March 10, 2009 - Ford Motor Company, Detroit MI

New labor pact gives Ford a big boost

U.A.W. Deal With Ford Cuts Hourly Rate to $55

New labor pact gives Ford a big boost

While General Motors Corp. and Chrysler LLC continued their dance with U.S. government overlords who control the flow of loans keeping the two Detroit automakers alive, Ford Motor Co. forged ahead Monday with a new labor pact that immediately begins saving Ford millions of dollars in precious cash.

UAW workers ratified a Ford deal that suspends cost-of-living payments, performance bonuses and Christmas bonuses right away.

And it slashes the payout to workers on long-term layoff by suspending the much-maligned jobs bank and capping supplemental unemployment benefit payments.

Ford's aim when it began talks in January to modify its 2007 labor contract was to reap immediate cash savings, because the plunge in global car and truck sales in mid-2008 caused a huge drop in revenues -- thus depleting the cash reserves of both Ford and GM by about $2 billion per month.

Ford lost $14.6 billion last year, but has not yet asked for direct federal rescue loans because it had a bigger cash cushion than GM or Chrysler when the downturn hit.

UAW and Ford officials aren't saying yet exactly how much money the new pact will save the company. But it's clear that savings will begin to kick in quickly, as opposed to the 2007 contract's historic shift of retiree health care costs to a union-run trust fund, which won't be phased in until 2010.

The fates of GM and Chrysler remain uncertain, meanwhile, as President Barack Obama's auto industry task force reviews the automakers' efforts to restructure and achieve viability by March 31, a condition of $17.4 billion in federal rescue loans first authorized by then-President George W. Bush in December.

Task force members visited Detroit and toured GM and Chrysler facilities Monday, but neither company has yet completed negotiations with the UAW or with bondholders to reduce cost and debt burdens.

And amid rising public concern about bank bailouts and auto industry rescue loans, it's unclear whether Obama's task force will recommend more loans to keep GM and Chrysler afloat, or propose Chapter 11 bankruptcy as the vehicle for fixing the companies.

The urgency surrounding the need for a decision by the task force is growing daily, because major auto suppliers such as Visteon Corp., the former components arm of Ford, are teetering on the edge of bankruptcy.

Vehicle production cutbacks by the automakers have pinched the flow of payments to suppliers, thereby putting parts makers in danger of defaulting on loan covenants.

When the Detroit Three auto company chief executive officers were being grilled by Congress last fall, the big question being asked was why Detroit couldn't compete better against foreign-owned brands.

But if GM and Chrysler don't get a verdict soon from the feds, they may find themselves left in the dust by Ford, too.

Original Story - Detroit Free Press

Update Story - March 12, 2009

U.A.W. Deal With Ford Cuts Hourly Rate to $55

Ford Motor said Wednesday that its new agreement with the United Automobile Workers union would save at least $500 million a year and, within several years, bring its labor costs into line with what foreign competitors pay their workers in the United States.

Ford said the deal, which U.A.W. members ratified this week, immediately reduces its “all-in” hourly rate, which includes benefits, to $55.

It said the figure would continue to shrink as more workers took buyouts and as the new-vehicle market recovered, allowing increased production.

Ford’s labor costs now amount to a little more than $60 an hour, including health care for retirees. Labor costs for the so-called transplant automakers, including Toyota and Honda, have been about $49 an hour in the United States and are rising, Ford estimates.

“This gets us within the ballpark of where the transplants are,” Joseph R. Hinrichs, Ford’s group vice president for global manufacturing and labor affairs, said. “With the buyouts and with the ability to leverage some of the other tools that are in this agreement, we think we can get there in the next couple of years, on parity with the transplants.”

That would be a watershed moment for the union, which fought for decades to ensure that its workers set the standard for pay and benefits in the auto industry.

“Wages are being set in Georgetown, not Detroit,” said Harley Shaiken, a labor expert at the University of California, Berkeley, referring to Toyota’s huge assembly plant in Georgetown, Ky., which the U.A.W. has not been able to organize.

“It was a very tough situation for everybody. The goal for the union was quite clear: survival,” he said, “though preserving core wages, health care and pensions is not a small feat in this environment.”

Ford is the only Detroit automaker not borrowing money from the federal government. General Motors and Chrysler have received $17.4 billion since December and want a total of $39 billion.

Both G.M.and Chrysler have reached concessionary deals with the U.A.W. on most issues but are still negotiating on retiree health care. A U.A.W. vice president, Cal Rapson, said in a letter to local union leaders that economic changes in the G.M. contract followed the pattern of the U.A.W.-Ford agreement but that in other aspects they were “drastically different.” A copy of the letter was posted on several union Web sites.

Mr. Hinrichs called the agreement, which was supported by 59 percent of U.A.W. members who voted in recent weeks, “critical to our future competitiveness.”

It suspends inflation-related pay increases and performance bonuses, allows Ford to save as much as $6.5 billion by substituting shares of its stock for the cash it must pay into a new retiree health care fund and eliminates the jobs bank, a controversial program that allowed workers to continue receiving nearly full pay after being laid off.

Now workers whose jobs are eliminated will receive less pay, for a shorter period, and will lose that benefit if they refuse to take a job that opens up anywhere in the country.

“The agreement we have in place today significantly reduces the cost of our excess labor pool and also caps that liability over time,” Mr. Hinrichs said.

Update Story - New York Times