JLR and Unions agree to disagree
After intensive negotiations, JLR management and trade unions have failed to agree on a package of measures to cut costs.
Negotiations have been conducted, it appears, with considerable goodwill on both sides, and given the lack of public comment there seems to be genuine sadness that an agreement could not be reached. Indeed, neither side has spoken in public, and there seems no desire (so far) for industrial action from the unions.
Management had proposed back in September reductions in wages for new staff and an end to the defined pension scheme for new entrants, along with a lump sum payment to staff to postpone November 2010 pay talks to April 2011.
In return, workers were being offered an employment and volume guarantee, with the firm committing to grow UK production to 300,000 units a year by 2015, and to maintain 8,000 JLR hourly-paid, permanent employees until 2015.
Quite how management could credibly offer to do this isn't exactly clear to me as they - like the rest of us - have no real idea what the state of the market will be next year, let alone by 2015.
It's disappointing, though, that an agreement could not be reached. From JLR's point of view, the cost reductions are necessary to remain internationally competitive. Cutting wages for new staff would especially help the firm as more senior staff retire from the firm and new, younger staff come in, and as the firm expands green technology activities (in which it is investing heavily).
And let's not forget that the firm had agreed to maintain 3 plants only until 2015. After that, one West Midlands plant (probably Castle Bromwich?) will be closed - although management is, I am convinced, genuine in its desire to maintain employment in the Midlands at the single remaining plant. Longer term, don't be surprised if JLR starts production in China at some point - sales are picking up quickly there and it is a huge emerging market, with low production costs and improving quality.
In a sector ham-strung by over-capacity, and facing rising costs from environmental regulation and the need to develop new green technologies, JLR faces huge challenges in remaining competitive, so its desire to cut costs is understandable on business grounds.
But from the workers' point of view, they have already made big sacrifices to help the firm get through the worst auto downturn in recent history. There have been over 2000 job cuts at JLR since the credit crunch kicked in, and last year staff voluntarily agreed a pay freeze (read real wage cut) in return for no further compulsory redundancies.
Unions and workers shared the pain, and set the model for the industry in terms of helping firms through the downturn. So why agree cuts in wages (for new staff) when it's not clear that management can actually deliver on guarantees?
No surprise then that management - according to employee briefing yesterday - "is withdrawing the proposed Volume and Employment Security Agreement and all the commitments contained within it".
The same JLR employee briefing yesterday stated that "it will shortly begin formal consultation with a view to ensuring all three defined benefit schemes are closed to new hires and new entrants". I hope that doesn't mean that management will now try to shut out the unions and implement the changes without further efforts at reaching an agreement. I can't believe that is the intent of management (whom I rate highly and who have shown considerable integrity in navigating the downturn). If so, perhaps a better form of words could be used to communicate what happens next.
What wasn't part of the September talks was the 3-into-2 plant closure. To be fair to management this is actually necessary as it will reduce fixed costs (think in terms of having two paint shops rather than 3 for example). Again, though, quite how management will maintain employment is not clear.
The firm talks of a range of new models beyond the stunning XJ coming on stream this year (maybe even an open top 2-seater to set your pulses racing). That could help boost volumes to 300,000 and maintain midlands employment.
But we have no idea of what these models are, or the timescale, so it isn't yet clear if maintaining current employment post 2015 at two UK plants is possible. Of course, this is commercially sensitive but at least key stakeholders like the unions and local MPs should be in-the-loop on a confidential basis so that they can reassure workers and suppliers that this is do-able.
Whilst I agree with the thrust of what management is doing to re-focus the business, move it up market and cut costs, it needs to communicate better with the workforce and other stakeholders how it will get there and how jobs would be guaranteed. At the same time, workers probably need to realize that, sadly, some of these changes will be necessary.
Both sides will have to move a little if this great firm is to continue to rebuild after the recession.
Professor David Bailey works at Coventry University Business School.