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The Association of U S West Retirees
 

 

 

Ford and UAW Reach Tentative Agreement
By Mike Spector and Jeffrey McCracken
The Wall Street Journal
Saturday, November 3, 2007

Ford Motor Co. and the United Auto Workers union reached a tentative agreement on a new contract after more than 40 hours of marathon negotiations over the past two days.

The new four-year pact, reached at 3:20 a.m. Saturday, followed the pattern of deals ratified by workers at General Motors Corp. and Chrysler LLC in that it will allow Ford to offload billions in retiree health-care obligations off its books to a union-run trust fund, known as a voluntary employees' beneficiary association, or VEBA, Ford said.  Ford's retiree health-care obligation is believed to be about $23 billion. The VEBA would likely become operative in 2010 if it follows the same pattern as those established at GM and Chrysler.

The contract, which covers about 54,000 represented employees, would also likely allow Ford to pay a host of so-called non-core workers a lower, second-tier wage, though that and other specific details were not available early Saturday morning.

Those concessions could free up resources for Ford to reverse losses in its core North American operations and return to profitability by 2009, a linchpin goal of its accelerated restructuring plan.

The latest contract negotiations were smoother than those between the union and Detroit's other auto makers.  Unlike previous negotiations with GM and Chrysler, the UAW didn't set a strike deadline with Ford.  Workers at GM and Chrysler walked off the job after strike deadlines expired during their talks, but GM's strike lasted only two days and Chrysler's just a few hours before deals were reached.

Neither Ford nor the UAW provided further details on their tentative pact.  Bob King, the UAW's lead Ford negotiator, said in a statement that the agreement "made progress" to "win new product and investment, to enhance job security and protect seniority."

"Our bargaining committee came through for our active and retired members," said UAW President Ron Gettelfinger, in a statement.  "Our team is proud of each and every negotiator because they have encouraged Ford to invest in product and people while addressing the economic needs of our active and retired members."

The union will share pertinent details of the tentative pact with local UAW leaders soon but did not give details about when such a meeting will occur.  A simply majority of Ford's union workers must approve the contract for it to be ratified.

Joe Laymon, Ford's human resources and labor affairs chief, said in a statement that the tentative deal is "fair to our employees and retirees, and paves the way for Ford to increase its competitiveness in the United States."

Ford, which posted a record $12.6 billion loss last year, is widely viewed as the sickest of Detroit's auto giants and people familiar with the negotiations said the auto maker wanted to contribute less cash upfront to a union-run trust.  In return, Ford was mulling keeping open one or two unionized plants it had intended to shutter as part of its restructuring, these people said.

If ratified, the deal would complete a historic round of contract negotiations that has transformed the business model for the domestic auto industry.  Leaders of Detroit's unionized workforce conceded as untenable the competitive cost disadvantage between their domestic auto makers and Asian rivals such as Toyota Motor Corp.  The upshot is the UAW has now taken on the role of an investor, shouldering the bulk of responsibility for shepherding a large chunk of health-care obligations for its retired members.

In addition, the union departed from a long-held tenet of equal pay for equal work dating back to famed union boss Walter Reuther.  Detroit's auto makers will now be allowed to pay so-called non-core workers, who do jobs off the assembly line such as material handling, a second-tier wage and benefit package that is about half that of production workers.

The landmark concessions come during continued struggles at Detroit's auto companies, which have suffered sales declines and market share losses amid the slowing economy and relentless competition from foreign car makers.  At one point, the collective market share of Detroit's three auto titans dipped below 50% for the first time in history.

Auto makers have signaled they plan to move quickly to take advantage of their new labor pacts in an effort to return to profitability.  GM recently cut shifts at three of its plants, laying off nearly 3,000 workers while Chrysler under new ownership by private-equity firm Cerberus Capital Management LP just announced a plan to eliminate shifts at several North American plants, slashing upwards of 10,000 jobs.

Ford, too, is looking to further cut costs, according to people familiar with the matter.  For Ford, the move includes an effort to trim 2008 budgets and spending by up to 15% in some departments, people familiar with the matter said, though it was unclear how the cuts would be implemented.

In an effort to stay on track to hit a target of $5 billion in operating cost reductions by the end of 2008, Ford is cutting budgets in areas such as sales, marketing and perhaps engineering, Ford officials familiar with the matter said.  Also, employee benefit plans will be modified and unfilled jobs eliminated to further cut spending, these people said.  Ford is also battling to cut net materials costs amid price spikes for commodities such as steel and oil.

UAW leaders will now turn their attention to winning ratification of their newly negotiated contract with Ford.  A ratification vote by Chrysler workers faced stiff resistance but eventually passed.  It was unclear how Ford workers might react to a similar pact, though local union officials in recent days expressed sympathy for the auto maker's dire financial plight and were anxious to get an agreement passed.  Still, certain details of the agreement could sway influential local union leaders one way or the other.

The recent swift actions by GM and Chrysler to reduce plant shifts could unnerve Ford workers, who might expect Ford to do the same after a deal is ratified.  Another key metric:  Ford reports its third-quarter earnings Thursday, which could further color union workers' views on the company's most current financial health.

In addition, Ford has secured many plant-specific cost reductions at its factories, known as competitive operating agreements.  Those earlier concessions could play a role in how Ford's workers view further givebacks.

Ford turned a profit the first half of this year, boosted in part by one-time items such as the sale of its Aston Martin luxury brand.  The auto maker remains unprofitable in its core North American market.

Write to Mike Spector at mike.spector@wsj.com and Jeffrey McCracken at jeff.mccracken@wsj.com

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