Bloomberg News

Ford Is Most Vulnerable Without Strike Ban as Union Talks Open

July 22, 2011

July 22 (Bloomberg) -- Ford Motor Co., the most profitable U.S. carmaker, heads into contract talks with the United Auto Workers next week in the worst position among the companies.

Because Ford didn’t take a government bailout, it lacks two weapons rivals have: binding arbitration and a ban on strikes.

As part of U.S.-backed bankruptcies in 2009, workers at General Motors Co. and Chrysler Group LLC agreed not to strike over wages and benefits during these contract talks and to take unsettled disputes from the bargaining table to arbitration. Workers at Ford went against the wishes of union leaders and rejected the strike ban and arbitration, so Ford is the only U.S. automaker that faces the threat of a strike.

“There’s no doubt that Ford would be better off if they had binding arbitration,” said Kristin Dziczek, a labor analyst at the Center for Automotive Research in Ann Arbor, Michigan. “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 union usually picks one automaker to create a deal it uses as a template with the other two. This pattern bargaining has kept wages and benefits close to parity among the three automakers, which now employ about 113,000 U.S. hourly workers.

This time, the parity could be disrupted: With Dearborn, Michigan-based Ford earning $9.3 billion in the last two years, workers there may hesitate to accept an agreement crafted at GM or Chrysler or by an arbitrator for those companies.

‘Difficult Circumstance’

“If either GM or Chrysler went to arbitration, the real question would then be whether the UAW could live with that agreement at Ford,” said Joel Cutcher-Gershenfeld, dean of the School of Labor and Employment Relations at the University of Illinois at Urbana-Champaign. “It won’t go to a strike at GM or Chrysler, so it really puts Ford in a very difficult circumstance.”

UAW President Bob King said the union’s legal staff “is focusing on the arbitration process because we have a responsibility to be prepared.” That’s not an option the union intends to invoke, he added.

“We don’t expect or want to go to arbitration,” King said in an e-mailed statement. “We’re focused on getting good contracts for our members.”

At Ford, UAW members are focused on getting back what they gave up. King has said workers must be rewarded for the $7,000 to $30,000 in concessions they each gave since 2005 to help the U.S. automakers survive.

‘Christmas Bonus’

“The average worker on the factory floor is saying, ‘I want my Christmas bonus back and I want my cost of living increase back’,” said Brian Pannebecker, a hoist operator at Ford’s axle plant in Sterling Heights, Michigan. “Ford should take the lead role in talks because we not negotiating from a position of weakness.”

Ford rewarded Chief Executive Officer Alan Mulally in March with $56.6 million in stock for leading the automaker’s turnaround. In addition, his 2010 compensation rose 48 percent to $26.5 million. King has called Mulally’s stock award “morally wrong” and “outrageous.”

Ford declined to elaborate on the lack of a no-strike clause.

“We have a strong relationship with the UAW,” John Stoll, a Ford spokesman, said in an e-mail. “We have a history of working collaboratively together to find solutions to critical issues and we look forward to our discussions with them.”

GM Difference

The threat of a strike at Ford, which hasn’t had a nationwide walkout since 1977, gives the union more strength at the bargaining table. Not having that weapon at GM and Chrysler will make those talks more challenging, UAW GM Vice President Joe Ashton told reporters in Flint, Michigan, July 18.

“It makes it more difficult,” said Ashton, who leads the union’s negotiations with GM. “It’s part of what the government decided on, and we’ll get through it.”

If GM and Chrysler take the lead and go to binding arbitration, their workers will not get to vote on that contract, Dziczek said. Ford’s 41,000 hourly workers would still have a ratification vote. In 2009, more than 70 percent of Ford workers rejected a second round of concessions that included the strike ban, which King had endorsed.

“The Ford membership not being where the UAW leadership is could really screw things up,” Dziczek said.

While Ford workers want to recover what they lost, the automaker still says it needs to lower its labor costs.

Cost Gap

Ford said on a website that 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 Co. 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 said on www.fordahead.com, where it details its bargaining position. “We’ll need to focus on closing the gap.”

An arbitrator might consider labor costs at the U.S. factories of Hyundai, Toyota Motor Corp. and Volkswagen AG, when determining wages and benefits for GM and Chrysler workers, Cutcher-Gershenfeld said.

“An arbitrator would likely award a fairly conservative package: You’re not going to get a massive wage” increase, he said. “It’s truly a roll of the dice.”

GM, Chrysler and the UAW have not yet defined how the arbitration process would work, said people familiar with their discussions who aren’t authorized to speak publicly.

Arbitration Options

Options include “baseball arbitration,” where an arbitrator or panel would choose the “last best offer” from one side or the other, said Christine Newhall, senior vice president with the American Arbitration Association. They also could go with “high-low arbitration,” where the arbitrator crafts a settlement between the two parties’ proposals.

Each side makes its case to the arbitrator in a style similar to a courtroom, with witnesses and documents presented by lawyers, she said. It can take months for the arbitrator to hear the case and reach a decision.

“For the average labor case to reach its final conclusion, it takes about eight or nine months, but some may take longer,” said Newhall, who is based in Boston. “Many cases that go to arbitration settle before a final reward is rendered.”

Patrick McDonald, who has arbitrated grievances between GM and the UAW for the last 10 years, said he’s noticed more cooperation between the automaker and the union recently.

‘Fewer Issues’

“Fewer issues arise between the parties,” said McDonald, who has resolved just two or three grievances at GM this year. “Sure they have their differences, but they don’t approach the other side as the enemy.”

McDonald, a former professor at Ave Maria School of Law, has been a professional arbitrator for 39 years. Besides GM, he said he has handled cases for Chrysler, Coca-Cola Co., PepsiCo Inc. and the Teamsters union, as well as airlines, universities, municipal governments and their unions. Reached at his Brighton, Michigan, office McDonald said he hasn’t been retained for the contract negotiations.

If GM and the UAW don’t have an agreement by the contract deadline, they would probably extend it before going to arbitration said Art Schwartz, a former GM labor negotiator and principal of Ann Arbor, Michigan-based consulting group Labor and Economics Associates.

“Arbitration is absolutely binding,” Schwartz said. “So you have to be careful what you wish for going in. I don’t know that anyone wants it because you lose control.”

--With assistance from John Lippert in Chicago and Joshua Armstrong in Flint, Michigan. Editors: Jamie Butters, Bill Koenig.

To contact the reporters on this story: Keith Naughton in Detroit at knaughton3@bloomberg.net; Tim Higgins in Southfield, Michigan at thiggins21@bloomberg.net; David Welch in Southfield, Michigan, at dwelch12@bloomberg.net.

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net.


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