Ford Says UAW Contract Lifts U.S. Labor Costs Less Than 1.5%

  • CEO Fields says pact gives automaker `staffing flexibility'
  • Company to spend $600 million this year on worker bonuses

Ford Motor Co. said its new four-year contract with the United Auto Workers will increase its U.S. labor costs by less than 1.5 percent annually by letting the company hire more low-cost workers and move production to factories in other countries.

The contract will raise Ford’s hourly labor rate, including wages and benefits, to $60 from $57, Chief Financial Officer Bob Shanks told analysts and reporters on a call Monday. While closing the gap with General Motors Co. and Fiat Chrysler Automobiles NV’s U.S. operations, Ford’s labor costs are still $8 to $10 an hour higher than those at U.S. factories of Toyota Motor Corp. and other international automakers, he said.

“We’re continuing to look at efficiencies and continuing to look at cost reductions across the business,” to help match competitors’ labor expenses, Chief Executive Officer Mark Fields said on the call. “At the same time, we’re working the revenue side of the equation, which is around bringing out very compelling products.”

The contract, the richest reached this fall with the Detroit Three, lets Ford hire an unlimited number of entry-level workers, who start at a lower wage than veterans, after a previous limit of 20 percent of its workforce. In addition, Ford said it will be able to use more temporary workers, who also are paid less. The agreement gives “the flexibility to leverage Ford’s global manufacturing footprint to improve cost competitiveness,” according to a statement.

“The agreement aligns our labor cost structure more closely with our competition and improves our manufacturing productivity and staffing flexibility,” Fields said in the statement. Ford said it will have costs of $600 million this year related mainly to the deal’s ratification bonuses, in line with its annual forecast.

Ford and the UAW spent “a significant amount of time” discussing the “competitiveness of our footprint and the products we build and where we build them,” Joe Hinrichs, the company’s president of the Americas, said on the call. “We need to also have some flexibility to move some of our smaller products to other locations, which we intend to do.”

The automaker’s shares fell 0.9 percent to $14.40 at 11:17 a.m. in New York. They declined 6.3 percent this year through Nov. 27.

Narrow Approval

UAW members at Ford ratified the deal with narrow approval rates of 51.3 percent of production workers and 52.4 percent of those in skilled trades, the union has said. The Ford deal promises $9 billion in factory upgrades and expansions that create or keep 8,500 jobs in the U.S. The pact provides across-the-board raises and $10,000 in bonuses upon ratification.

“These always tend to be fairly close affairs,” Fields said of the UAW vote. “At the end of the day, we have a contract here that lays a good foundation for the company and it works for our employees.”

The contract, which covers 52,900 U.S. workers, leaves Ford with the highest labor costs of the Detroit Three, according to an analysis by Kristin Dziczek, director of labor and industry at the Center for Automotive Research, and Art Schwartz, president of Labor & Economics Associates and a former GM negotiator.

Ford said the deal “effectively closes the labor cost gap to General Motors and substantially narrows the gap to Fiat Chrysler Automobiles.”

Ford’s labor costs will climb to $2,600 a vehicle in 2019, from $2,401 in 2014, exceeding Fiat Chrysler at $2,500 and GM at $2,350, according to the analysis by Dziczek and Schwartz.

On an hourly basis, the new contract drives up Ford’s labor cost about 5 percent to $60 in 2019 from $57 this year, Dziczek and Schwartz estimated. The dollar cost will match GM’s, which climbs 9 percent from $55, and will top Fiat Chrysler’s, which will rise 19 percent to $56 from $47, according to their analysis.

‘Generous Agreements’

“These are generous agreements,” said Harley Shaiken, a labor relations professor at University of California at Berkeley. “They proved more difficult to sell than one would have thought looking at all that the UAW achieved.”

The deal enables Ford to hire “significantly more” temporary workers to be used when extra staffing is needed during new-model introductions and vacations and to fill in for absent employees, Bill Dirksen, the company’s vice president of labor affairs, said on the call.

Using more temporary workers “will help us with our staffing flexibility and also to blend our labor costs down,” Dirksen said.

The Ford agreement, patterned on deals at Fiat Chrysler and GM, provides a path for newer workers to reach senior wages of about $29 an hour over an eight-year period. Those second-tier workers had topped out just above $19 an hour. Veteran workers will get 3 percent pay increases in the first and third years of the accord, and 4 percent lump-sum payments in the second and fourth years.

The contract provides wage increases of $10,633, plus a variety of bonuses and guaranteed payouts that will boost the average Ford production worker’s pay by $32,513 over the life of the contract, according to the Detroit-based union. Skilled-trades workers’ total compensation will grow an average of $35,098 over four years, the UAW said. Those calculations don’t include profit-sharing, which totaled more than $30,000 a worker during the past four years.

The previous UAW contract, negotiated in 2011, raised Ford’s labor costs by less than 1 percent, the company said at the time.

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