The new labour deal that Ford Motor Co. and General Motors Co. reached with their unionized Canadian workers includes significant reforms to pension financing, a liability that came close to crippling the Detroit auto makers during the 2008-2009 recession.
New employees at both companies will pay for an increasing share of their own pensions, under separate agreements negotiated last week between Ford and GM and the Canadian Auto Workers union. That's a significant change from just four years ago, when the Detroit Three contributed 100 per cent of their unionized employees' pensions in Canada.
The deal underscores Detroit's relentless push to drive down so-called "legacy costs" – namely, pensions and health care – that have put the companies at a competitive disadvantage against Japan-based auto makers operating in North America. Meagre investment returns and a rising number of retired workers have made it far more onerous for the auto companies to keep the financial promises they made to generations of employees.
GM's Canadian pension plans, for example, soaked up about $5-billion of the $10.6-billion the federal and Ontario governments contributed to the bailout of its parent company in 2009.
The Detroit Three pension plans in Canada will become "much more self-financing" under the changes the CAW and the companies agreed to last week, Bill Murnighan, the union's director of research, said in an interview Sunday.
Workers at the Detroit Three in Canada began contributing to their pensions a few years ago when the union agreed that newly-hired employees would begin contributing $1 to the defined benefit plan for every hour worked.
The companies actually hired few employees after that agreement because they were still restructuring. But the latest collective agreement, which 82 per cent of Ford Canada's workers voted in favour of over the weekend, gives them a greater incentive to bring in new staff. Wage rates for new employees are being cut to about $20 an hour from the current $24, and it will take them 10 years to reach the full rate of $34 an hour.
But Mr. Murnighan and other CAW officials outlined changes to pension plan funding on Sunday that will also help the companies cut costs. The pension payment of $1 per hour worked by new employees still applies in their first four years of work. But it rises to $1.50 an hour in years five, six and seven, and to $2 an hour in year eight and beyond.
Once the employees hit the 10-year mark and are earning $34 an hour, they will be contributing between 5 per cent and 6 per cent of their wages to their pensions.
In addition, new workers will be part of a combined pension scheme that includes both a defined benefit plan – that is, one that guarantees payments at retirement – and defined contribution plan, which contains no such guarantees. That structure will reduce the amount of money the companies contribute.
In a third change, CAW employees will have the option for the first time of taking the lump value of their pension at retirement instead of receiving monthly payments.
That's a change Ford offered salaried employees of its American operations in a bid to reduce the pension liability arising from its U.S. pension plans.
Talks with Chrysler Group LLC on the agreement reached with Ford and GM continued over the weekend, but at a slower pace as CAW leaders travelled to ratification meetings of Ford employees to explain the deal.
Sources close to the Chrysler talks said the third-largest Detroit auto maker was balking at paying employees a $3,000 ratification bonus for agreeing to a new deal, asking instead if it could be split into several payments.