The new labor deal at Fiat Chrysler will hike some worker's pay to $28 an hour.
The United Auto Workers union reached the tentative deal minutes before 40,000 workers were set to go on strike Wednesday night.
It calls for a big pay hike for so-called tier-two workers that have been hired by Fiat Chrysler since 2007. They make up 45% of factory employees.
Under the current contract those workers earn between $17 to $24 an hour, while veteran autoworkers earn at least $28 an hour and get a pension as well as retiree health benefits.
The initial deal reached in September by the automaker and the union would have narrowed the wage gap, but would not have eliminated it. The union rejected that deal by nearly a two-to-one margin primarily because of the two-tier wage scale.
The new deal takes the tier two workers up to $28 an hour after seven years with the company, putting them on a more even footing with veterans.
Veteran workers will get their first raise in 10 years, a 3% raise immediately and another 3% in two years. They'll also get variety of bonuses and profit sharing payments.
Fiat Chrysler (FCAU) had no comment on terms of the new agreement, saying it would wait for the ratification process to take place.
The company had argued it needed to control costs, despite a sharp improvement in auto sales. Fiat Chrysler was formed in 2009 after Chrysler went through a bankruptcy and federal bailout at least partly caused by having higher labor costs than nonunion automakers.
While Fiat Chrysler CEO Sergio Marchionne had acknowledge that the two tiers couldn't continue long term, he also said that Fiat Chrysler is at a huge competitive disadvantage because it's so much smaller than other top automakers. He has even said publicly that the company may need to merge with a larger rival such as GM in order to survive.
