CHARLOTTE, N.C. (Dec. 19, 2005) — Continental Tire North America (CTNA) Inc. has given workers at its Charlotte tire plant an ultimatum—take a 35-percent cut in their wage and benefits package or face a 30-percent cut in production and an as-yet undetermined number of jobs.
Either way, Conti said it needs to slash $32 million in costs at the 38-year-old factory, which it considers its highest cost tire plant globally.
The 35-percent cut in pay and benefits for workers, represented by the United Steelworkers (USW) union, is a “substantial step, I know,” said Alan Hippe, CEO of CTNA. “These are tough cuts, but still a competitive salary in the Charlotte market.”
He said the reductions would trim the average plant worker's salary and benefits package to $26 an hour—$18 in wages and $8 in benefits—from averages of $21 and $19 now. However, workers would have the option to make deeper wage cuts in exchange for more benefits, he said. “We're flexible, as long as we get the savings,” Mr. Hippe said.
The company's alternative plan will be to reduce passenger and light truck tire manufacturing at the factory, move that production to low-cost Conti sites such as one being built in Brazil and eliminate jobs in Charlotte. There's even a remote possibility the plant could be closed, a top official for the Continental A.G. subsidiary said.
USW Local 850 officials said they understand Conti is looking to trim plant costs, and they're willing to help. However, they would like to see more detailed information and figures that support the firm's $32 million cutback proposal.
“They said they would get it to us, but they've been dragging their feet. They've given us some figures, but we're still trying to get all the information from them,” said Mark Cieslikowski, president of Local 850. “Right now, all we have is a take-it-or-leave-it situation. They just want $32 million. It doesn't matter how.”
The company and union met Dec. 14 to discuss the issue, he said, but nothing was resolved.
Under the present proposal the almost 1,000 workers in Charlotte each would lose about $32,000 a year in salary and benefits. “They gave us the proposal with their idea on how to reach it—a $3 an hour cut in salary and freezing some benefits,” Mr. Cieslikowski said. “But they don't care how we do it.”
The Charlotte plant produces about 25,000 passenger and light truck tires a day, five days a week for original equipment and replacement customers, he said, and employs about 980 hourly production and maintenance employees.
With that proposal, CTNA basically sounded the bell in the opening round of contract discussions between the company and the USW, although the tire maker has been looking for ways to slash expenses at the Charlotte factory for some time. The contract between Continental and the union expires April 30.
Mr. Hippe cautioned that the ultimatum isn't a bargaining ploy. The plant carries the highest production costs of any Conti plant globally, he said, and needs to save at least $32 million if it is to remain competitive with its European counterparts.
The firm also is trying to offset about $80 million in increased raw material costs for its North American operation, a spokeswoman said.
“It makes sense to make a significant step now than to make a smaller one and have to come back in 12 months and ask for more cuts,” Mr. Hippe said.
Without the reductions, the tire maker will need to shift as much as 30 percent of the production from Charlotte to the new plant in Brazil or lower-cost European sites, he said. The company trimmed manufacturing at the facility in June, laying off around 300 employees.
Conti broke ground on a $260 million tire complex in Camacari, Brazil, in late 2004. The 1.1-million-sq.-ft. factory is expected to be completed and begin production of passenger and light truck tires by early 2006. Conti plans to begin building a second factory for truck tires at the site next year.
The project is part of a $305 million, four-year plan to increase global tire capacity by 7 million passenger and 700,000 truck tires.
Local 850's Mr. Cieslikowski said the union and company have talked in the past about trimming manufacturing costs at the plant, and one way to save money would be to upgrade or replace older machinery at the site. Conti, however, is investing only in low-cost factories, he said.
Continental primarily is interested in keeping its plants competitive cost-wise with one another, no matter where they are located in the world, Mr. Cieslikowski said.
“It's expensive to move but it's expensive to operate here, too,” he admitted. “Health care costs are killing them here compared to other countries.”
He and other union officials question where Continental came up with the $32 million figure. “Two years ago when we talked to them, they said they needed to save $18 million,” he said.
Another major factor that concerns the union is job security, he said. “If we give in on this, what's to stop them from coming back in six months or a year and asking for more cuts” or a reduction in the work force?
Union members also are troubled by the different signals they're receiving from management, Mr. Cieslikowski said. On one hand, the company said it needs to make cuts. On the other, plant management told workers they want to increase daily tire production to 26,000 from 25,000, he claimed.
“Morale is down at the plant,” he said. “We sacrificed a lot over the years. All we ask is to remain where we are. They want to cut too deep.”