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Ford: Labor costs up about 1.5% yearly after UAW deal

Michael Martinez
The Detroit News

Ford Motor Co. on Monday said its U.S. labor costs will increase less than 1.5 percent per year after its membership earlier this month ratified a new four-year pact with the United Auto Workers.

The Dearborn automaker said the deal, which includes across-the-board raises for workers, a $9 billion investment and the creation or retention of 8,500 jobs, “effectively closes the labor cost gap to General Motors Co. and substantially narrows the gap to Fiat Chrysler Automobiles.”

The Center for Automotive Research estimated Ford’s average hourly U.S. labor costs were $57 before the deal, and it predicts that number will rise to $60 by 2019 numbers Ford chief financial officer Bob Shanks said are “directly in line” with the company’s view. Coming into talks, GM’s hourly labor costs were at $55 and FCA’s at $47. By 2019, CAR estimates GM’s will be $60 and FCA’s $56 per hour.

Ford said it will continue to have about an $8-$10 labor gap between its foreign rivals.

“Both sides negotiated hard, but in the end we produced a deal that works for everyone,” said Mark Fields, Ford’s president and CEO, on a conference call with analysts and reporters. “We’re pleased with the agreement. It supports our near- and long-term priorities as a company.”

Ford said it will incur a $600 million hit on its fourth-quarter financials, mainly because of ratification bonuses associated with the deal.

On its third-quarter conference call, FCA Chief Financial Officer Richard Palmer said the contract is expected to increase costs about 30 million euros ($33.2 million) in the fourth quarter compared to the “year-to-date run rate” under the previous deal. He also said the deal will cost the company 380 million euros ($420.8 million) in 2016, without specifying if it was a total or increase in cost.

CEO Sergio Marchionne said the contract will cost FCA nearly $2 billion over the next four years. He did not give an exact cost of the deal; however, he cited that a $2 billion estimate reported by The Detroit News earlier this month is in line with the company’s expectations.

GM declined to provide the exact cost of its contract with the UAW. But GM spokeswoman Katie McBride said the carmaker will be able to “maintain U.S. labor cost at approximately 5 percent of General Motors North America revenue based on projected sales volumes, ongoing productivity improvements and other cost efficiencies.”

Last year, GM North America revenue totaled $101.2 billion, meaning GM’s U.S. labor cost in 2014 would have totaled about $5 billion.

Workers narrowly ratified the Ford deal earlier this month by a 51.4 percent majority. The pact’s fate came down to the final ballots at the automaker’s Rouge Complex and ended a lengthy and sometimes contentious round of labor negotiations between all three companies and the union.

“Overall, we think it’s a good agreement,” Fields said. “These things tend to be close affairs.”

Fields said the contract was beneficial because it gives Ford flexibility in the coming years, even if there’s an economic downturn and it sells fewer cars. The contract allows for the use of more temporary workers and includes an additional six weekends of mandatory overtime, which will help offset the wage raises new hires and legacy workers received.

Ford executives would not say how many temporary workers they use, but said it will be “significantly more” over the next four years.

Executives also said they expect a higher attrition rate than over the course of the last contract as legacy workers age and retire. On average, second-tier workers are in their early 30s, and first-tier workers are in their late 40s, Ford said.

The contract includes language that will give new hires a path to earn top wages over an eight-year progression, similar to pacts at FCA and GM. After eight years, the workers would be making roughly $29 an hour. But some have expressed concern that the eight-year progression could be halted at the end of this four-year agreement if the economy goes bad.

“Everything in the contract will expire at the end of the agreement,” said Bill Dirksen, Ford’s vice president of labor affairs. “The fact we have articulated a progression that extends eight years is certainly going to be a starting point as we go into negotiations in ’19. While it expires, it’s a starting point for the discussions we’ll engage in in four years.”

The pact includes about $9 billion in plant commitments in the U.S. over the next four years, but the contract says Ford will move much of its car production elsewhere once those products’ current lifecycles end. It’s expected that much of Ford’s car production will go to Mexico, a trend for many automakers as they take advantage of that country’s lower labor costs.

“We’re not restricted from sourcing product anywhere in the Ford world … as long as we’re meeting our U.S. commitments,” Fields said.

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