TORONTO (Reuters) - Common ground looks elusive between the Canadian Auto Workers union and Big Three automakers in talks that start in Toronto on Tuesday, making compromise and creativity the key ingredients for success.
Participants expect negotiations on new three-year contracts to be the toughest in years.
Automakers want to cut labor costs that they say are the highest in the world. The union says workers who helped keep the companies afloat during the financial crisis should share the spoils of a return to profitability with higher wages.
"We will have to be a little bit more creative and innovative to come up with Canadian-appropriate solutions that are going to address the labor cost gap issue in a way that works for both the CAW and for the company," said a Ford official close to the negotiations.
"There probably won't be a silver bullet solution. We'll be looking at how we can address these wage issues, these health care issues, these pension issues, work rule issues, so that when we put all of those things together, the sum total of the solutions that we identify make some good progress against that labor cost gap."
CAW president Ken Lewenza has said wage cuts and two-tier pay structures are non-negotiable, although the union is under big pressure to accept performance pay and bonuses. But he agrees conditions have changed, and has hinted at flexibility on profit-sharing, a demand the union has rejected until now.
"I'm guarded at this particular time because the times are different," Lewenza told Reuters in March. "I want us to stick to the traditional way of compensating workers, with no gimmicks attached."
The CAW accepted a pay freeze in its last labor contract with the Big Three, which expires September 17. The contract dates from 2008, but was amended in 2009 during a North American auto sector meltdown that pushed GM and Chrysler into bankruptcy.
Last year's United Auto Worker deal with the Detroit Three had no wage increases for veteran workers and preserved a two-tier wage system, where newly hired workers start at about half the full hourly wage. The agreement included a profit-sharing formula, signing bonuses and a promise of new jobs.
The CAW broke away from the UAW in 1985, in part because the UAW accepted profit sharing and the CAW would not.
Full bargaining resumes August 27, after the CAW's August 20-24 constitutional and collective bargaining conference. The union represents about 24,000 workers at Chrysler, Ford and GM, a number that has halved since the CAW was formed in 1985.
Around Labor Day, the CAW will pick a lead company to bargain with, typically whichever is viewed as most vulnerable and cooperative. That deal becomes a blueprint for other pacts.
Canada's strong currency, now above par with the U.S. dollar, will play a polarizing and key role in negotiations.
The automakers put Canadian labor costs well above estimates from the union, which argues that such estimates can be misleading because currencies are constantly in flux.
"Labor costs account for only 8 percent of the total costs of production. But set against the backdrop of a persistently high loonie, keeping them under control has become a key goal of industry executives," said a recent report from think tank The Conference Board of Canada.
"While labor peace is important for the automakers given the current uptick in sales, the pressure is mounting for the CAW to accept some concessions in order to prevent further closures."
In June, GM said it would shut down an Oshawa, Ontario assembly line employing about 2,000 CAW workers in 2013. Last fall, Ford closed a St. Thomas, Ont. plant.
Ford pegs labor costs in Canada at $79 an hour compared to $64 in the U.S. and $48 in Germany, a calculation that assumes parity for the Canadian and U.S. dollar and includes all costs.
It puts the base pay rate at CAW plants in Canada at $34 an hour, versus $28 in the U.S.
The Center for Automotive Research estimates the total average labor cost for a CAW worker at about $60 an hour versus $58 for unionized U.S. workers at Ford, $56 for General Motors and about $52 at Chrysler.
Automakers have said their future production decisions hinge on Canada's competitiveness, and Chrysler Group CEO Sergio Marchionne has bluntly said the Canadian system is not as competitive as its American counterpart.
"We'll see whether we can get a solution on the table that makes sense given the economic environment and the differences between Canada and the United States on manufacturing costs," he said on a recent conference to discuss financial results.
Marchionne's counterpart at GM, Dan Akerson, said that Canada's strong currency cannot be ignored.
"When we built the plants in Canada, the exchange rate was materially different than it is today," Akerson said in June.
"As a result, and the CAW knows this, building a car in Canada is the most expensive place to build a car in the world right now."
Lewenza said he knows the automakers will raise competitiveness and return-on-investment issues during negotiations.
"We will talk about investments in technology, changed work processes and improved productivity. We will work with the companies on those issues," he told the Hamilton Spectator newspaper. "Workers deserve to share in the benefits of the auto sector recovery they helped achieve."
Canada's motor vehicle manufacturing industry has gone from a C$1.5 billion loss in 2009 to an expected profit of C$1.5 billion this year, the Conference Board report estimated.
Editing by Janet Guttsman and Jeffrey Hodgson