Autos

How Staying Solvent Could Hurt Ford


Ford Motor (F), the most profitable U.S. carmaker, has loudly trumpeted the fact that it was the only U.S. auto company to get through the Great Recession without help from Uncle Sam or a bankruptcy judge. It may discover that no good deed goes unpunished. Because Ford didn’t take a government bailout, it lacks two weapons rivals have: binding-arbitration clauses in its labor contracts and a ban on strikes. As the company begins contract talks with the United Auto Workers on July 29, Ford is in the industry’s most vulnerable position.

As part of U.S. government-backed bankruptcies in 2009, workers at General Motors (GM) and Chrysler Group agreed not to strike over wages and benefits during these contract talks. Ford’s union workers in 2009 went against their own leaders’ recommendation and rejected—by a vote of more than 70 percent—a round of concessions that included a strike ban and arbitration. That means Ford, which hasn’t had a nationwide walkout since 1977, today is the only U.S. automaker that faces the threat of a strike. Explains Kristin Dziczek, a labor analyst at the Center for Automotive Research: “Ratifying a deal at Ford is a bit more dicey than the other two because they’ve proven they’ll turn down an agreement.”

The UAW usually picks a car company to create a deal it uses as a template for the other two. This pattern of bargaining has long kept wages and benefits close to parity among the three automakers, which now employ about 113,000 U.S. hourly workers. However, with Dearborn (Mich.)-based Ford having earned $14.2 billion since 2008, including $4.9 billion in this year’s first half alone, its workers may balk at accepting any agreement built to suit less-flush rivals. “If either GM or Chrysler went to arbitration, the real question would then be whether the UAW could live with that agreement at Ford,” says Joel Cutcher-Gershenfeld, dean of the School of Labor and Employment Relations at the University of Illinois.

Ford’s 41,000 UAW workers are focused on getting back what they gave up during the recession. UAW President Bob King has said workers must be rewarded for the $7,000 to $30,000 in concessions they have given up since 2005 to help U.S. automakers survive. Job security is also at stake. Analysts say Ford may want to close three UAW plants, in Avon Lake, Ohio, St. Paul, Minn., and one near Detroit that it shares with Mazda Motor. The union wants to keep at least one of those open, but many members are focused on their own paychecks. “The average worker on the factory floor is saying, ‘I want my Christmas bonus back, and I want my cost-of-living increase back,’” says Brian Pannebecker, a hoist operator at Ford’s axle plant in Sterling Heights, Mich. “Ford should take the lead role in talks because we are not negotiating from a position of weakness.”

The negotiations could be tough, owing to worker resentment over increases in some managers’ pay. Ford in March rewarded Chief Executive Officer Alan Mulally with $56.6 million in stock for leading the automaker’s turnaround. And his 2010 compensation rose 48 percent, to $26.5 million. King has called Mulally’s stock award “morally wrong.”

Ford spokesman John Stoll says the automaker is seeking common ground with workers. “We have a strong relationship with the UAW,” he says. “We have a history of working collaboratively together to find solutions to critical issues, and we look forward to our discussions with them.”

Despite its financial rebound, Ford says it still needs to lower labor costs. The company says it spends $58 an hour to provide wages and benefits to UAW members, $8 more than the average labor costs at the mostly nonunion U.S. factories of foreign automakers such as Hyundai Motor and Toyota Motor (TM). Chrysler has said its hourly labor costs are about $50. Dziczek estimates GM’s hourly labor costs at $56. “We cannot continue to have a cost gap with the competition and still be able to make significant U.S. investment and create new jobs,” Ford says on fordahead.com, a website where it outlines its bargaining position. “We’ll need to focus on closing the gap.”

The bottom line: Ford has earned $14.2 billion since 2008. Its 41,000 UAW hourly workers may balk at a union accord built to suit less flush manufacturers

With Craig Trudell
Naughton is a reporter for Bloomberg News in Detroit.
Higgins is a reporter for Bloomberg News in Detroit.
David_welch
Welch is a reporter for Bloomberg News and Bloomberg Businessweek in Detroit.

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Companies Mentioned

  • F
    (Ford Motor Co)
    • $17.42 USD
    • 0.06
    • 0.34%
  • GM
    (General Motors Co)
    • $34.68 USD
    • -0.03
    • -0.09%
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