Thursday, July 19, 2007

Fiat Struggling With East Europe Wages Push


DJ Fiat Pays Polish Workers Bonuses; Strike Threat Lingers

MILAN (Dow Jones)--Fiat SpA (FIA) agreed Wednesday to pay close to EUR1 million in new bonuses to workers at the plant in Poland where it's producing its headline-grabbing new mini, the 500.
But the Turin-based auto maker didn't address a labor union claim for a 100% increase in basic minimum wages that could yet escalate into a strike in September, potentially disrupting production of the 500, which Fiat hopes will make a major contribution to future earnings.

Wanda Strozyk, chairwoman of the NSCC Solidarnosc union branch at Fiat's Polish auto operations, told Dow Jones Newswires Wednesday that Fiat proposed paying each worker at the plant a total of 1,000 zlotys, or about EUR267, in new bonus payments. Fiat employs more than 3,500 workers at the factory in Tychy, southern Poland. "But we again asked for management to provide a strategy for increasing the basic minimum starting salary for workers to PLN2,800 from PLN1,400," said Strozyk, who believes that the contribution of Fiat's Polish auto workforce to the company's success hasn't been reflected in wage growth. "They didn't respond, but we'll be looking for answers in the next meeting on this scheduled for early September."

Fiat officials confirmed the details of the new bonus payments, and said they expect the basic wage issue to be on the agenda for a meeting with labor representatives early in September. They declined to comment on the substance of any proposals that may be discussed at the meeting but said Fiat will approach it in a constructive manner.

The wrangling between Europe's fifth-biggest auto maker by volume and Solidarnosc, which regional Solidarnosc vice president Rajmund Pollak says represents about 15% of the Tychy workforce, comes as auto workers at East European plants owned by U.S., Asian and West European car makers flex their muscles. There hasn't been a serious strike disruption at Tychy since the 1990s, but Solidarnosc says it's very serious about its ability to organize protests.

With skilled labor in short supply, East European workers are recognizing the increasingly important role their lower-cost plants are playing in manufacturing vehicles that are cheaper to produce than in their companies' home territory.

Thanks to the low costs in Poland, analysts say Fiat's operating margin on the 500 is likely to be in the region of 4%, well above the levels possible on minis made in Western Europe with correspondingly higher labor costs. Any significant increase in Fiat's labor costs in Poland could have an impact on those margins.

Fiat said last week it has already taken 40,000 orders from dealers for the car, launched amid much fanfare in Turin on July 4. Under the stewardship of acclaimed Chief Executive Sergio Marchionne, its auto operations have roared back to profit in the last 18 months on a mix of asset sales, increased sales of a freshened-up range of models and tight cost controls.

Earlier this year, Volkswagen AG's (VLKAY) Czech unit Skoda Auto agreed to a 12.7% across-the-board pay increase for Skoda Auto staff, ending months of talks that culminated in a one-day strike at Skoda's three plants in the Czech Republic. Unions had sought a 17% raise.

In Tychy, Solidarnosc's Strozyk said that Fiat earlier Wednesday proposed paying a PLN500 bonus to each worker to mark the launch of the 500.

She said Fiat also proposed raising the annual pre-Christmas bonus it pays workers at Tychy by PLN500 to PLN2,000. With more than 3,500 workers at Tychy, the total extra outlay for the bonuses is at least EUR935,000.

"We welcome the bonuses as a sign of management goodwill," Strozyk said, describing Wednesday's meeting as "a positive and welcome step. But the basic wage problem isn't resolved."

Pollak said, "When we see goodwill and we get results, we like to continue (to negotiate). There won't be any protests over the summer, but we need to see progress on the basic wage claim, that's very important. In September we will be determined and we have the capacity to organize protests."

Solidarnosc is one of seven unions recognized at Fiat's Polish operations, which include another auto plant at nearby Bielsko-Biala, and it isn't clear to what extent any action would be matched by other unions.

At the official launch of the new car - a revival of Fiat's classic 1950s mini that's been made over in a way analysts say is reminiscent of BMW AG's (BWM.XE) revival of the British Mini - Marchionne said the Tychy plant was running at saturation capacity as Fiat gears up for production and sale of at least 120,000 cars a year.

Marchionne also praised the contribution of the Tychy plant, saying it was one of Fiat's best.

As well as the threat of disruption at Tychy, Strozyk said the union is in contact with unions representing workers at Fiat plants in Italy and Brazil - the company's two biggest auto markets - and will seek to organize global stoppages if its claims aren't satisfied.

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