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2008 AAM/UAW Negotiations Frequently Asked Questions
Last updated: March 4, 2008
These questions and answers are posted by AAM to provide information on the UAW work stoppage to all of our stakeholders. AAM undertakes no obligation to update or revise the following whether as a result of new developments or otherwise, except as required by law. Additional information is contained in AAM’s periodic and other reports filed with the Securities and Exchange Commission (“SEC”). Investors should refer to and consider the information filed with the SEC, including the risk factors described in “Item 1A Risk Factors” in our 2007 Annual Report on Form 10-K.
Status of Negotiations with the UAW
What is the company focused on right now?
Despite the elevated emotion and increased uncertainty for our original UAW-represented facilities, our main focus is a commitment to reaching a market competitive agreement for the original U.S. locations with the UAW.
Claims have been made that AAM has engaged in unfair labor practices. Is that true?
No. At all times during these negotiations, AAM has honored its duty to negotiate in good faith. AAM has not engaged in unfair labor practices nor has AAM violated any labor laws.
Has AAM provided the UAW with all the information they are entitled to receive?
Yes.
How do AAM’s proposals differ from what has been established by AAM’s UAW-represented competitors in the United States?
They do not differ. AAM is simply asking for the same changes the UAW has already agreed to with our U.S. competitors -- both automotive and automotive supplier companies. AAM has been negotiating for over two years with the UAW to improve the competitive position of its original U.S. locations. During this period, AAM’s competitors (many of which are represented by the UAW) have made changes to reduce “all-in labor costs”. AAM simply cannot continue to run its operations with outdated rules and agreements that were put in place as many as 50 years ago. Inefficiencies and uncompetitiveness in AAM’s business hurt everyone’s job and retirement security.
AAM has stated that its original U.S. locations are not profitable and have not been for years. Is that true?
Yes. AAM’s original U.S. locations have lost money for three consecutive years, 2005, 2006 and 2007.
AAM’s original U.S. locations have been hard hit by the unprecedented structural change occurring in the domestic automotive industry. This includes the continuing market share erosion of AAM’s major customers.
A significant portion of the sales revenue at these UAW-represented facilities is tied to light trucks and SUVs. Sales of these products are rapidly declining due to:
· Increasing energy prices
· Shifts in consumer demand toward more fuel-efficient passenger cars and crossover vehicles
· Changes in product mix required by our customers
· Deteriorating economic conditions in the U.S.
· Environmental regulations.
It is important to understand that the entire domestic automotive industry, including AAM, is experiencing tremendous market pressure to lower costs. These market pressures are not only coming from foreign-based competitors, but also from market cost competitive suppliers operating in the United States of America, many of which are represented by the UAW.
As a result of weakening demand for its products and escalating cost pressures, including the burden of an uncompetitive hourly labor cost structure, AAM’s original U.S. locations have lost money for three consecutive years.
AAM is profitable at other U.S. and non-U.S. locations. This is principally due to fact that the cost structure at these operationally-flexible regional manufacturing facilities is market competitive.
AAM’s UAW-represented associates at the original U.S. locations were recently notified there would be no profit sharing payout for 2007. Why not? AAM turned a profit of $37 million in 2007.
AAM and the UAW have jointly agreed on a profit sharing formula for AAM’s original U.S. location that is based on profits (or losses) generated at those locations. AAM’s original U.S. locations were not profitable in 2007. Therefore, there was no profit sharing available for UAW-represented associates at the original U.S. locations per the AAM / UAW profit-sharing agreement. The results of the profit sharing formula were audited in accordance with the profit-sharing plan and a copy of the independent auditors’ report confirming this conclusion is provided to the UAW annually.
Market Cost Competitiveness
How does AAM define market cost competitiveness in the United States?
AAM has benchmarked competitor labor costs in the driveline segment of the U.S. automotive supplier industry. The market competitive labor cost structure is in the range of $20 - $30 per hour “all-in labor cost”. Pursuant to the expired master agreement with the UAW, AAM’s “all-in labor cost” is currently $73.48 per hour! This is approximately three times the market rate of our competitors in the United States. This includes both automotive and automotive supplier companies that have plant-wide “non-core” status – which means their “all-in labor costs” are in the range of $20 - $30 per hour. This also includes other UAW-represented suppliers such as Dana (of Toledo, Ohio), Neapco (of Van Buren Township, Michigan, a subsidiary of a Chinese manufacturer Wanxiang), FormTech (of Royal Oak, Michigan) and Bharat Forge (of India and operating in Lansing, Michigan).
AAM has reported that its “all-in labor cost” for its original U.S. locations is $73.48 per hour. Is this accurate?
Pursuant to the expired master agreement with the UAW, AAM’s “all-in labor cost” is currently $73.48 per hour! This figure represents the average cost of wages and benefits paid on an hourly basis to all UAW-represented associates at AAM’s original U.S. locations.
The “wage” portion of the total hourly cost includes the base hourly rate, shift premiums, overtime premiums and COLA (Cost of Living Allowance) and now totals more than $32.00 per hour on average for wages.
The “benefits” portion of the total hourly cost includes vacation, holiday pay, health care, dental and vision coverage, disability benefits, pension, postretirement health care benefits, supplemental unemployment benefits (SUB), employment taxes and other items. Many of these benefits are subject to continuing inflationary pressures and increase every year, due in part, to built-in cost escalators.
What does AAM need to close the gap in market cost competitiveness?
In order to close the gap in market cost competitiveness, AAM needs to transition its UAW-represented associates at the original U.S. locations to the same type of agreement already accepted by the UAW at AAM’s competitors in the U.S. automotive supply industry. This includes both automotive and automotive supplier companies that have plant-wide “non-core” status – which means their “all-in labor costs” are in the range of $20 - $30 per hour. This also includes other UAW-represented suppliers such as Dana (of Toledo, Ohio), Neapco (of Van Buren Township, Michigan, a subsidiary of a Chinese manufacturer Wanxiang), FormTech (of Royal Oak, Michigan) and Bharat Forge (of India and operating in Lansing, Michigan).
Pursuant to the expired master agreement with the UAW, AAM’s “all-in labor cost” is currently $73.48 per hour! This is approximately three times the market rate of our peers and competitors in the United States.
In addition, inflexible and outdated work rules governed by the expired master agreement with the UAW at the original U.S. locations continue to create significant uncompetitive operating costs for AAM.
These conditions have resulted in AAM’s inability to earn new and replacement business for the original U.S. locations. The only true form of job security at the original U.S. locations comes from being market cost competitive.
Is AAM willing to help its UAW-represented associates transition to a market competitive labor agreement?
Yes. AAM’s original U.S. locations have been hard hit in recent years by the unprecedented structural change occurring in the domestic automotive industry. In order to assist its UAW-represented associates and their families adapt to these changing market conditions, AAM has already provided substantial cash payments and benefit continuation to the associates affected by these changes.
To date, AAM has spent approximately $500 million (one half billion dollars) to provide wage and benefit continuation as well as voluntary retirement incentives, attrition programs and educational assistance to its UAW-represented associates who were laid off or otherwise affected by the decline in market demand for the products produced at their respective locations.
AAM has consistently stated that it is willing to consider funding additional future cash payments in the form of retirement incentives, buy-outs and buy-downs to help our UAW-represented associates through the transition to a market competitive labor agreement.
Does AAM already have a 2nd Tier wage structure?
Yes. In 2006, AAM and the UAW agreed to an all-in wage and benefit package for new hires at the original U.S. locations. This agreement is more closely aligned to what AAM’s competitors pay. Unfortunately, as a result of the decline in market demand for its products, AAM has not been able to hire any associates under this second tier wage and benefit structure.
Can AAM’s original U.S. locations successfully compete for new and replacement business on the basis of superior quality, warranty, delivery and launch performance alone?
No. There is also an economic reality that is part of the overall value equation.
AAM’s original U.S. locations operate at the highest levels of quality, warranty, delivery and launch performance available anywhere in the global automotive supply industry. However, while these measures of operating performance are highly valued by AAM’s customers, a customer’s decision to buy a product from a particular company is still most heavily weighted to cost / price and economics. Because the labor cost structure at AAM’s original U.S. locations are approximately three times the market rate, the original U.S. locations have been unable to win new and replacement business.
Will AAM make future investments in the original U.S. locations if changes are made?
Yes. Since the company was founded in 1994, AAM has invested more than $3 billion in plant facilities, equipment, processing, education, skill set development and training. This has helped contribute to create a safe, modern, efficient and productive work environment at the original U.S. locations.
AAM plans to continue to make future investments in the original U.S. locations, including future product sourcing commitments, if a market competitive labor cost structure for the original U.S. locations is attained and business case financial requirements are met.
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