Howes: Ford's 'breakthrough' runs risks in UAW year
Mark Fields says "2015 is going to be a breakthrough year for Ford" Motor Co.
Uh oh. That's when the profitable Dearborn automaker and its new CEO are set to bargain a new national contract with the United Auto Workers, the first since 2007 not heavily influenced by the global financial meltdown, the heavy hand of the federal government or both.
This won't be easy and probably not cheap, not that Fields did more than make a positive passing reference to the union as he detailed Ford's year-end financials Thursday. Still, the wrangling looms amid what's shaping up to be the longest run of growth and prosperity the U.S. industry has seen since the 1960s.
The talks beginning later this summer will be tough precisely because Ford's $6.3 billion in pre-tax operating profit last year (almost all of it earned in a U.S. market that shapes union demands) is expected to swell to at least $8.5 billion this year, the company says.
That's a ripe invitation to share the riches, if ever there was one, with some UAW members who have not seen a base wage increase in nearly a decade. But the expected prosperity hides a small problem: Ford heads into the critical negotiations with one of the widest labor cost gaps of any manufacturer operating in the United States.
In 2007, a landmark year in Detroit's effort to unwind the punishing legacies of pensions, retiree health care and a Jobs Bank that paid people not to work, Ford's all-in labor cost (wages, benefits and associated costs for active employees) totaled $74 an hour, according to industry figures shared between the automakers.
Total labor costs for foreign automakers operating in the United States, by contrast, equaled $47 an hour, a yawning gap that company bargainers then used to justify creation of a health care trust for retirees and establishment of a lower entry-level wage, or "second tier," for new hires into UAW plants.
In 2011, two years after General Motors Co. and the former Chrysler Group LLC emerged from federally imposed bankruptcy — and Ford captured most of the labor savings its rivals gained in restructuring — the Dearborn automaker trimmed its all-in labor costs to $58 an hour, compared to $50 an hour for foreign rivals.
The tightened $8-an-hour gap lasted just two years as foreign-owned rivals deployed increasing numbers of temporary workers with minimal, if any, fringe benefits to reduce all-in costs to $47 an hour. Yet Ford's costs rose to $59 an hour, the highest in Detroit and rivaled only by Mercedes-Benz nationwide.
"Chrysler is at $47" an hour, says Kristin Dziczek, director of industry and labor at the Ann Arbor-based Center for Automotive Research. "They're at the industry average. Mercedes is north of $70. GM is, I believe, below Ford."
Industry navel-gazing like that may seem irrelevant to folks seeing U.S. profits totaling in the tens of billions over the life of the soon-to-expire contract. But any sentient person who experienced the downward arc of the Detroit's slide toward near cataclysm knows that cost parity on labor, material and production, to name three, are critical components of competitiveness.
Both sides will face a choice in the coming negotiations, still a quadrennial rite in this town despite dramatically smaller union workforces at all three automakers. The industry has spent the better part of the past eight years closing the cost gap, a winnowing that fully utilized U.S. plants, retained dues-paying jobs and created more.
For the trend to continue (to the extent it can should growth, as expected, level off), bargainers on both sides of the table will need to craft agreements that bend the cost curve closer to average of foreign-owned rivals — or risk seeing jobs and investment once again hop borders.
GM, for one, already has signaled an alternative, however politically unpalatable it may be. Last month, Detroit's No. 1 automaker said it would invest $3.6 billion to double production capacity in its Mexico operations, creating 5,600 jobs there.
A warning shot? That, and recognition that the macro-economic conditions that fueled production expansion in the U.S. and job creation for hourly workers can become more problematic the longer the expansion runs and the higher expectations rise.
"We should never forget what happened in '08 and '09," UAW President Dennis Williams told a year-end media roundtable last month. "We have to keep in mind that we want to keep the companies competitive. It's time for our membership to have a reward. Whether we can achieve that is another matter."
A replay of 2007 may be in order. Roughly a year after Alan Mulally became Ford's CEO, he met quietly at the Dearborn Inn with then-UAW President Ron Gettelfinger and his would-be successor, Bob King. Mulally's message was simple:
If the UAW would agree to help the Blue Oval close the cost gap with a competitive contracts, Ford would reinvest in its U.S. plants and retain union jobs at home. The union did, and it's likely to be asked for the same thing once again — only this time by companies sitting on piles of profits.
Daniel Howes' column runs Tuesdays, Thursdays and Fridays and can be found at http://detroitnews.com/staff/27151