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Ford sees limited costs, new flexibility in UAW pact
October 20, 2011 / 5:08 PM / 6 years ago

Ford sees limited costs, new flexibility in UAW pact

DETROIT (Reuters) - Ford Motor Co (F.N) said its new four-year contract with the United Auto Workers union will increase its costs less than 1 percent annually, with higher bonuses offset by newly won flexibility in work rules.

A Ford truck sits for sale on a dealership lot in Encinitas, California July 25, 2011. REUTERS/Mike Blake

Now that the contract has been ratified, Ford will consider reinstating a dividend for shareholders, even before ratings agencies return the automaker to “investment grade” status, said Lewis Booth, the company’s chief financial officer.

Analysts have said the contract boosts Ford’s chances for a return to an investment grade credit rating for the first time since 2005, which would reduce its borrowing costs.

“There is an opportunity to think going forward about a dividend not directly related to the achievement of investment grade,” Booth said.

But he also said it was too early to talk publicly about the timing of a dividend

Ford said the new pact would mean lump-sum payments of $280 million in 2011 -- bonuses and severance payments -- and about $80 million annually, on average, in the remaining years of the deal.

The No. 2 U.S. automaker said it expects to reduce the number of higher-paid skilled trades workers in its U.S. factories by about 1,000 through buyouts. At the same time, it expects lower-paid, entry-level employees to make up about 8 percent of its factory work force by 2015, up from fewer than 100 workers when negotiations with the UAW began this summer.

The UAW-Ford contract was ratified on Wednesday.

Ford’s hourly workers voted by a nearly 2-to-1 margin to approve the pact, clearing the way for the creation of almost 6,000 jobs and investment of more than $6 billion in the automaker’s U.S. plants.

The new jobs will reverse a decline in workers in the past decade. Ford now has about 41,000 UAW-represented workers in the United States, down from about 77,500 before the 2007 contract and about 102,500 in 2000.

Workers did not grant as many concessions in the new contract as they did in the 2007 pact that helped Ford and its Detroit rivals General Motors Co (GM.N) and Chrysler Group LLC narrow the gap in labor costs with Japanese, Korean and German automakers with U.S. plants.

That gap narrowed to about $8 per hour in 2010 from $27 per hour before the 2007 contract.

John Fleming, Ford’s global manufacturing chief, said more flexible work rules in the new contract would allow the company to “flex up or flex down” output at its factories more efficiently and at lower cost.

“This is all about us driving utilization at our facilities,” Fleming told analysts and reporters on a conference call Thursday as he detailed how the contract would affect Ford’s profitability and finances.

He also said workers who take buyouts would leave the company around the middle of next year. The median age of production employees at Ford is 47, he said.

While the contract was approved by a wide margin, many workers say they are not being rewarded for making sacrifices in 2007 when the company was in a weaker financial position.

In an interview with Reuters, Fleming said he is aware that many plant workers are upset.

“We’ve got some work to do together, but the overall tenet of what we need to do as a company is to continue to be fair to our employees while continuing the drive to be competitive,” he said. “Our competitiveness is really what is going to give us job security.”


“I see it like a family,” Fleming said. “Some people are not happy at the moment. We’ve got to work through that. We’ve got to work out like a family does any issues and concerns that people have got and continue to drive forward. This business is way too important to let the concerns get in the way.”

Ford saves money with the new contract largely because costly provisions of previous deals are not in this one -- no general wage increase, no cost-of-living allowance, no “jobs bank” that pays laid-off workers nearly their full salary.

Shares of Ford, due to report its third-quarter earnings next Wednesday, were unchanged at $11.56 in afternoon trading. That is up 23 percent since tentative agreement on the new contract was reached on October 4.

Shares of General Motors Co (GM.N) were down 2 percent at $22.61. GM shares have risen 14 percent since October 4.

GM workers ratified their own new four-year contract late last month.

U.S. unionized workers at Chrysler, which is majority-owned by Fiat SpA FIA.MI, will vote on their new four-year contract through October 26.

Reporting by Bernie Woodall and Ben Klayman; Editing by Maureen Bavdek and John Wallace

Our Standards:The Thomson Reuters Trust Principles.
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