DETROIT — Rob Pacheco estimates that he brought home more money 20 years ago than he does today because of concessions autoworkers made to help save the U.S. auto industry during the Great Recession.
One of the benefits that autoworkers represented by the United Auto Workers gave up was cost-of-living adjustments, or COLA, which pegs employees' wages to the federal government's inflation index.
“The difference is night and day," said Pacheco, a UAW Local 31 member who works at General Motors Co.'s Fairfax Assembly plant in Kansas City, Kansas. "I made so much more money with COLA."
In the past, Detroit Three autoworkers would get a cost-of-living increase folded into their base wage on a quarterly basis, based on a formula that accounted for the rate of inflation. In some cases, the companies would divert a portion of those increases toward things like health care costs.
Now, UAW leaders have made the reinstatement of COLA one of the union's top priorities in negotiations with GM, Ford Motor Co. and Stellantis NV that start in mid-July ahead of the current four-year contracts' Sept. 14 expiration. In making the case for restoring COLA, union leaders have pointed to the concessions the UAW made during the Great Recession to help save the collapsing domestic auto industry, and to robust profits the Detroit Three have enjoyed in recent years.
In 2022, GM, Stellantis and Ford reported adjusted operating income in North America, respectively, of $13 billion, $15.2 billion and $9.2 billion.
“Inflation is hammering the American people. We see it in the cost of eggs, the price of milk. We feel the squeeze at the gas pump and when we pay rent," UAW President Shawn Fain said in a video released last week promoting the union's fight for COLA. "Bills go up and our paychecks don’t. Working people can’t keep up."
Inflation fuels interest
Some workers say COLA is top-of-mind in auto plants because of the decades-high inflation U.S. consumers have weathered in the last couple of years.
“I can say with 100% certainty that COLA is a major concern for our membership," said Charles Bell, who works at Stellantis's Sterling Heights Assembly Plant and serves as UAW Local 1700 president.
“If you walk through the plant or if you talk to anyone that’s been around, or even the new workers, they all want to see COLA come back," he said. "After the pandemic, you’ve seen dramatic increases in inflation, and it’s hard for the average person to take care of their family when their wages are based upon a contract that was negotiated four years ago, with no cost-of-living adjustments.”
Inflation has been slowing over the last year, growing at 4% in May. But before that, the United States saw the highest rates of inflation in more than four decades, peaking at 9.1% in June 2022.
But it's likely that the automakers will put up a fight over COLA because of reluctance to introduce another structural cost at a time when investors are looking for leaner operations to support the costly transition to electric vehicles. The focus on cost-cutting was highlighted most recently by Ford's move last week to cut salaried jobs in the United States and Canada.
Auto equity analysts with Bank of America consider the prospect so unlikely that they did not include COLA in a recent forecast in which they estimated a 25% to 30% increase in labor costs for the Detroit automakers over the four years of the new contracts with the UAW.
“That’s one of these things that I think investors will stand behind the companies and be like, ‘That’s a no-go,'" said John Murphy, managing director and lead U.S. auto analyst in equity research at Bank of America. "I think the automakers won't do it. I wouldn't say they never would, but it's almost a hard no."
The UAW's 2019 contract with the automakers included 3% base wage increases in years two and four and 4% lump sum payments in years one and three of the agreements. Union leaders contend those gains have been wiped out by recent high inflation.
Marick Masters, a business professor at Wayne State University, believes it will depend on what the UAW is willing to give up in order to restore COLA.
"There are going to be no freebies in this negotiation," he said. The companies "are mindful of their need to save every nickel and dime to invest in electrification. And even though labor costs are only about 8% to 14% of the total cost of producing, that’s still a significant chunk. And they’re going to want to make certain that they don’t spend any more than they absolutely have to.”
But Pacheco sees COLA as an issue that could rally members. Latching on to an issue that would affect all members could unite a membership with some stark divisions, as reflected by Fain's narrow victory earlier this year in the union's first-ever direct elections of leaders.
“There’s so many issues, but I think that’s the one that covers everybody across the board," Pacheco said. “We see our paychecks and the hours we work, and it doesn’t seem like we’re getting any headway. We have people in here that can retire, but are afraid to retire because of the inflation."
The UAW played a crucial role in establishing cost-of-living increases for industrial workers in the United States. COLA was first introduced in a contract between the UAW and GM in the late 1940s. During soaring inflation in the 1970s, the UAW secured cost-of-living increases for all of its members.
“It was very important during the period between the mid-1970s and the mid-1980s, in which you had inflation that really ballooned to double digits. That was one of the only ways that workers could keep pace with the rising cost of living," said Masters. "But it’s a very expensive thing because it goes into the base and it compounds. And employers are going to look at that and say, ‘If we give that, something else has to give in return.’”
The benefit was phased out for Detroit Three autoworkers during the cost cuts implemented during the Great Recession and in the wake of the auto bankruptcies. And even more than a decade before, in 1995, COLA clauses were included in only 22% of contracts in the private sector — down from 61% in 1976, according to U.S. Bureau of Labor Statistics data Masters cited.
But there's at least one major factor that could help the UAW in the fight for COLA for autoworkers: The union successfully negotiated cost-of-living increases in its latest agreement with agricultural manufacturer John Deere.
“I think this is a significant precedent," said Masters. "They won’t hesitate to bring that up.”
One or the other?
The auto companies are likely to argue that autoworkers have benefited handsomely from profit-sharing payouts, particularly in the last few years when net income soared. And profit sharing represents a one-time payment, rather than adding to structural costs by folding into employees' base wages.
The Detroit automakers' 2022 financial performances in North America drove profit-sharing payouts for Stellantis, GM and Ford workers, respectively, of up to $14,760, $12,750, and $9,176.
Ford CEO Jim Farley, in an op-ed in the Detroit Free Press on Thursday, argued that UAW-Ford employees have received more compensation in the past several years from raises and bonuses than they would have reaped from COLA. In detailing the compensation of Ford-UAW workers, he noted that eligible workers received a total of $42,000 in bonuses and profit-sharing payouts over the last four years.
"We’ve heard some claims that our wages have remained stagnant, but the truth is that over the past eight years, cumulatively, UAW-Ford employees’ wage increases plus annual inflation bonuses of $1,500 per year, which exceeded the cumulative compensation gains they would have experienced under a straight cost of living adjustment," he wrote.
But Bill Bagwell Jr., a UAW Local 174 member who's worked for GM since 1985, doesn't view it as "one or the other."
"I think that there’s enough money that we should be able to have both," he said. “It’s not unreasonable. We’re not asking for the world. … We’re asking for what it takes to continue to live the life that we live.”
Bagwell grew up in a UAW family; his father received COLA, and Bagwell himself did until the benefit was phased out more than a decade ago. He recalls receiving letters from GM executives, encouraging UAW members like himself to urge Congress to approve the government loans GM received during the Great Recession.
“When you do that under the pretense that you’re going to take care of us when it’s over and then when it’s over you don’t take care of us, it puts a very bitter taste in our month," said Bagwell, who works at a parts processing center in Ypsilanti.
Bagwell agrees with UAW leadership that COLA should be a top bargaining priority, and believes many of his coworkers care about the issue, too.
“I want my wages to stay valuable," he said. “If my wage is $30 an hour, it keeps my wage at $30 an hour throughout the life of the agreement, even if the gas prices go up to $7 a gallon. It only counts for inflation.”
Bell, the Stellantis worker, said he believes UAW members are willing to fight to get COLA back.
“The membership is prepared to take a stance to get what they want or what we need," he said. "And cost of living is definitely an important part of what they want to see come back in the tentative agreement.”
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