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  1. Master Economics Offer: A Principled but Pragmatic Response to the Crisis Presentation by Jim Stanford, CAW Economist stanford@caw.ca To CAW-Ford Master Bargaining Committee – April 2008

  2. PPP 30-yr avg The Loonie’s Destructive Flight Global commodity and oil price boom, combined with record pace of foreign takeovers, has overvalued the Canadian currency. Up 60% in 6 years

  3. +$15b -$7b

  4. World Oil Prices

  5. The Times N.Y.C. APPROVES RULES ON LIMO FUEL EFFICIENCY April 17 2008 The New York City Taxi and Limousine Commission (TLC) today voted to approve a regulation requiring that, beginning January 1, 2009, all new limos must be capable of city mileage rating of 25 miles per gallon (mpg).  One year later, January 1, 2010, they must meet 30 mpg.

  6. U.S. Construction Downturn

  7. Wall Street Journal ANALYST FEARS LIQUIDITY AT BIG THREE April 9 2008 Wall Street analysts are questioning whether General Motors Corp. and Ford Motor Co. can survive a sustained sales slump without a cash infusion.If the SAAR were to fall to 14.5 million units, GM would have enough cash to survive two years, says Himanshu Patel, an analyst at JP Morgan.

  8. UAW Developments • VEBA fund to shift legacy costs to UAW-run trust. Retiree health benefits eliminated for new hires. Eliminates $18-20 per hour in labour cost. • Two-tier wages and benefits for new “non-core” hires. Total all-in cost for new hires = $26 (versus $60 for current actives). • But don’t forget: UAW deal had increases in a number of areas (bonuses, pensions, etc.). • And non-core share capped at 20% • Strike at American Axle: 9 weeks and counting, GM not too concerned

  9. Challenges in Retiree Funding • Growing ratio of retirees to actives • Ford: 0.7 in 2005, 1.1 in 2008 • Makes cost per hour of retiree-related programs very high • Retiree health benefits: $10 per hour (accounting), $4 per hour (cash), almost doubling every contract • PCOLA: each year = $1 per hour • Our bond of solidarity with retirees won’t be broken – but we need to find ways to pay for it • Be very careful about cost control

  10. Nasty Math Cost/Hour = Cost/Retiree * No. of Retirees Active Hours Worked Cost per Retiree: Rising (8% per year?) No. of Retirees: Up 1/3 in this contract Hours Worked: Falling with each downsizing Result: Cost per hour doubles in 3 yrs - now worth $10/hr (FAS), $4/hr (cash)

  11. FAS Costing Methods • Forces companies to recognize, report, and deduct from profits the full ultimate cost of every delayed benefit they agree to • Makes the cost of future benefits extremely high • Has sparked intense resistance from head office on: PCOLA, retiree health, $25K retirement allowance, car insurance, others • On the other hand, some times we can use these rules to our benefit through careful benefit design • eg. 2005 caps saved over $400 million

  12. Current Cash Cost To Ford (2007): $8.5 million Ford’s Reported Liability: Over $700 million Example: Long-Term Care

  13. Employers on the Offensive The Globe & Mail GM:“STATUS QUO” MUST CHANGE April 14 2008 General Motors says its Canadian labour costs $30 per hour more than workers in non-union auto plants in the U.S., and says this gap must close in 2008 contract talks with the CAW.

  14. Big Three Shopping List • Implement two-tier wages • Eliminate COLA • Eliminate PCOLA • Eliminate retiree benefits for new hires • Eliminate existing retiree benefits for existing retirees (long-term care) • Eliminate SPA program • Slash trades employment and hours • Cut back relief time • More, more, more…

  15. Our Strategy • Get anti-concessions message out loud and clear • Focusing on two-tier danger • Warning companies of a fight • Emphasize the need for a Canadian solution • Public statements, membership meetings, news conferences, financial analysts • Hold out a carrot as well as a stick • Do something modest, responsible (and early?) • Or go to war in September • Scoping discussions with all 3 companies to see if anyone liked the carrot • Ford “bit”!

  16. A Principled, Pragmatic,Nimble Union • CAW has strong no-concessions policy • But CAW has proven it can work creatively to protect competitiveness within the framework of our principles • Air Canada restructuring (2004) • 2005 Big Three contract • Local plant operating & “shelf” agreements • Auto parts restructuring • Strong membership support continues • Transparency, democracy help facilitate change

  17. A Superior Productivity Record Strong capital spending since the early 1990s, allocation of high-volume models to Canadian plants, a high-quality workforce, and a commitment to productivity by the union have all contributed to consistently superior productivity results.

  18. Strong Operating Profits Assembly and parts. CAW Research from Statistics Canada, U.S. Census Bureau. US 2007 data 3Q

  19. Canada’s Automotive Success Thanks to superior productivity and quality, and competitive costs, Canada’s share of total North American production by the Big 3 continues to grow.

  20. Exchange Rates & Relative Costs The rapid escalation of the $Canadian has converted our once-large cost advantage into a slight cost disadvantage.

  21. We Took a Long View…Now the Companies Must, Too CAW did not take advantage of the undervalued currency in the 1990s to boost compensation; the low dollar translated fully into a labour cost advantage.

  22. Already Showing Restraint The CAW’s 2005 Big 3 contract has already dramatically slowed the growth of average all-in labour costs, thanks to small wage increases and health-care savings.

  23. Staying in the Ballpark? Retiree benefits gone

  24. Staying in the Ballpark? 10% 60%

  25. Bottom Line on Relative Costs • Canadian active hourly costs are 10% higher than UAW today ($67 vs 60) • UAW agreement will mostly freeze active hourly costs • Canada has a 10%+ productivity advantage that offsets higher costs • So unit costs are compatible • If we can hold the line on our active hourly costs, we keep ourselves in the ballpark for new investment opportunities • If dollar comes back down (below 90), we recreate a labour cost advantage

  26. CAW Labour Cost Breakdown, 2007 All-in labour costs per active hour worked, 3-company average. Base Wages $34 Wage Premiums (OT, Shift, AWS) $5 Paid Time Off (Vac’n, Hol, SPA) $9 Active Fringe: Current Health (PAYGO) $2.50 Current Service Retiree Health (FAS) $2 Current Service Pension $5 Other $4.50 Sub-total Active Fringe $14 Statutory (EI, CPP, WCB, EHT) $5 Legacy/Retiree (mostly Retiree Health FAS) $10 TOTAL ALL-IN PER HOUR $77

  27. CAW Strategy for 2008 • Union firmly rejects concessions & two-tier wages • Union recognizes change in Canadian cost competitiveness • Union places value on future investments • More restraint (as in 2005 contract) is in the cards • Openness to considering cost-saving alternatives for key contract components • Retiree health benefits

  28. Master Economics Offer • Protects union’s principles • No two-tier • Protect retiree pensions & benefits • Protects total compensation • Total compensation (and hence hourly cost) does not fall • Portions are rebundled • Cost savings are tailored to particular areas to generate large FAS savings for company • Retains relative cost position in Canada

  29. The “Momentum” of our Contract • Problem: “doing nothing” adds 2-3% per year to our costs • COLA, PCOLA • Health benefits • Other • Challenge: fine-tune the make-up of the package to restrain total costs

  30. Wages and COLA • No changes in base wages • Preserve existing formula and quarterly structure • Freeze COLA for next 5 hits • June 2008 hit • First 4 hits of new contract • $1.31 (of $1.36) folded in September 2008 • COLA kicks back in at normal value for 4th quarter of 2009 (Dec. 2009) • Wages will grow $1+ over life of agreement • Including roll-up costs, adds $1.40 per hour cost

  31. Pension Summary • 1 year freeze in benefit rates and PCOLA for actives and retirees. • Increases in Basic benefit and 30 n’out Special Allowance in 2nd and 3rd year. • Reinstate PCOLA in 2nd and 3rd years of the agreement.

  32. Pensions – Current Retirees • For current retirees/surviving spouses and those who retire prior to October 1 2008 • PCOLA is suspended for the first year of the new agreement. • PCOLA increases will be provided effective October 1, 2009 and October 1, 2010

  33. Pensions for Actives and those retiring on or after October 1 2008 • The Basic Benefit Rate and Special Allowance amounts will be increased, effective Oct.1 2009 and Oct.1 2010, by an amount equal to PCOLA.

  34. Pension Examples – Basic Benefit

  35. Pension Examples – 30 & out

  36. Pensions (cont’d) • New Guarantee Options: • The option for a 5, 10 or 15 year pension guarantee will be provided effective October 1, 2009, (single life only; pension will be actuarially equivalent).

  37. Insurances • Optional Dependent Life: 3 Open Enrollments will be offered in January each of 2009, 2010 and 2011. • Survivor Income Benefit Insurance (SIBI) improvements will apply to current as well as future recipients, as follows: • $25 – effective October 1, 2008 • $25 – effective October 1, 2009 • $50 – effective October 1, 2010

  38. Health Care • Effective January 1, 2009 implement prescription drug co-pay for Actives and Retirees of 10% per prescription, with the following out-of-pocket maximums: • As of January 1, 2009 - $250/family/year • As of January 1, 2010 - $270/family/year • As of January 1, 2011 - $290/family/year • Out of pocket maximums are combined family amounts

  39. Drug Co-pay Examples • Average cost per active script is $60. • First script, requires $6.00 co-pay. • If second script is $75 co-pay will be $7.50 • Once the annual maximum (2009) of $250 is reached, from all family member co-pays, no further payments are required.

  40. Drug Co-pay Examples (cont’d) • For retirees over 65, the co-pay is still 10%, but for Ontario Drug Benefit (ODB) prescriptions, the co-pay could be as low as 20¢ (if retiree is subject to ODB co-pay of $2.00) • Remember: • 1967 co-pay 35¢ = almost $3 today • Drug spending in Canada up over 500% since 1985 • UAW 10% co-pay has cap as high as $2000

  41. Health Care (cont’d) • Effective January 1, 2009, cap Long Term Care coverage at $1,543.95 per month for new entrants, (grandfather existing residents). This applies to Active and Retired employees. • Huge FAS saving for Ford (hundreds of millions of dollars)

  42. Health Care Improvements Effective October 1, 2008 the following benefits will be improved for Active and Retired employees: • Eye exams amount increased by $20 (to $85) • Vision Care benefit increased by $20 in each category • Chiropractor annual maximum increased by $15 (to $465) • Psychologist annual maximum increased by $25 (to $675)

  43. Income Security • Restructuring Allowances: • Increased from $70,000 to $75,000 for production and $90,000 for trades, plus a $35,000 car voucher for both • Eliminate $25,000 retirement allowance • Carried a huge FAS cost • Renew Income Security Fund as agreed per active employee effective September 17, 2008. (Approximately $220 million)

  44. New Hire Grow-In • New-hires are made “whole” within 3 years • Wages (start at 70%) • COLA not added to wages until after 3 years • SUB: accrue credits beginning in second year, but no benefits until after 3 years • Time-off: no SPA until after 3 years, reduced vacation (80 and 88) • Will apply to new hires from ratification

  45. Vacation • Remove mandatory vacation • Reduce vacation entitlement by 40 hours at all seniority levels (3 years and up) • Special $3500 compensation paid in Jan. 2009 • 20-year person still receives: • 200 hours vacation • 80 hours SPA • Long weekends • Holidays • CAW still far ahead of UAW, transplants

  46. Other Economic Features • $2200 productivity & quality bonus • Eliminate AWS wage premium • 3-shift workers will receive 8 hours pay for 8 hours in plant • Extend life of St. Thomas facility to at least end of contract • Company had planned to close it in 2010 • Letter of exploration re new funding method for retiree health

  47. Other Economic Features • Renew special payment (vacation bonus) • $2,600 automotive discount program for active and retired employees: • Previously program provided for $2,000 discount on vehicle price and $1,000 insurance rebate. Rebate was taxable and after tax amount is about $600. • New total amount of $2,600 discount will leave employees in same position • Program expanded to retirees

  48. Other Economic Features • Renew Appendix 'U' as reflected in the 2005 Collective Agreement: Various Funds • Renew funding for National Training as agreed per active employee effective September 17, 2008 (approximately $25 million)

  49. Improvements: Wage gains (COLA) Pension gains (driven by PCOLA, existing and future) Restructuring benefit Health caps & SIBI Car allowance (retirees) St. Thomas pledge Savings: COLA/PCOLA deferrals Health savings $25 K retirement New hire grow-in 40 hours vacation AWS premium On Balance, A Step Forward Savings offset much of the improvements; Overall compensation protected