Aug. 15 (Bloomberg) -- Ford Motor Co. enters labor negotiations in Canada today seeking concessions from its most expensive workers. With the Canadian dollar rising and U.S. workers already acquiescing to money-saving steps, union leaders will be under pressure.
The Canadian Auto Workers union, which is opening talks with Ford, General Motors Co. and Chrysler Group LLC, is headed by Union President Ken Lewenza, representing about 21,000 workers. He vowed yesterday to resist further givebacks.
While the Canadian dollar has strengthened 52 percent against the U.S. currency over the last decade, the three automakers have moved U.S. union-retiree medical costs off of their books, frozen wages of senior workers and lowered pay and benefits for new employees.
“The reality is that all of the new capacity that is being put in in North America tends to be in the U.S. South or in Mexico and those are in lower-cost jurisdictions,” said Carlos Gomes, an economist with Scotia Capital Inc. by phone from Toronto. “So obviously maintaining that cost competitiveness is going to be the key from the company’s perspective.”
Ford estimates that it spends $79 for every hour of work in Canadian plants, when including costs for benefits and retirees, compared with $64 an hour in the U.S., $48 in Germany and $35 in Australia, Lauren More, a Ford spokeswoman, said. Looking just at wage rates, CAW assemblers get about $34 an hour, 21 percent more than the $28 paid to a senior worker represented by the Detroit-based United Auto Workers union, she said.
“Competitiveness will be the main focus of the discussions,” More said yesterday in an e-mail. “Right now, labor costs are higher in Canada than at any other Ford operation in the world. When it comes to future investment, labor costs are one of the most important considerations.”
The CAW disputes Ford’s estimates, saying much of the gap relates to former employees. Without these so-called legacy costs, union labor runs a little more than C$62 an hour, compared to C$60 for workers in the CAW’s American counterpart, said Jim Stanford, the union’s economist.
While he puts the cost gap against the UAW at about 5 percent, Stanford said competition from low-cost jurisdictions like Mexico means the union risks losing investment.
“We have to respect our members’ desire to get some recognition for the sacrifices they made,” he said. “And remember: It’s a democratic process, so these contracts have to be approved by our members. On the other hand, we recognize our costs look high because of the dollar so we have to be careful about what we add to the costs.”
Canada and Ontario provided a combined C$13.7 billion to the rescues of GM and Chrysler in 2008 and 2009, and the CAW agreed to a wage freeze, sacrificed bonuses and gave up time off among its concessions. It avoided the so-called two-tier wage system that the UAW conceded to in the U.S. The UAW last year accepted profit-sharing bonuses instead of cost-of-living pay increases or base wage raises, which Lewenza says the CAW opposes.
“I warn the companies not to be overzealous in their talks,” Lewenza told reporters in Toronto. “Again, I don’t want to emphasize the term warning, but the reality is our membership has put us on notice that the corporations’ period of overzealousness, quite frankly, must come to an end.”
John MacDonald, 33, who has worked on the line at GM’s Oshawa, Ontario, assembly plant since 2004, said he and his co-workers aren’t interested in making concessions now that the companies are all profitable again.
“We’ve made those sacrifices,” he said in a telephone interview from Oshawa. “To do that and then turn around and hear, ‘well, it’s not good enough,’ it doesn’t resonate with all of the people I work with.”
Automakers’ profits soared last year, with GM setting a full-year record and Ford earning more than in any year since 1998. While North America remains the companies’ most profitable region, this year hasn’t been as rosy: Both automakers’ first-half net income was cut in half.
GM slid 39 percent since its November 2010 initial public offering and Ford fell 12 percent this year through yesterday. GM was little changed at $20.18 in New York at 9:41 a.m. and Ford was steady at $9.45.
Canada and Ontario provided financial aid to GM and Chrysler in exchange for ownership stakes in both companies to preserve an estimated 52,000 jobs, according to the country’s 2012 budget plan. Canada holds about 140 million shares, or 9 percent, of GM’s common stock. The country exited its Chrysler investment in July 2011.
Lewenza said the government should step in again. In April the union released a national auto policy that included a call for the government to intervene to lower the value of its currency, to negotiate “manufacturing footprint commitments” with automakers.
The auto industry has been confronted by a rise in the Canadian dollar against its U.S. counterpart in the past 10 years that has made Canada’s factories less competitive.
The nation’s system of universal health care long provided a cost-advantage compared to American workers. By 2007 the car companies had managed to move a large part of their U.S. health-care costs off the books and into a separate fund managed by the union, said Kristin Dziczek, the director of the Center for Automotive research. That removed two-thirds of the Canadian union’s cost advantage, she said.
“The health care was an advantage, the currency was an advantage, and those are all kind of neutralized,” she said by telephone from Ann Arbor, Michigan.
Ford and GM are already reducing their presence in Canada.
Ford retrenched last year to one assembly plant in Canada, the Oakville, Ontario, factory that makes the Ford Edge and Flex and Lincoln MKX and MKT sport-utility vehicles. The company in September closed its St. Thomas, Ontario, facility that made the Ford Crown Victoria police cruiser and Lincoln Town Car sedan.
GM said June 1 that it plans to shut its consolidated assembly line in Oshawa, Ontario, in June 2013, which will eliminate 2,000 jobs, according to the CAW. The company plans to shift production of its Chevrolet Equinox sport-utility vehicle from Oshawa to Tennessee, where most workers will be paid less than $16 an hour. Oshawa is where GM makes the new Cadillac XTS full-size luxury sedan.
Canada will probably lose new-vehicle assembly work to lower-cost Mexico through the next decade, according to industry researcher R.L. Polk & Co. Canada’s share of North American car and light-truck assembly may slip to 12.6 percent in 2017 and 12.1 percent in 2022, from 15.8 percent this year, Polk said in a July 9 report on its website.
Jeff Schuster, an auto analyst at LMC Automotive in Troy, Michigan said the flagging global economy makes a strike undesirable for the company, while the need to win future investment makes it dangerous for the union, but anger among the workers could cause one anyway.
“Honestly I don’t think either side can afford it,” he said by telephone. “Given the situation, given the environment that we’re in, I don’t think either side can afford a strike. It doesn’t mean one won’t happen.”
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