Global Giants Play Hardball with Canadian Unions
By JAMES R. HAGERTY And CAROLINE VAN HASSELT
Wall Street Journal, Jan 3, 2012 (also published in Globe and Mail Business section) http://online.wsj.com/article/SB10001424052970203550304577136533843111036.html
Two global companies, Caterpillar Inc. and Rio Tinto PLC, opened the new year by getting tough in contract disputes with Canadian unions, which face drives by corporate and government employers to cut labor costs.
U.S.-based Caterpillar late Sunday locked out about 450 union workers at a locomotive plant in London, Ontario, in a sign that the world’s largest maker of construction and mining equipment is pushing hard for labor-cost savings despite a big earnings recovery over the past two years. Meanwhile, Rio Tinto Alcan, an aluminum-production unit of Anglo-Australian mining giant Rio Tinto, locked out about 800 union workers at a Quebec smelter.
Labor strife has been on the rise in Canada as unions push back against corporate cost-cutting drives and governments strive to reduce wage and pension costs. “Unions are under the gun; they really are on the defensive and companies, instinctively, are feeling aggressive,” said Laurel Sefton MacDowell, a University of Toronto labor-relations expert and historian.
Truck maker Navistar International Corp., Warrenville, Ill., last August announced plans to close its Chatham, Ontario, plant after failing to reach a collective-bargaining agreement with the Canadian Auto Workers union. At Air Canada, the country’s largest airline, the pilots union last May rejected a proposed low-cost airline unit and pension changes. The union and airline have held further talks, assisted by a federally appointed conciliator amid threats of a strike by mid-February. The Canadian government prevented the airline’s flight attendants from striking in October by seeking intervention by the Canadian Industrial Relations Board. The federal government also intervened in June to end a lockout at Canada Post, forcing postal workers to accept wages below what Canada Post had last offered.
Caterpillar said employees represented by the CAW would be barred from the company’s Electro-Motive Canada plant until “a ratified contract is in place” to replace one that expired at the end of 2011. The CAW began picketing the plant Sunday night after the lockout announcement.
Caterpillar is known for taking a hard line with unions. In the 1990s, the company fought a six-year battle in the U.S. with the United Auto Workers union, winning flexibility in managing production, the right to hire new workers at lower wages and tighter controls on health-care costs. During that struggle, Caterpillar used temporary plant workers and threatened to hire permanent replacements for strikers. In recent years, much of Caterpillar’s investment in new plants has gone to southern states, where unions are weak, though it has expanded production in more union-friendly states such as Illinois and Indiana.
Caterpillar’s Electro-Motive Canada plant was acquired in 2010 as part of the US$820 million purchase of Electro-Motive Diesel Inc., based in LaGrange, Ill., from private-equity firms that bought it from General Motors Corp. Over the past five years, Caterpillar has expanded in rail equipment, where competitors include General Electric Co. and Bombardier Inc. In the third quarter, Caterpillar earned US$1.14 billion, up 44% from a year earlier and reported rising sales of rail products and services.
Union officials said Caterpillar’s latest proposal would halve wages and reduce benefits. Tim Carrie, president of the CAW’s local branch, said the cut would reduce hourly pay to 16.50 Canadian dollars (US$16.16) for most workers from C$34.
Caterpillar declined to provide details of its offer but said wages and benefits at the Canadian plant are twice those of workers represented by the UAW at Electro-Motive’s LaGrange plant. Under the most recent contract, Caterpillar said, the plant wasn’t “sufficiently flexible and cost-competitive in the global marketplace.” The company blamed high wages and “antiquated work rules.”
Caterpillar’s earnings for the third quarter ending Sept 30 totalled $1.14 billion (US), up 44 per cent from a year earlier.
In October, Caterpillar opened a locomotive-production plant in Muncie, Ind., prompting fears among its Ontario workers that the company would shift all or most production to Muncie. A Caterpillar spokesman declined to comment on production plans at the London, Ontario, plant.
Rio Tinto, which late last year reorganized its alumimum businesses, said the 438,000-ton smelter at Saguenay-Lac-Saint-Jean is being operated by about 200 managers. Officials from Syndicat des Travailleurs de l’Aluminium d’Alma, the union that represents about 755 employees at the smelter, weren’t available to comment.
Rio Tinto Alcan said it has been bargaining with the union since October. The union’s contract expired on Saturday. “Plans are in place to ensure that our aluminium operations throughout the region continue to run safely and efficiently, and we will work to limit the labour disruption’s impact” on customers, the Montreal-based unit said in a written statement.
Why Caterpillar Has The Upper Hand in London
By David Olive, Toronto Star, Jan 3, 2012 http://www.thestar.com/business/article/1110094–olive-why-caterpillar-has-the-upper-hand-in-london-plant-lockout
The firm recently imposed a lockout on 465 London workers represented by the Canadian Auto Workers. And the CAW has responded with threats of a strike if the firm imposes a planned new collective bargaining agreement that would slash pay and benefits.
But this is only the appearance of a dispute. It’s actually a skirmish the $43-billion (2010 sales) employer has already won. Even Wal-Mart Stores Inc. can’t match Caterpillar’s resolve in dictating terms to its workers. The firm has a practiced skill at “taking a strike” for as long as required until workers straggle back to work across their own picket lines.
Well ahead of the Great Recession, during a banner year for the world’s largest maker of construction and mining equipment, Cat insisted that its managers gird for a worst-case scenario of an 80 per cent plunge in sales over two years.
Cat responded with accelerated new-product development, three major acquisitions to diversify its revenue base (including the 2010 purchase Electro-Motive Canada in London, for generations the North American locomotive arm of General Motors Corp.), and by cutting costs in every function from production to distribution.
And on a single day in 2009, Caterpillar blithely laid off 11,000 employees, or 9 per cent of its global workforce. Like most U.S. employers, Cat has a hair-trigger for layoffs at the first sign of tough times.
Caterpillar is long accustomed to holding the whip hand. It refused to blink during a years’ long labour dispute in its domestic U.S. operations in the 1990s, successfully holding out for eventual worker acceptance of a stingier pay-and-benefits package than the previous contract. In doing so, Cat effectively ended the United Auto Workers’ sway over the Peoria, Ill.-based firm.
Sure enough, the Great Recession did inflict the worst annual sales decline in Caterpillar’s 87-year history. Revenues dropped 37 per cent in 2010, and Cat suffered a 75 per cent collapse in profits.
Yet in that same gut-wrenching year of 2010, Caterpillar shares outperformed all 29 fellow components of the Dow Jones Industrial Index, including the likes of Warren Buffet’s Berkshire Hathaway Inc. Cat even bested recession-proof Apple Inc., whose shares climbed “only” 53 per cent that year, compared with a 64 per cent gain for Cat stock.
Cat long ago mastered one of the world’s most volatile industries, whose monthly sales charts resemble the Rockies for long stretches, as global purchasing managers abruptly cancel or place orders for $300,000 earthmovers, and electric-power turbines and locomotives with price tags in the millions of dollars.
Cat is now on the rebound, with latest-year sales up 31 per cent and a tripling in profits.
A perusal of Cat’s proposed new collective agreement in London, repeatedly rejected over several months of bargaining, conveys a sense of why Cat is such a stock-market darling.
Workers in London are balking at a proposed contract that cuts worker pay roughly in half. It eliminates cost-of-living adjustments (COLA) altogether. It introduces worker co-pays for healthcare costs – employees are to pay 25 per cent of the premiums for their healthcare coverage – while reducing the benefits of that coverage.
As it has done countless times before, Caterpillar is prepared in London to have management and other non-union employees keep the London facility operating in the absence of unionized employees, should they try using the one tool available to them of withholding their labour in order to maintain their current compensation.
So determined is Cat to become a more forceful competitor to General Electric Co., its chief rival in locomotives, that it has built no fewer than three new locomotive assembly plants in just the past year. They are in lower-wage Mexico and Brazil and in Muncie in Cat’s home state of Indiana. Each are ready to fill whatever orders London cannot due to a prolonged unionized-labour outage.
Not far away, Navistar International, the major U.S.-based truck maker, has employed a similar strategy at its sole Canadian operation, in Chatham, Ont. About 400 Canadian workers were affected as work was abruptly shifted to a Mexican facility amid a protracted collective bargaining dispute with unionized employees.
Actually, perusing Cat’s proposed contract – which assuredly will come into force, either with CAW employees or non-union replacements – tells the larger story of why middle-class incomes have flat-lined across North America over the past three decades.
The London debacle is also a reminder of how lousy an idea it is to tie health, pension and other benefits to one’s employer. That so-called “social contract” between employer and worker, dating roughly from the end of World War Two and unravelling since the 1980s, has eroded beyond recognition.