Two-tier pay system brings reopening of GM plant, reviving hope

Reporting from Spring Hill, Tenn. —  A few days before Thanksgiving, hundreds of people from around the country jammed into the idled General Motors Co. plant here, cheering as company and union officials pushed a big red button signifying the reopening of the car-assembly factory.

The ceremony marked a rare bright moment for workers in America’s long-beleaguered auto industry. But there’s a catch: Under its agreement with the United Auto Workers union, GM will be hiring mostly new workers for the plant who will start at $15.78 an hour, about half the prevailing rate paid to the company’s production employees.

A two-tier pay system, adopted by airlines years ago and embraced more recently by law firms, could breed hard feelings among workers paid different rates for doing the same jobs. Economists have a bigger fear that the lower wages could undermine the middle-class living that the UAW took decades to negotiate.

At first glance, the scaled-down pay for some employees seems starkly at odds with Henry Ford’s famous decision nearly a century ago to double daily pay to $5, a move that boosted workers’ morale — as well as their ability to buy Ford cars.

“This is what Henry Ford understood by paying his workers three times more than the industry average,” said Robert Reich, a Clinton administration Labor secretary who teaches at UC Berkeley.

What concerns Reich most is that whittled-down paychecks will erode spending power and thus lead to fewer sales, weak hiring and stagnant wages, creating a vicious cycle. “You shoot yourself in the foot eventually,” he said.

But many people here look at the situation differently.

After getting pulverized by the recession and high unemployment, they said the reopening of the GM plant, which originally produced the Saturn brand, had revived hopes in their hard-hit area in central Tennessee.

“You can make $16 an hour or zero dollars,” said Michael Dinwiddie, Spring Hill’s mayor.

Kip and Ann Ellis think it may mark the beginning of the road back for their family and others in the struggling U.S. economy.

When the car plant shut down two years ago, Kip Ellis was among hundreds who moved to GM’s factory in Lansing, Mich., leaving behind his wife and their three daughters.

Now, with manufacturing of the Chevrolet Equinox scheduled to start in the second half of next year, Ellis, 48, has a chance to return home and be reunited with his family.

The Ellises also are hoping that their son-in-law, who drives a tow truck for $10 an hour and has no health insurance, could get a job there.

“It’s a start,” Ann Ellis said. “It opens up a door — even coming in at the lower rate.”

Far beyond this historic Civil War town lined with sugar maple and magnolia trees, there’s a growing view that two-tier wages may be part of the formula for renewed prosperity.

For decades, corporate America moved relentlessly to outsource jobs overseas, in the process closing tens of thousands of domestic factories. But more recently manufacturers have been bringing some jobs back home, thanks in part to lower labor rates in the U.S. and rising costs overseas.

With about 25 million Americans unable to find full-time work, many communities — and labor unions — have welcomed the return of factory jobs, accepting the cut in pay as part of the reality of today’s economy and the global marketplace.

“If you’re going to want to have front-line jobs in the United States being expanded, they’re going to need to be more economical — and this is a test,” Lawrence Katz, a Harvard labor economist, said about the two-tier system. “I see it as potentially expanding new opportunities in an industry and seeing if that will work in the U.S.”

Whether it leads to more jobs and higher pay or to sinking wages and a lower standard of living will depend ultimately on how successful companies are operating in the U.S.

Autoworkers have long enjoyed enviable middle-class pay and benefits, but those labor costs helped price GM and other manufacturers out of the global market. GM filed for bankruptcy in 2009 and got a multibillion-dollar federal bailout. Since then GM has returned to profitability as it has narrowed cost, service and quality gaps with its competitors.

The latest UAW-GM contract calls for about 1,800 jobs to be brought back to Spring Hill. It doesn’t specify what percentage of those workers would be new hires, but GM officials said most of them would come in at the lower rate. Their pay would go up to $19.28 an hour by 2015, when the contract expires. Anything beyond that will have to be negotiated.

“We play in a global economy that is being challenged,” said Scott Sandefur, GM’s labor relations director.

In the early 1990s, when the Saturn car was in hot demand, GM employed as many as 7,000 people at its operations here. Roads, houses and shopping centers were built to accommodate the workers and their families. GM was such a big part of the town that it even owned the nearby Rippavilla Plantation, an antebellum mansion and tourist draw.

When the factory was mothballed in 2009, about 3,000 workers took buyouts, retired or moved elsewhere for GM jobs. Everybody in the area felt it. A strip retail center across Saturn Highway that once had a dozen storefronts — including a tanning shop, a martial arts studio and a barber shop — is now down to three.

Kristen Bailey, 22, works as a waitress at one of the surviving businesses, a restaurant called Whisker’s. She remembers droves of GM workers coming in and ordering the $10.60 special such as catfish and popcorn shrimp, plus a drink. GM workers were so valued that they got 10% discounts, the same as police officers and firefighters.

In those days Bailey made $300 or more in wages and tips in four days of work. On a recent Wednesday afternoon the restaurant was empty, and Bailey counted her daily take: four hours, seven plates, $25 in total earnings.

“I used to think if I dropped a dime it wasn’t a big deal,” said Bailey, who’s thinking of going to school to become a dental hygienist. “Now I’m scurrying to pick it up.”

Some residents have nabbed $10-an-hour jobs at Home Depot and other retailers, but others haven’t been that lucky.

“It’s just rough, it’s really rough,” said Ryan Herrington, 29, who recently was laid off from his $8.50-an-hour job with a fiberglass maker. He’s helping out at a computer shop opened by his father, a former worker at the Saturn plant. Smoking outside on a cold afternoon, Herrington said he would apply for a job at the GM plant.

Over the last two years, manufacturers in auto and other industries have added about 300,000 new jobs in the U.S. and indirectly created many more at service firms. Economists see that as a good sign, a way to generate wealth and rebuild an economy that has long been dominated by consumer spending.

Even so, no one expects manufacturing to return to its 1950s heyday, when the sector accounted for 28% of the economy and a third of all employment. New technologies and the rise of China and other economies with cheaper labor have continued to add pressure on American jobs.

Today manufacturing makes up 12% of the nation’s output, employing about 12 million people, just 9% of the country’s total payrolls.

“In my lifetime, we’ve gone from being a manufacturing power to where we’re all selling each other services,” said Robert Grefseng, a lawyer in this area whose business has been squeezed like almost everybody else’s. “Where is the source of wealth? I don’t know.”

Trade unions also have had to grapple with the implications as manufacturing has changed.

UAW President Bob King said he wasn’t thrilled with a two-tier pay system: It goes against the union’s core belief in equal pay for equal work. But “there really wasn’t an alternative,” he said.

Accepting the change, King said, meant that the UAW could restore some jobs and gain a foothold in a region that has long been unwelcoming for unions.

Nissan, Hyundai and other automakers have set up nonunion plants in the South, undercutting the pay rate at union factories in the North. At a new Volkswagen plant in Chattanooga, Tenn., about 100 miles to the southeast of Spring Hill, production workers start at $14.50 an hour, with pay rising incrementally to $19.50 in three years.

Mike Herron, head of the UAW local at Spring Hill, acknowledged that a job at $15 and $16 an hour won’t buy a worker a middle-class life. But, he said, “it’s a very darn good job to start with.... Job creation is the [paramount] thing here.”

The reopening of the plant means even more than that for Kip and Ann Ellis.

On a quiet street in the nearby town of Columbia, where many of the original GM Saturn workers settled, the backyard of their home is blanketed with fallen leaves from their walnut tree. Ann and their youngest daughter, 18, could do the raking, but they leave that and some other household chores for Kip on his

occasional weekend visits, a nine-hour drive from Lansing.

“I don’t want him to think he’s not needed,” Ann said.

Over the last two years the couple have struggled with their long-distance marriage.

Kip, who makes $28.50 an hour, works the graveyard shift, so it’s hard to find time to talk to their daughters. He hated missing coaching their youngest daughter’s traveling softball team, which he had done for years. And while he was in Michigan, their middle daughter, 20, began dating the man she plans to marry next fall. The oldest daughter is 25.

Kip was born and raised in the Lansing area, a legacy of his grandfather, James Ellis. The elder Ellis migrated north from his native Tennessee along with tens of thousands of others who left Appalachia after World War II for brighter futures in the booming auto industry.

Kip fondly recalls the stories told by his grandfather about growing up on a farm in Tennessee and struggling to fit in up north, where he said he was treated like a hillbilly. James Ellis didn’t finish fifth grade and could write little more than his name, but he made good money and eventually bought 1,000 acres of farmland in Tennessee, where he lived out his life.

When James Ellis retired from GM, he earned $7.75 an hour — about 50% more than the average pay of all private-sector workers that year.

By comparison, at $15.78 an hour, the new workers at the GM plant in Spring Hill will be making almost $4 an hour less than the average private-sector employee today.

At that pay rate, Ann Ellis doesn’t see how a family can manage without two full-time incomes.

“They’ll be able to provide for themselves, but will they be able to enjoy the finer things in life?” she asked, such as a cruise that she and Kip took for their 12th wedding anniversary. “They’ll have to work very, very hard.”

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