BUSINESS

CAW’S NEW MATH

Suddenly automakers are on the hook for suppliers’ severance

PETER SHAWN TAYLOR September 1 2008
BUSINESS

CAW’S NEW MATH

Suddenly automakers are on the hook for suppliers’ severance

PETER SHAWN TAYLOR September 1 2008

CAW’S NEW MATH

BUSINESS

Suddenly automakers are on the hook for suppliers’ severance

PETER SHAWN TAYLOR

Like many firms in Ontario’s troubled manufacturing sector, Kitchener’s Ledco had a long history, and a bleak future. The combination of a high dollar, high union wages and the malaise in the auto-parts business made Ledco uncompetitive in 2008. Last January, management gave its workers a choice: accept a 25 per cent wage cut or the factory closes. As wage cuts are anathema to the Canadian Auto Workers union, the plant went bankrupt. There looked to be little hope Ledco’s employees would ever receive their severance pay.

At the time of the bankruptcy, CAW officials vowed to pursue Ledco’s customers— General Motors, Ford and Chrysler—for the missing severance. It seemed a brave face on false hope. Why would any company pay severance to another firm’s employees? Yet this month, CAW scored a $ 1.2-million payment from the automakers and Ledco’s unionized workers received $1,200 per year of service. It looks like a rare victory for a union beset by a long string of bad news. But what does it mean for the Big Three?

“This is an unprecedented development,” says Jerry Dias, who oversaw the negotiations for the CAW. “When we told Ford, GM and Chrysler there was an expectation they would pay severance to these workers, they flat out refused. But we made it a major issue in bargaining.” In order to settle their labour contracts with the CAW this spring, all three automakers decided the severance was a small price to pay for labour peace. The share from each was based on Ledco’s order book, with

GM covering three-quarters of the total.

And a week after Ledco workers got their cheques, the CAW announced another $500,000 payment from Chrysler to the employees of the bankrupt Plastech plant in Leamington, Ont. “The broader message is that workers are owed their severance,” states Dias. “Someone has to pay.” He says the Big Three have “a moral responsibility” to ante up, even if there is no strict legal obligation.

The CAW’s surprising success has impressed unionized and non-unionized workers alike. Robert Schott was a non-unionized engineer at Ledco at the time of the bankruptcy. He agreed to the proposed pay cut and today blames the union for Ledco’s demise. But he’ll give recognition where due. “At the time, it sounded ridiculous to ask GM to pay the severance,” says Schott, who recently found a new job. “I’m shocked they actually did. So I have to give the CAW credit for that.”

For those who have been watching the recent financial convulsions of the troubled North American automakers, however, this promises even more bad news down the road.

“One of the main reasons you outsource parts production is to eliminate the risks and obligations of being an employer,” says business professor Tony Faria, director of the office of automotive research at the University of Windsor. “If you start accepting these sorts of costs, you remove the whole logic of using suppliers.” Given that more bankruptcies are expected across the auto-parts sector, Faria predicts the Big Three have dug themselves a brand-new hole in labour relations.

“One time is all it takes to create a precedent,” he says. “You can be sure the CAW will be back every time there’s another bankruptcy, arguing about ‘moral responsibility.’ And why not? It worked before.” M