Ford’s UAW contract will raise costs while easing labor strife

When auto workers went on strike in September, executives at major U.S. automakers warned that union demands would significantly undermine their ability to compete in a rapidly changing industry. Ford Motor’s chief executive said the company may have to cancel investments in electric vehicles.

The future doesn’t look bleak now that Ford and the United Automobile Workers union have reached a tentative deal that could serve as a template for deals with Ram, Jeep and maker General Motors and Stellar. Chrysler.

Ford’s costs will rise under the terms of the new deal, which includes a 25 percent raise over four-and-a-half years, improved pension benefits and other provisions. The extra spending could weigh on profits and hinder Ford’s ability to invest in new technology, the company’s Chief Financial Officer John Lawler said Thursday.

But some analysts said the increases were manageable. Crucial to the company’s prospects, they said, is how innovative and efficient the company is at designing and manufacturing cars and technology that can compete with Tesla’s offerings, which dominate the auto industry’s fastest-growing line of electric vehicles.

“They don’t agree to anything that kills their competitiveness,” said Joshua Murray, an associate professor at Vanderbilt University. Thread Examines how American automakers lost ground to Japanese and European competitors. The deal could even help Ford, he said, because the four-year contract ensures there will be no labor disputes during the transition to electric vehicles.

“They don’t engage in labor conflict when they deal with” technological change, Mr. Murray said.

Ford said Thursday it earned $1.2 billion from July to September on revenue of $44 billion; The company lost $827 million in the third quarter of 2022. But the division that makes electric vehicles lost $1.3 billion as investments in new technology and rising competition cut prices.

About 17,000 striking Ford workers, out of a total of 57,000 UAW workers at the company, are expected to begin returning to factories soon. Wayne, Mich., across the street from the Ford plant, one of the first three factories struck by the UAW. At UAW Local 900 in , workers disposed of signs, firewood and bottled water that had been stockpiled for picket lines.

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“This is the best deal I’ve ever seen in my 30 years with Ford,” said Robert Carter, 49, who works with engineers setting up workstations on the assembly line. He said younger workers earning below the top wage of $32 an hour would see the biggest impact from the new contract; Over the next four and a half years, their wages will rise to more than $40 an hour.

“For some, their wages almost double,” he said. “How can you say it’s not big?”

Wall Street’s reaction suggested investors did not view the deal as a disaster. The carmaker’s shares fell 1.7 percent during regular trading on Thursday.

But Ford shares fell nearly 5 percent in trading after the company said profit before interest costs and taxes would be between $11 billion and $12 billion because of the cost of the strike. 2023. The strike will cost the company $1.3 billion this year and Mr. Lawler said.

Analysts at Barclays estimated the new union deal’s annual wage increases, improved pension benefits and other measures would be worth between $1 billion and $2 billion a year, or about 1 percent of sales, by the end of the four-year contract period.

Mr. Lawler said in a conference call that the deal would increase the company’s labor costs by an average of $850 to $900 per vehicle. In light of those higher labor costs, he said, Ford will try to “find efficiencies and improve productivity to help us achieve our goals.”

Some analysts have criticized the deal with the UAW, saying the price could put Ford at a significant disadvantage, perhaps prompting the company to move more production to Mexico.

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“It adds a barrier in a very competitive market,” said Jonathan Smoak, chief economist at Cox Automotive. “It’s certainly a compromise that, down the road, will either reduce Ford’s performance or force them to consider alternatives.”

During the contentious negotiations, Ford complained that a big pay raise for workers would push Tesla further back in the electric vehicle market. Sales of Ford’s two main battery-powered models, the F-150 Lightning truck and the Mustang Mach-E sport-utility vehicle, have disappointed this year, and the company recently scaled back plans to increase production of the Lightning.

“There is tremendous downward pressure on EV prices,” Mr. Lawler said.

But Tesla and other automakers such as Toyota, Hyundai, Nissan and Honda, whose factories do not have unions in the U.S., now face pressure to raise wages and lose any cost advantage they may have had.

The UAW has announced its intention to try to organize those factories. The wage deal with Ford represents the biggest boost in compensation the union has won in decades, and will be a powerful advertisement for collective bargaining.

“It’s good that Elon Musk is looking at this,” said Madeline Janis, executive director of Jobs to Move America, an advocacy group with close ties to organized labor. “Hyundai and Toyota would do well to see this. This is a new era of workers standing up.”

Tesla, Mr. Musk’s company and other carmakers such as BMW, Mercedes-Benz and Volkswagen, which do not have unionized workers in the U.S., may decide to offer early pay to avoid labor organizers.

“One strategy to prevent unionization is to raise wages,” said Rebecca Collins Giwan, associate professor of labor studies and employment relations at Rutgers University.

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The ability of Ford, GM and Stellandis to produce innovative products will be a decisive factor in the electric vehicle market, Ms. Given and others said. That is the responsibility of management, not assembly line workers.

“It’s clear that these companies have work to do in the electric vehicle market,” Ms Given said. “There is nothing in this agreement that creates sanctions.”

In addition to a 25 percent pay raise, the contract gives Ford’s hourly workers cost-of-living wage adjustments, major gains in pensions and job security, and the right to strike over plant closings. The union initially asked for a 40 percent wage hike.

Ford has yet to set dates for restarting plants shut down by the strike. The company previously said it could take up to four weeks to reach full production. Ford needs about 600 suppliers to resume production and supply parts.

“It’s a lot harder to bring a plant back up than it is to take it down,” Bryce Currie, vice president of Americas manufacturing at Ford, said this month.

Workers at the Wayne plant that makes the Ranger pickup and Bronco sport-utility vehicle did not receive return-to-work orders Thursday, but they expected to be back on the assembly line next week.

Walter Robinson, 57, has worked at the Wayne plant for 34 years and expects to retire at the end of the new contract. But he said his three children work at Ford and will see a big benefit from the new regulations.

“My daughter has only been here for two years and it will be years before she gets a higher salary,” he said. “It’s going to help her a lot. It’s going to change all of their lives for the better.

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