UAW Turns to Ford to Negotiate After Extending Its Contract With Chrysler

The United Auto Workers will shift to bargaining with Ford Motor Co. (F), an automaker it can strike, after extending its contract with Chrysler Group LLC.

The union will “focus its attention on Ford” while continuing to negotiate with Chrysler, Michele Martin, a spokeswoman for the Detroit-based UAW, said yesterday in an e- mailed statement. The union, which reached a tentative agreement Sept. 16 with General Motors Co. (GM) after two extra days of bargaining, would not comment further, she said.

UAW President Bob King, 65, has said a pay package Ford awarded to Chief Executive Officer Alan Mulally, 66, earlier this year makes it more difficult to get member support for a deal with the automaker. Ford has said its hourly labor costs are higher than those of GM and Chrysler.

“It certainly has the potential for conflict,” said Robert W. Clark, a former Ford labor negotiator and president of RWC Consulting LLC. “There’s nothing in it for Ford to get their costs pushed further out of line with competitors, and nothing in it for the UAW to take them to brink. The old notion of brinksmanship doesn’t seem to make much sense in this case.”

The union agreed to no-strike pledges at Chrysler and Detroit-based GM as part of the automakers’ U.S.-backed bankruptcies in 2009. UAW members at Dearborn, Michigan-based Ford, which didn’t seek protection from creditors or receive a U.S. bailout, rejected a strike ban.

Chrysler and the UAW, having extended their labor agreement one week already, lengthened the contract by as much as four more weeks.

Marchionne’s Criticism

Chrysler’s 2007 contract with the union was stretched through Oct. 19, the company said in an e-mail. Chief Executive Officer Sergio Marchionne criticized King in a Sept. 14 letter, saying he was ready to complete negotiations while the union president had “competing engagements.”

Marchionne met King yesterday before the talks were extended again, two people familiar with the negotiations said.

“The derailing at Chrysler was a surprise, but hardly a shock,” said Harley Shaiken, a labor professor at University of California at Berkeley. “The union strategically felt an alternate route would be to everyone’s advantage, so they took the Ford exit.”

Ford has said it has the highest labor costs of the three U.S. automakers, at $58 an hour including benefits. GM’s labor costs are $56 an hour, according to the Center for Automotive Research in Ann Arbor. Chrysler has said its labor costs are about $50 an hour.

Ford, UAW Gear Up

“We look forward to working with the UAW on a new agreement that is fair to our employees and makes Ford more competitive,” Marcey Evans, a Ford spokeswoman, said in an e- mail yesterday. “It’s too early in the process to know” if Ford can follow the pattern on wages and benefits set in the UAW’s tentative agreement with GM, she said.

Ford and the union agreed Sept. 13 to extend the contract while negotiations continue.

“I can tell you that our negotiators have already been working hard,” Jimmy Settles, vice president of the UAW’s Ford Department, said in a posting on the union’s Facebook page.

Ford rewarded 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 called Mulally’s compensation “excessive” and “outrageous” in a July interview with Bloomberg Television.

‘Little Bit Extra’

“That’s a very real problem for the UAW’s leadership in trying to get ratification,” Clark, who negotiated national agreements for Ford for more than 30 years before retiring in 2002, said yesterday in a telephone interview. “If the membership at Ford is more restive and more irritated, they may be looking for the icing on the cake, the little bit extra. That’s going to be very tough for Ford to manage given the labor cost differential and disadvantage they already have.”

Workers at Ford have filed an “equality of sacrifice” grievance against the automaker after salaried workers received raises, tuition assistance and 401(k) matches last year. An arbitration hearing on that dispute began Sept. 15.

The UAW traditionally reaches a labor agreement with GM, Chrysler or Ford and then uses it as a template for a deal with the other two. The union is seeking new contracts this year to replace accords reached in 2007 that established two tiers of wages, with new hires getting less than senior workers.

Moody’s Reviews GM

Moody’s Investors Service is reviewing GM’s credit rating for a possible upgrade, the New York-based company said today in a statement. Moody’s cited the pending resolution of GM’s new contract, which at first view is “constructive” and could preserve its competitiveness, said Bruce Clark, an analyst for the ratings company.

“A lot of the costs associated with the agreement are variable,” Clark said in a phone interview. “It’s very important that this industry has moved away from, and never goes back to, this very high fixed-cost structure.”

GM has a corporate family rating of Ba2 from Moody’s, or two levels below investment grade. Standard & Poor’s rates GM BB-, three levels below.

GM fell $1.04, or 4.9 percent, to $20.24 at 4 p.m. in New York Stock Exchange composite trading. Ford slid 35 cents to $9.62.

The GM agreement calls for boosting starting pay of entry- level workers to at least $14.78 an hour from $14. That wage rises to as much as $19.28 an hour by 2015 from a previous maximum of $16.23. The UAW-GM agreement is now subject to a ratification vote by union members.

Signing Bonuses

The GM agreement also includes a signing bonus of $5,000 for each union member. Chrysler had balked at signing bonuses that high, wanting its bonus to be about $3,500, according to two people familiar with the discussions, who asked not to be identified because the negotiations are private.

A raise for entry-level workers would be more costly at Fiat SpA-controlled Chrysler compared with GM or Ford. Chrysler, with about 25,500 UAW-represented employees, has said it has at least 12 percent of its workers at the entry-level rate while the rest are senior workers who are paid about twice as much.

Ford has fewer than 100 out of 41,000 UAW members receiving the lower wage rate, according to Evans, the company spokeswoman. About 4 percent of GM’s U.S. hourly workers are paid the entry-level wage, according to the UAW.

Buyout Packages

GM, under its new labor agreement, will offer buyout packages worth as much as $75,000 to its roughly 10,000 skilled- trades workers, the UAW said in a Sept. 20 briefing with reporters. Other employees eligible to retire can take $10,000 to stop working within two years so that GM can replace them with new hires at the lower wage rate.

Chrysler, after a net loss of $652 million last year, aims to turn its first annual profit this year of $200 million to $500 million, excluding certain costs. It reported a first- quarter net profit of $116 million and a $370 million loss in the second quarter, including losses from paying off U.S. and Canadian government loans early.

Ford has not had a national strike since 1977. “At Ford, a deal is possible and a strike is unlikely,” Shaiken said. “But that is a factor that’s out there.”

To contact the reporters on this story: Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net; Craig Trudell in Southfield, Michigan at ctrudell1@bloomberg.net; Tim Higgins in Southfield, Michigan at thiggins21@bloomberg.net

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

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