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Chrysler CEO Says Company's Two-Class Wage System Has To Go

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-- The head of Chrysler said Friday that the carmaker's two-class wage system has to go, potentially setting the stage for a fight over wages when all three U.S. automakers and their largest union head back to negotiating tables in 2015.

Sergio Marchionne said Chrysler eventually needs to transition to a one-wage structure and wants to make that happen in its next contract with the United Auto Workers union.

Marchionne said the current system creates two classes of workers, which as more bottom-tier workers are hired will only serve to divide the automaker's blue collar ranks. New workers in the bottom tier make about half as much money as longtime UAW members.

"When you've got this kind of economic disparity between people on the line, it's not something that can go on for a long period of time," Marchionne told analysts and reporters in a conference call following the release of Chrysler's quarterly results.

Currently, about 13 percent of Auburn Hills, Mich.-based Chrysler Group LLC's UAW workforce falls into the bottom wage tier and their numbers are expected to swell to about 25 percent of hourly workers by the time the automakers start up negotiations again four years from now, he said.

Marchionne didn't say how he would create the structure. But it's likely he'll try to reduce the pay of top-tier workers. General Motors Co. and Ford Motor Co. could follow suit, and pay could be cut for most of the UAW's 112,000 members.

The automaker wanted to negotiate a single-wage system as part of the contract approved by workers on Wednesday, but decided that it was more important to get a deal signed quickly, Marchionne said.

The four-year pact includes raises for bottom-tier workers.

Marchionne said the years leading up to the next round of negotiations should provide plenty of time to hash out some kind of a deal and added that he believes the union is open to the idea.

A UAW spokeswoman did not immediately return a call for comment.

Chrysler, which is now run by Italy's Fiat SpA, said Thursday that it earned $212 million for the third quarter, compared with a year-earlier loss. It was only the second time that Chrysler has turned a quarterly profit since 2006. Vehicle sales worldwide rose 24 percent, and revenue climbed 19 percent to $13.1 billion.

Separately, Marchionne said on a Fiat conference call Friday that he expects Chrysler and Fiat to formally combine by 2014, but that the form was still to be decided.

Fiat took over Chrysler in 2009 as part of a U.S. government-based deal that lifted Chrysler out of bankruptcy protection. Marchionne, who also leads Fiat, has been driving integration of the businesses ever since. He announced a new leadership structure in September.

On the product side, Fiat has launched the 500 small car in the United States and plans to build Fiat engines and relaunch the Alfa Romeo brand there. In Europe, Fiat has relaunched the Jeep brand, and will begin selling the Chrysler 300 and Town and Country minivan under the Lancia brand in November.

A combination of the two companies has always been expected, but the timing has never been clear. Once they do combine, executives will have to decide where the new company will be based, something that has been a politically hot topic in both the U.S. and Italy.

One key factor in deciding that will be where the new company will have the best opportunity to tap markets for financing, Marchionne said.

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Colleen Barry in Milan contributed to this report.

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