The contract wrangling between Fiat Chrysler Automobiles (NYSE:FCAU) and the United Auto Workers took a grim new turn on Tuesday, as the union appeared to be gearing up for a strike at one of FCA's most important factories.
The two sides have been working on a new labor deal for FCA's blue-collar workforce in the U.S. The workers' contract expired last month, but both sides agreed to an extension while negotiations were under way on a new contract.
That new contract was rejected by FCA's workers last week. Now, the UAW has notified FCA that it's canceling the contract extension -- and a strike appears imminent.
A serious strike threat at one of FCA's most critical factories
Automotive News reported on Tuesday that strike notices have appeared inside FCA's Kokomo Casting Plant, in Kokomo, Indiana. UAW Local 1166, which represents the plant's workers, has posted notices telling workers that a "strike deadline" has been set for 11:59 p.m. EDT on Wednesday.
The Kokomo Casting Plant is one of several factories at a massive FCA complex that manufactures transmissions for many different FCA models. A strike at the Casting Plant, which makes key components for the transmissions, would quickly shut down most or all of the complex -- and that in turn would likely slow or halt several of FCA's North America factories within days.
Among other things, FCA would lose roughly three-quarters of its production of its most profitable products, the Ram pickups and Jeep SUVs. It's hard to put a dollar amount on the cost to FCA, but it would certainly run into the hundreds of millions of dollars for every week the strike went on.
In other words, this strike would be very bad news for FCA.
It's not a surprising move by the union. Workers on strike don't get paid and can't collect unemployment benefits. The UAW's strike fund pays them just $200 a week. But workers who aren't on strike at factories idled by a strike elsewhere can collect unemployment and supplemental benefits if they're laid off. Those benefits total nearly full pay.
Long story short, a strategic strike like this minimizes the pain to the UAW's members while maximizing the pain to FCA. And it's clear that the UAW is in the mood to inflict some misery on Fiat Chrysler's executives.
Why is a strike imminent?
The workers feel that the new contract didn't address their biggest concerns -- and apparently, FCA isn't (yet) willing to make enough concessions to satisfy them.
The biggest issue is the so-called "two-tier" wage system. Back in 2007, when all three of the Detroit automakers were in dire financial straits, the union agreed to a two-tier system under which new hires were paid substantially less than veterans.
Workers contend that it's unfair for two workers doing the same job to be paid at very different rates. Their hope was that the new contract would lay out a plan to phase out the system over time. But while it did give workers in the lower tier a series of raises over four years, it still left them $5 an hour short of what the veterans were set to earn by the end of that period.
About 45% of FCA's blue-collar work force is in the lower tier. That's a higher percentage than at FCA's Detroit rivals, both of which promote workers to the upper tier after a set percentage is reached. FCA's workers wanted the percentage capped at 25%, but that didn't happen either.
FCA workers are also upset about an alternative work scheduling system that's in place at many plants. The system regularly changes the days and starting times of workers' shifts -- meaning that some end up working nights one week and days the next. That plays havoc with family lives, the workers say, and they want something better.
So will they strike?
UAW members at a critical Ford (NYSE:F) factory threatened a strike last week, but Ford and the UAW were able to come to an amicable deal before the workers walked out. That strike threat was thought to be a warning shot from the UAW's national leadership.
This is a louder warning shot. The UAW is ready to force action in order to get a contract its members will approve. At the same time, FCA CEO Sergio Marchionne seems determined to avoid giving up the hard-won cost advantage his company had under the now-expired labor agreement.
FCA isn't as profitable as Ford or General Motors. It has less ability to tolerate a disruptive strike than its rivals. But it also has less margin to give its workers the raises they want. Is Detroit's long-running labor peace about to be broken? We'll find out by or before 11:59 on Wednesday night.
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.