Ford, UAW Agree on Labor Contract (F, GM, TM, HMC)

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Automaker Ford Motor Co. (NYSE: F) and the United Auto Workers (UAW) union have reached a tentative agreement on a new contract. The UAW reached a deal with General Motors Co. (NYSE: GM) last month and has an October 19th deadline in negotiations with Chrysler. The contracts could be called a ‘win-win’ for the automakers and the unions, but on balance the companies appear to have come out ahead.

Non-US automakers like Toyota Motors Corp. (NYSE: TM) and Honda Motor Co. (NYSE: HMC) with operations in the US do not employ union workers. Per worker costs between union and non-union plants are about equal, though, with Ford claiming total worker costs of about $58/hour, compared with GM’s cost of $56/hour and Chrysler’s cost of about $50/hour.

The union took a hit for the team back in 2007 and 2008, agreeing not to strike against GM or Chrysler and holding down wage and benefit demands. Now that the automakers are once again turning a profit, the union would like to see some sharing of the wealth.

What labor got in its tentative 4-year deal with Ford is a promise to hire 12,000 new workers by 2015. The new workers will receive a starting salary of around $14/hour, half the pay of senior workers. Of Ford’s 41,000 current employees only about 100 are receiving the lower pay.

If the Ford deal follows the deal reached with GM, new union hires will get a $5,000 sign-on bonus to take some of the sting out of the lower pay scale. GM is also offering $75,000 buyout packages to about 10,000 skilled workers. Employees nearing retirement age at GM can also take a $10,000 payout if the retire within 2 years so that GM can replace them with lower-paid workers.

The annual 1% rise in labor costs that GM won under the new contract is the lowest annual increase in some 40 years. It’s very likely that Ford’s deal will be roughly equal. If further evidence were needed that wages for hourly workers in the US were stagnating, this deal ought to provide it.

The union appears to have conceded the point that employed workers are better than unemployed workers and that lower pay is just the price that has to be paid for job security. The total new hiring at Ford and GM will add around 20,000 union jobs bringing total union membership up from the current 113,000 to about 120,000, without any estimate for additions at Chrysler. In 2003, UAW membership at the three automakers totaled 305,000, and in 2008 membership totaled 139,000. The new contracts don’t even bring employment totals back to the lousy 2008 levels. The only way these new contracts can be considered a win for the unions is if the deals are considered not to have lost union members much.

Ford’s shares have risen about 4% today, to $9.75, in a 52-week range of $9.05-$18.97. That low is a new 52-week low set early this morning. GM shares are also up about 2.6%, at $20.25 in a 52-week range of $19.05-$39.48. The low is also a new 52-week low for GM shares.

Paul Ausick

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