CAW Moving Closer to Labor Accord With Ford Motor

The Canadian Auto Workers is concentrating on negotiations with Ford Motor Co. as the union looks to reach a deal that will set the outlines for agreements with General Motors Co. and Chrysler Group LLC and avoid its first strike against a U.S.-based automaker in 16 years.

“We can clearly see the finish line, however we are not there yet,” Peter Kennedy, secretary-treasurer of the CAW, said today in a telephone interview from Toronto. “Even though you have conceptual agreements on some items, until you actually see the language and how it’s written up, you never know.”

Ford has relented on demands related to pensions, health care and permanently lower wages for new hires, CAW President Ken Lewenza said in an interview. The union is willing to extend the number of years needed to reach full hourly pay to 10 years, he said. A full deal can be reached before midnight, he said.

A month of discussions aimed at securing a deal for about 18,000 Canadian Auto Workers members has yet to produce an accord before the current contract expires at 11:59 p.m. local time today. The talks come a year after the CAW’s U.S. counterpart agreed to give up base wage increases in a bid to lower labor costs. Ford in July called Canadian labor costs the most expensive it faces in the world.

Chrysler and GM have been unwilling to compromise, Lewenza said said, adding that talks could be extended if the tone changes.

“Ford has sent a very strong message that the issues that remain outstanding are not insurmountable,” he said.

‘Better Relationship’

Lewenza said yesterday the union’s priority is bargaining with Ford. If the union reaches an accord, it will try to extend the basic terms to GM and Chrysler. The negotiations cover eight auto and engine plants in Ontario, where output has declined due to a rising Canadian dollar and a shift in work to the U.S. and Mexico.

“The CAW has long had a better relationship with Ford than with the other automakers, and this choice of the target company just cements that,” Charlotte Yates, a professor of labor studies at McMaster University in Hamilton, Ontario, said today in a telephone interview. “Ford has clearly signaled to the CAW that they are willing to move.”

‘Smallest Footprint’

Dearborn, Michigan-based Ford operates two engine plants in the Windsor region and an assembly plant in Oakville, near Toronto. The company employs about 4,500 people at its Canadian operations, compared with more than 8,000 each for GM (GM) and Chrysler.

Ford has “the smallest footprint in Canada and the least to lose by an unfavorable agreement,” Tony Faria, co-director of the Office of Automotive and Vehicle Research at the University of Windsor, Ontario, said in an e-mail. Ford “was the first to cave in during the 2008 CAW negotiations,” Faria said.

While carmakers seek to cut expenses, unions are refusing to go beyond concessions in the 2009 deal that were part of government-backed bankruptcies of GM and Chrysler.

CAW leaders say that their members’ contribution to the companies’ turnarounds must be recognized, and that they remain opposed to the so-called “two-tier” system wages negotiated in the U.S. The province’s car industry has shrunk by about a third since 2000, eliminating about 50,000 jobs, according to CAW estimates.

Ford’s Reaction

Ford is “confident” that it and the CAW “can find innovative solutions to help build a successful future for our Canadian operations,” according to a company statement issued yesterday.

“If Ford Motor Co. (F) has a desire to get a deal, our folks will get a deal,” Lewenza said yesterday in Toronto. Some agreements in principle with the company have already been reached, he said without elaborating.

Chrysler is “very concerned by the CAW decision,” LouAnn Gosselin, a spokeswoman for Chrysler Canada, said in an e-mail. Ford isn’t “in the best position to take on this role.” The e-mail cited Ford’s “significant reduction” in Canada. Ford closed a vehicle-assembly plant in Ontario last year.

GM was the last carmaker to be hit by a strike in Canada, in 1996. That walkout lasted 20 days, paralyzing the company’s Canadian operations and forcing layoffs at other North American plants.

“Chrysler’s nervous,” said Yates at McMaster University. Chrysler CEO Sergio Marchionne “has articulated some very hardline positions regarding two-tier wages. If Chrysler is wanting permanent two-tier wages, it is not going to be happy if Ford is chosen and gets a deal because it puts greater pressure on them.”

Loonie’s Surge

“Nobody wins in a strike,” Van Conway, chief executive officer of the Conway MacKenzie Inc. restructuring firm in Birmingham, Michigan, said in a telephone interview. “If the automakers make a strategic decision in the long run to exit Canada because they don’t want this to happen again, that would be the worst thing that could happen to the CAW.”

Car production in Canada has been hamstrung by an increase of about 60 percent in the Canadian dollar against its U.S. counterpart in the past 10 years that has made the country’s auto factories, all of which are in Ontario, less competitive globally.

The CAW in April proposed a national auto policy that included a call for the government to intervene to lower the value of the currency and to negotiate “manufacturing footprint commitments” with automakers.

Unemployment Rate

“Ontario’s unemployment rate is above the national average now, and one of the big reasons is that the auto industry hasn’t come back to its full potential of before the financial crisis,” said Hosen Marjaee, a senior managing director at Manulife Asset Management in Toronto, which oversees C$17 billion ($17 billion) of fixed-income assets and owns Ontario bonds.

Canada, which ranked as the world’s fourth-largest car producer in 1999, has slipped out of the top 10, the union said.

Current negotiations have seen the so-called Detroit Three make “unprecedented” demands, according to the CAW. Those include cuts in benefits, the elimination of an annual cost-of-living adjustment and the transfer of all workers to a defined-contribution retirement plan. GM, Ford and Auburn Hills, Michigan-based Chrysler also refuse to commit to new Canadian factory investments, the CAW said in a Sept. 10 leaflet. Fiat SpA (F) owns a majority of Chrysler.

‘Key Problem’

With the United Auto Workers “having negotiated freezes for a while, if that doesn’t happen in the Canadian context, or something similar, then that gap begins to widen with the U.S. and Mexico,” Carlos Gomes, an economist at Bank of Nova Scotia in Toronto, said in a telephone interview. “The key problem is not where we stand now, but if similar types of cost controls aren’t put in place then that gap will widen.”

Wages account for about 6 percent of the cost of making a car on average, according to data from the Center for Automotive Research in Ann Arbor, Michigan.

Ford pays $79 an hour for wages and benefits to its hourly workers in the country, Lauren More, a spokeswoman for the company, said last month. That labor rate is the highest Ford faces worldwide and compares with $64 an hour in the U.S., she said.

The CAW disputes Ford’s estimates, saying much of the gap relates to former employees. Without those so-called legacy costs, union labor runs a little more than C$62 an hour, compared with about C$60 for UAW members, Jim Stanford, the union’s economist, said earlier this year.

‘Philosophical Problem’

Carmakers “are determined to make sure autoworkers in the future are not paid what autoworkers have historically made in the industry,” Lewenza said yesterday. Companies want “to make sure a new autoworker never gets to the top rate. That’s a philosophical problem.”

Ontario has a lot riding on the outcome of the labor talks. Factories in Canada’s most populous province produced 1.42 million motor vehicles in the first seven months of 2012, almost 20 percent more than in the same period a year ago, Bank of Nova Scotia said in an Aug. 14 report. The province accounts for about 16 percent of North American auto output.

“Anything that holds back economic growth and employment is a serious concern,” said Manulife’s Marjaee. “Ontario cannot afford to have more people unemployed or on strike and less revenue coming in.”

Canada and Ontario spent a combined C$10.6 billion to acquire minority stakes in GM in 2009 when the Detroit-based automaker reorganized under bankruptcy protection with aid from the U.S. and Canadian governments.

Unemployment Rate

A monthlong strike by auto workers would cut Ontario’s gross domestic product by 1.4 percent, the biggest such drop since the global crisis of 2008-09, said Gomes. For Canada as a whole, the dispute would curb GDP by 0.6 percent, he said.

Unemployment in Ontario rose to 8 percent last month from 7.9 percent in July, exceeding the nation’s 7.3 percent rate.

“Even a one-week walkout could jeopardize Canada’s increasingly listless growth,” cutting September GDP by 0.25 percentage point and disrupting North American output and retail spending into the fourth quarter, Mark Hopkins, a senior economist at Moody’s Analytics, wrote in a Sept. 14 note to clients.

Shrinking market share may be adding to the Detroit Three’s urgency to drive costs down. Although Canadian car sales are on the rise, GM, Ford and Chrysler have been losing ground to Asian competitors such as Toyota Motor Corp. (7203) Cars made in Ontario include Chrysler minivans, the Chevrolet Camaro and the Lincoln MKT.

Car and light-truck sales in Canada climbed 6.7 percent in the first eight months of the year, according to data compiled by DesRosiers Automotive Consultants Inc. Sales advanced 6.4 percent in August compared with the same month a year earlier.

Together, the three U.S.-based automakers controlled about 45 percent of the Canadian market through the end of August, down from about 48 percent a year earlier, DesRosiers data show.

“It’s a different world now,” said Conway at Conway MacKenzie. “You’re no longer in an environment where North American car companies have 70 percent of the market. These car companies went to hell and back in 2008 and 2009, and they are going to be less tolerant on requests that are outdated.”

To contact the reporters on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net; Ari Altstedter in Toronto at aaltstedter@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Jamie Butters at jbutters@bloomberg.net

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