Come Again? American Auto Workers Get Signing Bonuses?

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Jeff Kowalsky / Bloomberg / Getty Images

The UAW is seeking signing bonuses up to $10,000 for new employees hired by the Big Three, which includes Ford Motor Co.

As the auto industry climbs out of the worst economic slowdown since the Great Depression, workers are demanding higher pay. But the closest thing they are likely to get from a labor agreement between the United Auto Workers and the Big Three that was being negotiated ahead of last night’s midnight deadline is a signing bonus.

Yes, a signing bonus. These payouts are needed to gain the support of the 113,000 UAW members covered by the contract, many of whom have agreed to thousands in wage and benefit concessions in recent years to keep the industry afloat. Last week, Bloomberg reported that the UAW was seeking signing bonuses of as high as $10,000. Though other reports argued that the Bloomberg figure was too high, these payouts will be critical to maintain the labor peace Detroit needs, particularly if J.D. Power and Associates’ forecast for U.S. light vehicle sales to rise 9% this year proves to be accurate.

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Automakers like signing bonuses because it enables them to send a financial lifeline to workers without increasing their overall long-term costs.  For UAW members, the bonus, which they no doubt appreciate, has a steep price because it’s taxed at a rate of about 50%. It also underscores the resentment many have over the two-tiered wage system that pays newer workers far less than more experienced ones.

“It’s better than nothing,” says Arthur Wheaton, an expert on the auto industry with Cornell University’s School of Industrial and Labor Relations, adding that the payments will give the economies in the regions around auto plants a boost as auto workers spend their money. “Most of them haven’t seen a raise in (around) six years.” Unlike a raise, “you get it once and it’s gone,” he adds.

UAW members have gotten these payments in lieu of higher wages since the 1980s, when Detroit began its long decline and wages began to stagnate. Automakers, however, need to preserve the status quo in which workers hired within the past five years will never earn more than their more seasoned counterparts. This system, which Detroit argues is critical to its revival, can present some awkward situations.

“Many of them are getting (about) half the wages as the person standing next to them doing the same job,” Wheaton says referring to UAW members.

The newest workers earn about $14 to $16 an hour, while more experienced workers earn about $25. They also are given a 401(k) plan for their retirement instead of a pension. The ranks of the lower-wage workers are expected to rise in the coming years while higher-wage workers will decline. As the The New York Times noted, many people are eager to work for these wages, which the UAW agreed to about four years ago.

“Last year, Chrysler was flooded with inquiries about the jobs here. It froze the list after receiving 10,000 applications,” according to the Times. “The companies say the two-tier wages are paying off. Despite the disparity, there is no appreciable difference in the Grand Cherokees produced on the shift dominated since last fall by the lower-paid workers.”

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Odds are the levels of bonuses will depend on where a UAW member works.

Workers at Ford Motor Co. (NYSE: F), which has thrived in recent years without a government bailout, stand to receive the biggest payment, followed by General Motors Co. (NYSE: GM) and Chrysler L.L.C., which is the financially weakest, according to Wheaton.

The UAW couldn’t be reached for comment.

Bloomberg News notes that a $10,000 signing bonus “would cost about $470 million at GM, $410 million at Ford and $250 million at Chrysler.” Ford and the UAW have agreed to talk beyond the deadline while discussions between GM and Chrysler continue, according to Bloomberg. Details of the signing bonuses are no doubt being worked out.