Through The Fly's Eyes: Ford

from Larry Ramer of Theflyonthewall.com

Ford's Labor Contract Dilemma

Ford (F) Chairman Bill Ford said yesterday that the "broad framework" of the agreement between General Motors (GM) and the United Auto Workers union is something "we can work with."

That is actually less than a ringing endorsement of the pact between General Motors and the union. The actual translation of what Ford said is probably something along the lines of, "We like the concessions that GM got from the union, but there's no way we can afford to make as many concessions on job guarantees."

As part of the agreement, GM agreed to make new products at 16 new plants in the U.S., thereby saving union jobs. GM also agreed to hire union members to fill over 3,000 jobs that are now outsourced to non-union companies. The GM contract also seems to stipulate that GM can only close a few plants over the four-year deal.

But General Motors can afford to make these concessions, in order to obtain givebacks on health care benefits that will help it over the long-term. The company's sales in some large overseas markets are surging, and its sales in the U.S. have risen over the last two months, compared with the same months in 2006.

Ford, by contrast, has been doing very badly. It hasn't had a monthly year-to-year sales gain since October 2006, and the company lost $12.6B last year. Ford said a few days ago that it was disappointed by the sales of its new Taurus. How can Ford promise to avoid closing U.S. plants, let alone commit to making new products here, under these conditions?

Ford executives were probably alluding to this dilemma when they told the Wall Street Journal that the company would not be able to provide the union with details about new vehicle programs. The executives said they were concerned about GM's willingness to provide the union with a detailed product roadmap. Ford probably can't provide these details because of its tenuous financial situation. The company most likely can't be sure how many new products it will be able to afford to make, and how many workers it will be forced to lay off, as a result of its poor performance.

Given Ford's struggles, it cannot provide the union with the same job security guarantees that GM has been able to make. As a result, Ford will likely either receive far fewer concessions from the UAW, or its negotiations with the union will be far more contentious than GM's were.