Industrial relations at FIAT: Dr Marchionne’s class war

This article was published by ~Transfer: European Review of Labour and Research, on April 18, 2011

In 2010 FIAT’s CEO Sergio Marchionne adopted an antagonistic industrial relations strategy towards his employees, first in June at the Pomigliano d’Arco plant in southern Italy, then in December at the Mirafiori plant in Turin (the historic factory where FIAT was born a century ago, and at one time the biggest car factory in Europe). A Draft Agreement was put to all unions for signature – effectively a unilateral declaration, for it was not a negotiable document but a take it-or leave-it ultimatum – then to be submitted by a referendum to all employees. It stipulated that either FIAT employees accepted greater internal flexibility, duration and intensity of work, or FIAT would invest an envisaged €20bn elsewhere, notably in Serbia and in Canada.

At Pomigliano a workers’ referendum endorsed the deal by an overwhelming majority of 63 percent which, however, was judged as inadequate by Marchionne. At the Turin Mirafiori plant on 29 December FIAT signed an agreement with all unions (Fim, Uilm and Fimsic) with the exception of the traditionally more militant FIOM-CGIL (which represents the majority of metalworkers at the national level). On 13–14 January 2011 a referendum took place, FIAT’s investments having been declared conditional on a 51 percent majority endorsement. In the end, out of the 5 100 workers at Mirafiori, 96.4 percent voted in the referendum. The agreement was approved by 54 percent of voters. However, the majority of blue-collar workers voted against the agreement, while the 450 white-collar, including middle management, voted Yes almost unanimously, tipping the balance: without white-collar support the 51 percent target would have been missed by 41 votes.

The greater internal flexibility in labour deployment, and the acceleration and prolongation of working time involved in the deal were:
1) a shortening by 10 minutes per day of work pauses (three 10 minute pauses instead of two 15 and one 10 minute pauses) compensated by €0.1877 per worked hour or roughly €45 per month;
2) the postponement of the 30 minutes meal break to the end of the shift;
3) loss of illness allowance for a period of ‘anomalous absenteeism’ to be assessed case by case by a joint committee; 4) up to 18  8-hour shifts over six working days;
5) up to 120 hours overtime work per year without having to negotiate with the unions, plus another 80 hours with union agreement;
6) in the event of strikes or other breaches of contract FIAT would not be liable to honour union permits and payments.

Berlusconi’s government did not intervene in this affair, other than by the incorrigible premier’s public statement that, in the event of the Mirafiori referendum rejecting the deal, FIAT would be fully justified in leaving the country – displaying not just the lack of an industrial policy but a remarkably self-destructive attitude to Italy’s industrial well-being. The former communist leader Piero Fassino –candidate as mayor for FIAT’s headquarters’ city, Turin – stated that were he a FIAT employee he would support the proposed deal and vote Yes in the referendum. Most other Democratic Party politicians took no position, few dissented: thus Marchionne succeeded in splitting not only the unions but also the main opposition party.

Yet there was a widespread feeling that FIAT employees were being subjected to blackmail. This was the case even though FIAT’s strategy was widely interpreted as the necessary consequence of globalization and worldwide competition in the labour market; before committing large-scale funds for investment in new plant, FIAT naturally would want to verify beforehand whether the necessary conditions for its success were satisfied. In a sense the Mirafiori vote could be regarded as an optimal result: FIAT won the day, FIOM and the more militant workers obtained a moral victory, jobs would be protected and expanded instead of being lost to delocalization. But a lot of bitterness remained, not least because the idiosyncrasies of Italian labour laws meant the effective disenfranchisement of FIOM within FIAT as a consequence of it not having signed the proposed agreement.

Clearly globalization, through the intense and growing competition in the world’s labour markets, is what has made possible the strategy adopted by FIAT’s Marchionne. Labour migration and production delocalization are the more spectacular forms of such intensified competition, but trade liberalization is its most important quantitative manifestation. This is best illustrated by the growth of the export-weighted world labour force, by over 250 percent in 1980–2005, relative to an unweighted labour force growth of 70 percent. This is what in 1985–2005 lowered by 10 points the average share of labour income in GDP in advanced countries, from 65 percent to 55 percent (see IMF World Economic Outlook, June 2007) – a trend that has continued to date except for a small rise in wage shares in 2009 due to the temporary fall in profits in the recession. Even if existing factories stayed where they are for ever, new production would naturally follow the logic of global comparative advantage. This is what allows FIAT to give such a blunt ultimatum to its workers: take it or leave it, don’t even think you can negotiate anything else.

But the possibility of such strategy should not be confused with its necessity as an inescapable consequence of globalization. There are clear indications that the concessions demanded by FIAT will have very little impact on its global competitiveness. Marchionne is neither a modernizer nor a globalizer, he is a throwback from the 1950s. He is an opportunist who has turned a current strong – cyclical and structural – bargaining advantage into what he perceives as an established and consolidated bargaining supremacy vis-a`-vis his employees. This strategy is enhanced by keeping open the permanent credible threat of FIAT’s disengagement from Italy, in favour of possible developments not only in Brazil (where FIAT already has its largest plant, at Betim), and in eastern Europe (Poland, Serbia) with a possible partnership with Russia.

Italian industrialist Carlo De Benedetti, Honorary President of CIR (Compagnie Industriali Riunite) said that Marchionne’s rescue of FIAT does not mean that the industrial relations model envisaged by him for Mirafiori is the winning model. ‘I do not believe’, he said, ‘that that model is the most desirable for the larger part of enterprises in our country.’ There should be better ways of raising profitability than a counterproductive confrontation in industrial relations, for example, through investment, innovation and new models.

Some aspects of the proposed deal are very disquieting. The proposal has not been discussed at all beforehand, even within those unions that have supported it and signed it. Such referendums, overriding union leadership, are unprecedented so that there are no set rules: at Pomigliano a Yes vote of over 60 percent was regarded as insufficient, at Mirafiori Marchionne demanded only ‘over 51 percent’. The loss by FIOM members of their right to union representation as a result of FIOM not signing the deal could be rectified easily by either government decree or by an additional provision 252 Transfer 17(2) Downloaded from at SAGE Publications on June 8, 2011 in the agreement with FIAT, but neither Italy’s weak, absentee government nor FIAT have taken the initiative, in spite of protestations by several unions and politicians and not just by FIOM.

The threat of losing union representation posed additional and improper pressure on FIOM members. The Italian Constitution guarantees trade unions both representation in all enterprises and the right to strike. A worker interviewed before the vote, asked about the content of the agreement signed by the majority of the unions, replied: ‘It’s crap’ but added quickly, about his voting intentions: ‘I have family and children. I am going to vote against my conscience [contro-coscienza]: I will vote Yes’. A vote in such a referendum is not necessarily a reflection of political stance or belief, but of family circumstances and wealth.

Were I a FIAT employee, faced with the brutal alternative between unemployment and a worsening of my labour conditions I too might well vote Yes in the referendum. This does not imply that the deal is in FIAT’s best interests, that it is necessarily superior to other deals obtainable after negotiation, or that its political/social implications both within and without FIAT are desirable, especially in the long term. The deal marks the end of collective bargaining – which is, among other things, an integral part of the European social model – and marks the re-emergence of enterprise-level bargaining outside small- and medium-sized firms. FIAT has had to leave the Confederation of Italian Industries in order to replace the current collective contract, but metalworkers could also be moved to the new contract in other enterprises that followed FIAT’s example. The crucial question is whether greater internal flexibility of labour deployment, and prolongation and intensification of work, can solve all of FIAT’s problems and miraculously restore competitiveness in a sector affected by worldwide overcapacity of supply and reduction of demand (see a letter endorsed by 146 Italian economists on the subject, on the Sbilanciamoci website).

1  A major problem is that FIAT’s so-called ‘Fabbrica Italia’ project does not really guarantee FIAT’s employees anything at all. The €20bn investment ‘envisaged’ exists only in the vaguest and most nebulous industrial plan not worth the paper on which it is not written. The first billion will be put up by FIAT and by Chrysler, in proportion to respective production volumes. The rest is spread over 2011–2014 in an unspecified time pattern. To which should be added the cost of FIAT’s announced increase in its Chrysler shareholding stake to 60 percent before the end of 2011. Greater guarantees of investment and employment prospects should have been offered and demanded, particularly as Marchionne’s record in keeping promises is not outstanding.On 26 March 2010 he told FIAT shareholders that: ‘In 2010 investment programmes in all sections would go back to the usual levels, with an increase of 30 percent to 35 percent with respect to 2009’. In the first nine months investment rose by only 7.3 percent.

2. The new contract would be signed with a new company, a joint venture with Chrysler. As is always the case with multinational companies, including joint ventures, the distribution of profits between FIAT and Chrysler would depend on transfer prices of components between the two partners. The criteria for such distribution have not been remotely considered by the parties, or even raised by the unions.

3. Domestic labour costs represent only something like 6 to 7 percent of the value of FIAT’s products.

4. In 2009 FIAT produced 650 000 cars in Italy, barely a third of those produced in 1990, compared to a planned 2 million and to the stability and growth of quantities produced in the major European countries. The stated intention of more than doubling output seems over-optimistic.

5.  FIAT spends on productive investments, and on research & development, shares of turnover that are significantly lower than those of its main European competitors, and it is not active in the development of low environmental impact alternatives. European competitors of FIAT, like Volkswagen, have responded to crisis by reducing working hours while protecting wages and employment.

6. While in 2004–2008 FIAT recovered from a very serious crisis and developed a few models, in the last two years FIAT has not introduced any new models, indeed it has made significant savings from cancelling the development of new models. Its market share in Europe has fallen to 6.7 percent, the largest drop in car output shares in Europe in 2010.

7. In 2010 FIAT shares rose by 90 percent, beating all competitors, helped by the recent split of FIAT Industrial from the rest of the company involved in car production. In the third quarter of 2010 FIAT was first in the Italian stock exchange in terms of shareholder value, with a 33 percent return on capital.

8. In spite of the rhetoric depicting FIAT as an enterprise ‘capable of standing on its own two feet in the market’, from the end of the 1980s until the early 2000s FIAT has enjoyed public subsidies of the order of €500m per year. It may well be that FIAT should have been given further subsidies to deal with the crisis by the Italian government, or at least that Marchionne, in FIAT’s best interests, should have asked.

9. Over the last 10 years FIAT global employment in car production has fallen from 74 000 to 54 000 units, of which only 22 000 are in Italian factories. Employees have average skill levels lower than those of FIAT’s competitors, and amongst the lowest wages in the sector in Europe.

10. Chrysler’s workers can constrain Marchionne as shareholders through their pension funds; many of his competitors are more successful than FIAT while sharing profits with employees and giving them seats in the company’s supervisory board (Mitbestimmung). Marchionne suggested some employee participation in profit only immediately after the referendum – not before, in a stipulation that should have been written into the agreement.

11. Absenteeism may be slightly above average at FIAT, but standard checks exist to detect and deter it. It is not necessary to impose generalized punitive penalties on all absences.

12. In 2004–2009 Dr Marchionne earned €36.6m, including the accumulation of his deferred pay, i.e. €6.3m a year. Plus 4 million options and free shares, worth €69.8mn on 7 January 2011, which will have appreciated further already since then. This brings his yearly income to €38.8m a year (see Massimo Mucchetti, ‘Marchionne e lo stipendio del dipendente FIAT’, Corriere della Sera, 9 January 2011), which corresponds to 1 037 times the average yearly cost of Italian metalworkers’ labour over the same period. This of course does not matter for the plausibility of FIAT’s industrial policy stance but certainly is not an irrelevant consideration in providing a perspective for the average FIAT metalworker, whether or not he or she is a FIOM member.

(Funding The preparation of this article received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors. Domenico Mario Nuti Economics Faculty, Sapienza University of Rome)

D. Mario Nuti

Professor Emeritus, Sapienza University of Rome. Member of the Editorial Board of INSIGHT -
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