Fiat Chrysler's Deal With the UAW Looks Like a Good One

UAW chief Dennis Williams and FCA CEO Sergio Marchionne announced last week that they had reached a deal on a new labor contract. Now, it's up to FCA's blue-collar workers to vote on the new agreement. Image source: Fiat Chrysler Automobiles.

Last week, Fiat Chrysler Automobiles struck a tentative deal with the United Auto Workers on a new contract for FCA's U.S. factory workers.

It'll be "tentative" until the workers vote to accept the new contract. That hasn't happened yet. But the UAW leadership has begun the process of convincing workers that it got them a pretty good deal -- and in the process, some interesting aspects of the deal have emerged.

The two-tier wage system doesn't go away, but everybody will get a raise The UAW entered negotiations with the Detroit automakers hoping to win raises for its workers. A two-tier wage system introduced in 2007 has new hires paid at much lower rates than veterans. That's a recipe for friction on the shop floor. Meanwhile, the veterans, or "Tier 1" workers, haven't had a raise at all in a decade.

On the other side of the table, FCA's priority was to keep its manufacturing costs in line with rivals' -- and lower them further if possible. The two-tier system has helped FCA reduce its U.S. manufacturing costs to roughly the same as Toyota's; its two Detroit rivals still both pay significantly more.

A report in Automotive News suggests that the new deal appears to give both sides something to cheer about. The contract doesn't eliminate the two-tier system, according to the report, but the "Tier 2" workers will get a series of raises that will bring their pay much closer to the veterans' over the course of the four-year agreement. And the veterans will get a raise, too.

Those raises could be offset by an emerging effort to rein in healthcare costs. The Detroit automakers have long offered robust healthcare benefits to their blue-collar workers, including private health insurance for retirees. That insurance has become extremely expensive, but the UAW has reportedly proposed a new arrangement to help offset rising costs.

A big plan to reduce healthcare costs, if Ford and GM agree According to the report, the UAW and Fiat Chrysler have agreed to explore the idea of a healthcare purchasing co-op. The idea is that FCA, Ford,and General Motors will create a large pool that will negotiate with healthcare providers as a single entity, giving it substantial leverage.

Ford and General Motors haven't signed off on such an arrangement yet. The UAW traditionally negotiates intensely to complete a contract with one of the Detroit Three, then uses that contract as a template for its negotiations with the others. That process has likely already begun. But officials from both Ford and GM have said that healthcare costs are an area of major concern, and both have expressed interest in the arrangement floated by the UAW.

The deal also outlines a plan to shuffle FCA's North American manufacturing. While the changes may be initially unsettling to workers, the goal is to focus FCA's U.S. plants on the strongest-selling and most profitable products -- trucks and SUVs -- while moving the manufacturing of less profitable car models to Mexico. That should improve job security for workers at U.S. plants.

It's not perfect, but the workers are likely to approve this dealThe new deal doesn't give workers everything they wanted. Most significantly, it leaves the hated two-tier system in place, though it will bring the two tiers closer together over time.

But most observers think that FCA's workers will vote to accept the deal. It boosts their pay and should improve their prospects for longer-term employment. And, as is traditional, it includes a signing bonus: Each worker gets a $3,000 bonus if the contract is accepted.

Workers will vote over the next two weeks. After that, the attention will turn to Ford and Chrysler. If those negotiations go as smoothly as FCA's did, then Detroit might just get four more years of labor peace. That would be a very good thing for all concerned.

The article Fiat Chrysler's Deal With the UAW Looks Like a Good One originally appeared on Fool.com.

John Rosevear owns shares of Ford and General Motors. 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.