(Reuters) — The Canadian Auto Workers (CAW) union is bracing for a bruising fight in contract talks with the "Big Three" Detroit automakers as the companies say costs must fall, and workers, emboldened by the industry's return to profit, want higher wages.
Firing the first salvo, Ford of Canada, General Motors of Canada and Chrysler Canada say Canada is now the most expensive place in the world to assemble vehicles, due largely to the recent strength of the Canadian dollar.
CAW officials say this label is unfair because it is distorted by the strong Canadian dollar. They want auto workers to share the fruits of a healthier economic climate after agreeing to freezes on wages and benefits in the past few years.
"I think talks are going to be incredibly tough," said Ken Lewenza, president of the CAW, which represents about 25,000 workers at Ford, GM and Chrysler in Canada.
"The companies are being strong in their public comments. We are being equally strong," he said in an interview.
Formal talks between the CAW and all three companies on new three-year agreements start in August. But the sides are already meeting to exchange information and understand each other's positions on hourly labour costs and other thorny topics.
The current labour contracts, 2008 pacts amended in 2009 in the midst of the meltdown of the North American auto sector that pushed GM and Chrysler into bankruptcy, are due to expire at 11.59 p.m. on Sept. 17.
DIFFERENT CALCULATIONS FOR DIFFERENT FOLKS
"Right now, labour costs are higher in Canada than at any other Ford operation in the world," said Ford Canada spokeswoman Lauren More.
"When it comes to future investment, labour costs are one of the most important considerations. The 2012 agreement has the potential to either improve or erode Canada's labour cost competitive position," she said in an email.
Including benefits such as pensions, health care and overtime pay, the CAW's total average labour cost in U.S. dollars is about $60 an hour, according to Kristin Dziczek, director of the labour and industry group at the Center for Automotive Research (CAR) in Ann Arbor, Michigan.
That compares with $58 for U.S. workers at Ford, $56 for General Motors and about $52 at Chrysler, she said. CAR's calculation assumes a one-for-one exchange rate, close to the Canadian currency's current rate against the U.S. dollar.
In an April policy document, the CAW argued that at parity, the Canadian dollar, which has surged more than 50 per cent in value in the past decade, is "clearly overvalued" and makes local costs look artificially expensive.
It says the Canadian dollar's purchasing-power parity level of 81 U.S. cents, as calculated by the Organization for Economic Cooperation and Development, is a fairer reflection of the currency's value.
Using this measure, "real wages in Canada are no higher than those in the U.S.," CAW economist Jim Stanford said in a recent interview.
All three automakers enter this round of negotiations in profit for the first time in years, raising workers' hopes for increases in wages, which have been frozen since 2008.
"For the first time in 10 years we are going into negotiations with companies that are not in a fragile position," said Lewenza, who has been in many rounds of negotiations with the Big Three and has watched employment in Canada's auto assembly industry shrink by a third to below 40,000 in the past 15 years as automakers closed plants and output dropped.
Automakers want to cut costs and will push hard to introduce profit-sharing, something the CAW calls "gimmick pay". The United Auto Workers' acceptance of profit-sharing was one reason Canadian workers broke away from the U.S.-based union in 1985.
WHO WILL BE FIRST?
The CAW is using the current informal talks to decide which of the three automakers to bargain with first, a choice likely to come down to which of the three is seen as being most vulnerable and cooperative.
The agreement with the lead company then becomes the blueprint for pacts with the other two automakers, a process known as "pattern bargaining" and a long-standing CAW tradition.
The CAW's Lewenza will name the lead company around Labour Day, and suspend talks with the other two, kicking off two weeks of intense negotiations before the contracts expire.
In 2008, the CAW selected Ford as the lead company. This time around Dziczek thinks it would make sense to choose GM, which was also the lead company in 2011 U.S. labour talks between automakers and the UAW.
The UAW "could take a GM agreement and shrink it a little bit for Chrysler and stretch it a little bit for Ford", she said referring to how the U.S. contracts were tweaked to match the economic well-being of the three automakers at the time.
"I think that's not that different on the Canadian side," she said.
Although the talks are expected to be tough and painful, neither union nor company officials mentioned the possibility of a strike. The last strike to hit the Detroit Three in Canada was in 1996, when GM workers walked off the job for three weeks over the outsourcing of jobs.
This time, GM appears to be taking a more conciliatory approach to the talks than its rivals, at least in public.
While warning last month about Canada's high labour costs, GM CEO Dan Akerson also said Canadian plants are "very high quality, very high productivity and the workers are very dedicated employees".
"While differences may exist, we are confident that we can overcome any challenges to ensure we can remain competitive in the global marketplace," GM Canada spokeswoman Adria MacKenzie said in an email.