UAW's leadership could switch gears and try to forge a "template" deal with Ford or General Motors instead;
- Workers could decide to strike until FCA agrees to a better deal.
Strikes are a very real possibility. But it's very unlikely that all of FCA's unionized workers would walk off the job. More likely, the union would decide to authorize a strike at one or two carefully selected factories. That strategy keeps most of the workers on the job (and getting paid) while still putting big pressure on the automaker.
For instance, a strike at a facility like FCA's Jefferson North Assembly Plant, which works around the clock making Jeep Grand Cherokees and Dodge Durangos, would quickly become an expensive headache for FCA.
The likely upshot: A somewhat improved deal -- but the process may hurt
I suspect that what will happen is that FCA and the UAW will come up with a revised agreement that gives the newer "Tier Two" workers a path to wage parity with veterans over several years. FCA might also need to adjust its plans for a manufacturing upheaval -- or at least give some sort of explicit commitment to preserving U.S. factory jobs.
Getting from here to there might be a complicated and contentious process. It could also be an expensive one, if workers choose to strike. At least right now, it seems likely that any strikes will be limited and fairly short -- and while they'll cause financial pain, that pain will probably be a short-term problem.
But it's also possible that things could go downhill quickly from here. Stay tuned.
John Rosevear owns shares of -- and The Motley Fool recommends -- Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.