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Why investors like Detroit automaker-UAW profit-sharing checks

Phoebe Wall Howard, Detroit Free Press on

Published in Business News

DETROIT -- Factory workers at the Detroit Three auto plants pay close attention to annual earnings reports, perhaps as much as the big institutional investors and financial analysts.

Why? Because hourly employees whose contracts were negotiated by the UAW share the profits when companies do well and share the pain when profits dip.

Every spring since 2012, all three automakers have sent checks of varying amounts to their UAW workers. General Motors and Fiat Chrysler Automobiles will send this year's checks in February. Ford mails the checks in March.

This year, an estimated 50,000 GM workers will get $11,500 checks on average; 54,000 Ford workers will get $7,500 checks on average; and 40,000 FCA workers will get $5,500 checks on average.

These aren't bonus checks. They're part of a negotiated contract.

Cindy Estrada, a UAW vice president, said after the 2017 earnings report delivered by GM officials on Feb. 6: "Today's General Motors profit sharing, established under the 2015 contract negotiations, recognizes that UAW GM members' hard work is an essential part of General Motors sales and profits. UAW members at GM negotiated a well-deserved share in the profits of their hard work and sacrifice."

Fact is, the Detroit-based automaker exceeded financial analysts' expectations when announcing $12.8 billion in pretax profits for 2017, despite reducing production through plant shutdowns. (The shutdowns are needed to prepare the factories to build new crossovers and trucks, including the 2019 Chevrolet Silverado. GM saw an overall net income loss, which was blamed on billions in special charges related to the new tax law and the sale of its European operations.)

"Profit sharing is meant to promote the relationship between the union and management to work together to meet deliverables," said Dave Sullivan, product analysis manager at AutoPacific Inc. "Previously, UAW members didn't have much of an incentive to meet production schedules and reduce waste and overtime."

Profit sharing also helps control costs during the bad years.

"Performance-based compensation is meant to unite everyone to have a hand in the health of the company every quarter," Sullivan said.

Tying compensation to outcomes not only drives collaboration but can relieve distraction from outside factors, such as the FBI corruption probe into shady deals between UAW officials and FCA executives that has made headlines over the past year.

Investors like seeing workers have a stake in results. It keeps everyone focused.

"Profit sharing is a means of sharing the wealth of a company with its employees, and it is intended to provide incentives for employees to work efficiently and effectively in order to raise profits," said Marick Masters, a business professor at Wayne State University. "In the auto industry, these profit sharing packages have been lucrative for UAW members. I think it's mutually beneficial for both."

When Kumar Galhotra accepted an award for the Lincoln Navigator, honored as the North American Truck of the Year at the Detroit auto show, the president of Lincoln Motor Co. took time at the podium to specifically recognize UAW workers for contributing to the company's success.

Not raising fixed wage costs plays a role in labor negotiations, Masters said. "These employees went many years without any pay raise and had a multi-tier wage system that lowered the wage for many employees to a level substantially below the typical wage level."

Investors monitor how books are kept and which spending columns grow.

Profit sharing helps with a company's ability to attract investor dollars because less is spent on labor costs at the front end, regardless of results. That's appealing to investors, boards of directors and shareholders.

All things considered, everyone wins.

"For companies, it's an investment in improving morale and worker inclusion. It can boost the bottom line," said Harley Shaiken, a professor at the University of California-Berkeley who specializes in labor and the global economy.

"For workers, it provides what (UAW leader) Walter Reuther called 'high velocity purchasing power,' whether for college educations or new cars," he said. "All of us benefit and the economy surges."

In addition to profit sharing, GM included a $2,000 "performance payment" to workers in 2015 to offset the negative impact that company's ignition switch scandal had on the company's overall financial performance in 2014, so the checks actually totaled $9,000.

And in January 2018, FCA announced plans to pay $2,000 bonuses to 60,000 hourly and salaried workers (excluding senior leadership) in the second quarter of 2018 in recognition of new corporate tax cuts.

(c)2018 Detroit Free Press

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Distributed by Tribune Content Agency, LLC.

 

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