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It appears that the Canadian Auto Workers (CAW) have reached a deal which will provide Chrysler LLC’s survival plan with a chance of success. The ramifications of this deal will go far beyond the walls of Chrysler’s production facilities.

According to published reports, Chrysler needed to reduce its labour costs by $19 per hour. That reduction represents more than the total hourly wage of many Canadians. The fact that there was that much excess to carve off – without touching base wages - says a lot about what got this company in its present financial bind.

The cuts are to peripheral benefits to Christmas bonuses, employee car purchase discounts, tuition rebates, hospital coverage, and supplementary unemployment benefits. Paid break times will also be reduced and wages will increase at a slower rate than previously.

Cumulatively, reports indicate the cuts will save Chrysler $240 million per year. Whether that will truly be the case, however, remains to be seen. Many of the cuts strike me as items which may have a notional accounting value but won’t necessarily result in actual bottom line savings.

Regardless, the significance of this deal for industrial workers and employers cannot be overestimated. General Motors, for instance, can now be expected to be seeking similar concessions from the CAW. General Motors is also struggling to reduce overhead and had previously achieved terms which shaved $7 per hour off their labour costs.

The ripple effect will surely be felt at other manufacturing operations across the country. That’s because, to some degree, this deal has has burst the bubble on a long-standing union negotiating mentality.

Anyone who has ever engaged in collective bargaining knows that trade unions come to the table, each time, looking for more. More wages, more benefits, more time off, more job security, more everything.

In a half-century during which steady economic growth has, with a few exceptions, been the rule it has perhaps been difficult for employers to deny growth in wages and benefits. And, with the gun of a potential work stoppage constantly at the employer’s head, it’s little wonder that they have often given in.

But the Chrysler deal is a clear sign that trade unions will now have to adjust to a new reality. The unions’ “more is better” approach has now been proven (in the domestic auto sector, at least) to be a formula for corporate ruin.

The reality is that the domestic car manufacturers (GM and Chrysler, at least), burdened with collective agreements which have inflated their labour-related overhead, cannot compete. In fact, it’s not just a matter of being able to compete – for them it’s a matter of survival.

This brings to mind a vivid moment in my former life as an in-house director of industrial relations for a major truck manufacturer. The truck market was in one of its deep cyclical valleys and the management team was reluctantly discussing staff cuts.

When the department heads weren’t readily volunteering to endure staff cuts in their areas, the senior executive of the time finally lost patience. He said something to the effect of, “Guys, understand, this is about keeping the doors open!”.

Similarly, Chrysler’s plight was (and still is) about keeping the doors open. The threat of closure is real enough that the CAW has responded with extensive concessions aimed at assisting Chrysler to regain its competitiveness.

Whether these cuts will achieve the desired level of competitiveness remains to be seen. One might be forgiven for thinking that it will take more than a dent in union members’ benefits to put Chrysler back in the black.

Regardless, every trade union in Canada should now be on notice that the “more is better” era has come to a screeching halt.

Robert Smithson is a partner at Pushor Mitchell LLP in Kelowna practicing exclusively in the area of labour and employment law. For more information about his practice, log onto www.pushormitchell.com. If you have a labour or employment question for him to answer in a future “Legal Ease”, email him at smithson@pushormitchell.com. This subject matter is provided for general informational purposes only and is not intended to be relied upon as legal advice.

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