Ford Vote Switch Avoids Strike While Adding Jobs: Cars

UAW President Bob King and Ford President Alan Mulally
United Auto Workers (UAW) president Bob King, left, shakes hands with Ford Motor Co. president Alan Mulally. Photo: Jeff Kowalsky/Bloomberg

Ford Motor Co. may have dodged its first nationwide strike in 35 years and secured labor peace while the United Auto Workers adds thousands of new members.

UAW members at Ford went from voting 53 percent against the proposed contract on the morning of Oct. 14 to 63 percent in favor by at 8:18 p.m. today New York time. The union said 15,862 members at Ford had cast ballots in favor of the labor deal while 9,375 voted against. Ford’s 40,600 U.S. hourly workers will conclude balloting tomorrow.

The latest voting results “improve the likelihood of passage, as remaining plants would have to be over 80 percent opposed,” said Brian Johnson, an analyst at Barclays Capital. “Contract ratification now looks likely -- opening up the way to a potential rating agency upgrade and dividend.”

Ford fell 1.4 percent to $11.40 at the close in New York.

The UAW was preparing for its first national strike at Ford since 1976. It would have cost Ford $273 million a day in lost revenue and $71 million in daily variable profit, Johnson said. Even bigger, he said, would have been the loss of reputation for failing to reinvent U.S. auto competitiveness. Workers at General Motors Co. ratified their new accord last month.

“I was surprised there wasn’t a negative reaction to Ford and GM’s rich contracts, but instead investors saw them as part of a bright new day in Detroit,” said Johnson, who estimates the deal will add $70 million annually to Ford’s labor costs. “Ford still has the highest per hour cost, as Chrysler started lower and GM likely benefits from greater skilled trades attrition.”

‘Job Security’

Ford workers initially saw the contract as not nearly rich enough, said Gary Walkowicz, a union official with UAW Local 600 in Dearborn, Michigan, who led a “Vote No” campaign. They were angry it didn’t include raises for senior workers or restore cost-of-living pay increases members gave up to help the Dearborn-based automaker survive, he said.

Ford’s offer of 12,000 new jobs, $6.2 billion in factory upgrades and work brought in from Mexico and Asia appears to have won over the majority of workers, said Harley Shaiken, labor professor at the University of California at Berkeley.

“Sure you have workers who are angry and wish they could have gotten more,” Shaiken said. “But what had been underestimated is how the jobs created in this contract reinforce the job security of existing workers.”

Focus on Jobs

UAW President Bob King made the centerpiece of UAW contracts this year the jobs they create, including 6,400 at GM and 2,100 at Chrysler Group LLC. Union leaders have said they expect voting at Fiat SpA-controlled Chrysler’s to be done this month. Adding members is crucial for the UAW, where membership has fallen from 1.5 million in 1979 to 376,612 last year.

“The conventional wisdom was that manufacturing in this country was dead and gone,” Shaiken said. “But Bob King has created jobs, while also hanging on to health-care benefits and pensions for senior workers and getting a 20 percent raise for entry-level workers. That’s a pretty impressive achievement in this economy.”

UAW Vice President Jimmy Settles, who led negotiations with Ford, said union members had concluded the tentative accord was in their interest.

“The Ford workers voting early on in the process were voting on emotion, but workers in plants with voting later in the process had a chance to learn everything about the agreement and understood how much their votes counted,” Settles said in an e-mail last night.

Economic Multiplier

King, who has a law degree from the University of Detroit, also is seeking to add to the UAW membership rolls by organizing the U.S. factories of Asian and European automakers.

“It was a jobs, jobs, jobs agenda,” General Holiefield, who runs the union’s Chrysler unit, told reporters Oct. 12 in Warren, Michigan. “We placed more focus on that than we did pretty much anything else.”

Assuming 20,000 union positions are created in at least 34 factories under the contracts, they may spawn 140,000 more jobs nationwide, including 14,444 at auto-parts makers, according to a preliminary analysis by the Center for Automotive Research in Ann Arbor, Michigan.

For each new worker hired by the automakers, seven other jobs are created either by suppliers or because of the added income, said Debbie Menk, project manager at the Center for Automotive Research, based on a preliminary study.

CAR had previously estimated that nine other jobs were created for each auto-assembly position added. The new CAR analysis, which is still under study, takes into account the lower wages of new workers, which start at $15.78 an hour under the proposed contracts, compared with about $28 for senior assembly workers, Menk said.

Ford Dividend

For investors, the deal increases the likelihood Ford will begin paying a dividend for the first time in five years, Rod Lache, an analyst with Deutsche Bank, wrote in a note today.

“This clears one of the final hurdles to the announcement of a meaningful dividend at Ford in the relatively near future,” wrote Lache, who is based in New York.

Moody’s Investors Service said Oct. 5 it would likely raise Ford’s credit rating if the contract was ratified. Moody’s rates Ford’s debt at Ba2, two steps below investment grade. Standard & Poor’s said Sept. 29 it may raise Ford’s credit rating two levels to BB+, the highest non-investment grade, depending on the outcome of labor talks.

Had Ford workers rejected the contract, those jobs might not have materialized, Shaiken said. Ford was the only U.S. automaker that faced the possibility of a strike in this year’s labor negotiations between the union and U.S. automakers. The UAW agreed to strike bans at GM and Chrysler as part of the U.S.-backed bankruptcies at the companies.

“There’s little question, that if this went down, the investment Ford promised would have been jeopardy,” Shaiken said. “A solid base is in place now for passage of this contract and it reflects a major step forward in the competitiveness of the domestic auto industry.”

(Corrects S&P rating in the 21st paragraph of story published Oct. 17.)