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Chrysler pact may set industry pattern. Agreement rewards workers for sacrifices; keeps company competitive

Chrysler and the United Auto Workers may have hammered out a smooth transition back to a competitive position. After 42 hours of nonstop bargaining, the weary negotiators emerged at 3:15 yesterday morning with a tentative agreement that includes moderate wage increases, a $2,000-per-worker cash payment, and job protection.

Union members will vote on the pact Sunday. If it is ratified, as the UAW leadership expects, workers will be back on the job Monday, a union spokesman says.

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The three-year pact should allow Chrysler to retain its position as the low-cost American carmaker, analysts say. The agreement could affect talks two years from now between the union and GM and Ford by setting a wage ceiling for those negotiations.

From here on out, negotiations should only get easier, analysts say. By the time Chrysler negotiators again sit down at the bargaining table, as many as 18,000 of the most hard-core union members -- those whose seniority is most threatened by technology and flexible use of labor -- will have retired.

But the biggest winners may not have been at the negotiating table.

``The North American way of manufacturing was on trial,'' says Arvid Jouppi, an automotive analyst and senior vice-president of Keane Securities Company.

The moderate wage increases, potential for higher productivity and flexibility in the workplace, as well as the relatively friendly tenor of management-labor relations gives US automakers a fighting chance to compete with the Japanese, Mr. Jouppi says.

``It buys time to get to the Saturn era,'' he says, referring to the General Motors plan to introduce new technology and labor relations to produce a low-cost car. Chrysler and Ford have similar, if less radical, projects under way.

The next-biggest winner, says Mr. Jouppi, is the consumer, especially those who don't want to mortgage their house to get a new car. Record car sales in September, spurred by low-interest financing deals, suggests there's a big market for inexpensive cars that has basically been ignored. By keeping wage increases moderate, Jouppi says, Chrysler will be able to offer those price-conscious buyers cars they can afford. The contract could also moderate the sticker price on GM and Ford cars since the moderat e 3 percent wage increase in the final year of the contract would likely set a pattern for those negotiations.

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Not to be overlooked in the winners circle, of course, are the company and the union.

On paper, at least, it looks like the UAW came out on top. But the intangibles -- the attrition rate of workers, the cooperative tenor of Chrysler's relationship with the union, the new technology that is coming on line, and the fact that Chrysler's position as the low-cost US manufacturer has not been eroded -- are working in the company's favor.

``Chrysler should easily beat the cost increases [in the contract] through increased productivity,'' says David Cole, director of the University of Michigan's office for the study of automotive transportation.

Union workers will get ``parity,'' meaning that Chrysler wages and benefits will equal those at GM and Ford. Chrysler's wage advantage was only 6 cents an hour, but came to about $2 when benefits were thrown in.

That will have a smaller impact on costs than one might think. Because Chrysler buys some 75 percent of its parts from other companies (called ``outsourcing''), a $1 per hour wage increase would translate into only a 25 cent increase in costs, Dr. Cole says.

Wages increases are moderate: an average of 2.25 percent the first year; 3 percent the third year; and a 2.25 percent performance bonus (linked to the number of hours worked the first year) in the second year. The second-year bonus will average about $700 per worker.

In the contract's second year, Chrysler workers will also get some form of profit sharing, though a UAW spokesman declined to give details. The productivity gains from linking wages to profits will lower Chrysler's costs and help it compete not only with GM and Ford, but with imports.

Chrysler workers will get an immediate $2,000 bonus ($1,200 for retired workers) for concessions they made when the company nearly went bankrupt in the late 1970s. That's twice what the Canadian workers will receive. It's been estimated, however, that Chrysler workers gave up $4,000 in concessions since the company nearly went bankrupt in the late 1970s.

The union managed to hang onto its job classifications, which in theory preserves seniority and a certain degree of inflexibility in the workplace. Chrysler was relying on greater efficiency in using workers to increase productivity and offset wage hikes.

But in practice, the classification issue is hammered out on every plant floor. ``The letter of the law is followed only when there's a strong adversarial relationship between management and labor,'' Cole says.

As for outsourcing, probably the most emotional issue for the union, Chrysler and the UAW seem to have split the difference. It follows the GM and Ford contracts, which protect workers from layoffs due to automation, subcontracting and other areas.

But, says Thomas O'Grady, president of Integrated Automotive Resources, the contract would not reduce the amount of subcontracting Chrysler already does (some 75 percent of all parts). Moreover, he says, more than 95 percent of such outside jobs are done by US firms. ``Chrysler could lower their costs with a flip of the switch'' by buying from overseas firms.

The agreement indicates a shift in attitude, say Cole. ``The company and union are aware that they're in the same boat. If one kicks a whole in the bottom, both will sink.''

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