Ford: UAW contract results in $600M 4th-quarter charge – Detroit Free Press
Ford’s new four-year UAW contract may appear rich, but it increases labor costs by less than 1.5% a year, CEO Mark Fields said today on a conference call with analysts.
There are big onetime costs, such as the $8,500 signing bonus for 52,900 workers that is part of a $600-million expense the automaker will report as part of fourth-quarter earnings. The amount also includes the cost of backdating wage increases to Sept. 15 and improved health care and other benefits for workers, especially the entry-level employees who are now referred to as “in progression” and eligible for the same health care as senior or legacy employees.
The costs of the four-year deal are in keeping with the company’s projections both short and long term, and in line with inflation projections, Fields said, noting the deal is no more expensive than if Ford had adopted the same agreement that the UAW negotiated with General Motors.
Ford ratified its deal Nov. 20 by the slimmest of margins with 51% voting yes.
Importantly, Ford feels its labor costs — which increase to $60 an hour with benefits in 2019 from $57 now — eliminates the labor cost gap to GM and narrows the gap with lower-cost Fiat Chrysler Automobiles.
Ford’s labor cost will remain $8-$10 an hour higher than Japanese rivals Toyota and Honda, something Fields said the company will continue to work to address.
Key to future efficiency is Ford’s intention to significantly increase the use of lower-paid temporary workers to fill in for absentee workers, vacations and to augment the workforce when extra hands are needed during product launches, said Joe Hinrichs, Ford president of the Americas.
Fields said he is pleased the new contract levels the playing field with GM and FCA because it eliminates a 20% cap on the number of entry-level workers on the payroll. All three Detroit companies now have a path that brings new workers to a similar base wage within eight years which makes a cap unnecessary.
The contract also gives Ford the flexibility to use alternative work schedules and add mandatory overtime on weekends to meet demand.
Most plants are running near maximum capacity but there is flexibility to increase production under the terms of the new contract, said Chief Financial Officer Bob Shanks.
The automaker committed to spending $9 billion in U.S. plants, which secures or adds 8,500 hourly jobs. Executives on the call would not say how many of the jobs will be new and incremental, noting there will be attrition building over the course of the contract.
Officials also would not say how many temporary workers are used now and how many will be added, though Bill Dirksen, vice president of labor relations, described the increase as “significant.”
Fields said the company would also take advantage of its manufacturing facilities around the world and in-source work where it makes sense but also out-source work where there is a business case to do so.
“We’re not restricted from sourcing products anywhere in the Ford world,” Fields said. Beyond its U.S. sourcing commitments, the company can use its global footprint to offer products here, he said.
Product planning calls for assembly of SUVs, crossovers, pickups and commercial vehicles in the U.S. while car production is migrating outside the country.
Ford already makes the subcompact Ford Fiesta in Mexico and it’s expected that the next-generation Focus and C-Max will also be built in Mexico when production at the Michigan Assembly Plant in Wayne, Mich., ends in 2018. Hinrichs would not confirm that they will be built in Mexico but other sources have said Mexico is the destination.
During negotiations,the two sides spent “a significant amount of time” discussing the “competitiveness of our footprint and the products we build and where we build them,” Hinrichs said. “We need to also have some flexibility to move some of our smaller products to other locations, which we intend to do.”
Additionally, Fusion production is being consolidated in Mexico once again with the cessation of additional production of the mid-size sedan in Flat Rock, Mich. And there are plans to phase out the Taurus in Chicago. A new version of the Taurus is being built in China for that market. Ford has not said if there are plans to export it back to North America in the future.
Fields said the company will continue to address both cost and revenue going forward.
Officials agreed with the Ford hourly cost estimate released by analysts Kristin Dziczek, director of labor and industry at the Center for Automotive Research, and Art Schwartz, a former GM negotiator and president of Labor & Economics Associates .
They put Ford’s all-in labor costs, including benefits, at $60 an hour and estimated GM also increased its cost to 60% an hour from $55 an hour to $60. FCA goes from $47 to $56.
On a labor cost per vehicle basis, Ford rises from $2,401 to $2,600, making it the highest. FCA will see a significant increase from $1,771 to $2,500 and GM will actually see a slight drop from $2,374 to $2,350 per vehicle, largely because it will experience a higher rate of attrition through retirements in the next four years, Dziczek said.
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