Desperate to Cut Costs, Ford Gets Union's Help
DETROIT -- For years, Jerry Sullivan, the head of the largest United Auto
Workers local at Ford Motor Co., fought for higher pay, job protections and
limits on the work his members had to do.
But in the past year, as Ford teetered financially, the 59-year-old Vietnam
veteran has changed course. These days he has urged his members to accept
the outsourcing of company factory jobs to lower-paid workers, and to work
new shifts without the tens of thousands of dollars in overtime they
formerly would have earned.
"Ford is in a desperate situation," sighs the burly, bearded Mr. Sullivan,
who has spent 36 years at Ford, the last 10 as president of UAW Local 600 in
suburban Dearborn. "If this company goes down, I want to be able to look in
the mirror and say I did everything I could."
Mr. Sullivan's turnabout reflects the stark reality facing the UAW and the
big U.S. car companies, which still employ roughly a third of the union's
workers after years of job cuts. The Big Three auto makers acknowledge
Japanese and Korean companies are out-earning them on each car by delivering
more features for less cost. Now Detroit -- with some help from the union --
is trying to dismantle old business methods factory by factory in an effort
to cut costs.
Ford, which lost $12.7 billion last year, so far has persuaded UAW locals at
33 of its 41 plants to accept new agreements aimed at transforming the way
work is done on the factory floor. The "competitive operating agreements,"
all reached in the past 10 months, loosen some complex and often costly work
In past local negotiations, union leaders rarely gave any ground, and talks
often stalled over such matters as getting microwaves installed for
employees' use. But this time, recognizing their precarious position,
Dearborn members agreed that non-Ford workers earning half their pay could
take jobs in the plant such as shuttling car components across the factory
floor. Thousands of UAW members accepted changing to four-day, 10-hour
shifts that can include weekend days, without collecting overtime. At an
engine plant in Lima, Ohio, some union workers have volunteered to manage
their brethren, for a 50-cent-an-hour bump in pay. Elsewhere, long-honored
seniority rules have been waived and job definitions have been broadened.
The new pacts don't deal with UAW members' pay packages, which due to health
care and other benefits are about 50% higher than for workers at Asian auto
makers' U.S. plants. Those issues are to be handled in national talks
between the UAW leadership and the car companies this summer. But company
officials and labor experts say Ford's local negotiations -- in which Ford
asked for the union's help -- may help set a precedent for the national
An industry consultant's chart used by Ford during some negotiations with
locals estimated Detroit's auto makers have an average "profit gap" of
$2,400 per vehicle compared with the U.S. units of Toyota Motor Corp., Honda
Motor Co. and Nissan Motor Co. That gap is so wide that Detroit is losing
money on each car. Labor costs represent $1,080 to $1,335 of the gap,
according to the consultant's figures. The biggest share of that, $490 to
$705, is attributable to retirees' health-care costs. Next is $250 for work
rules, edging out $220 for active workers' health care. Ford estimates it
will save $1 billion a year if all plants adopt the various work-rule
changes being asked of them.
DaimlerChrysler AG and General Motors Corp. have negotiated some similar
changes, but generally only at new facilities, such as an engine plant that
Chrysler opened in 2005 in Dundee, Mich. The UAW hasn't given Chrysler
similar deals elsewhere, in part because Chrysler was seen as a profitable
company until just a few months ago, say people familiar with the talks.
GM officials, taken aback by Ford's success in getting concessions, have
begun visiting plants across Michigan, Ohio and elsewhere seeking similar
local deals in an effort they have dubbed "True North."
At Ford, the UAW is allowing locals to tear up existing deals months or
years before they expire to put the new rules in place. Ford also has said
it will close seven unidentified plants in the next few years, and subtly
uses that threat with its locals. The resulting changes have allowed Ford to
cut 38,000 jobs through buyouts.
Once one of the most powerful unions in the world, the UAW has seen its work
force gutted to about a third of its peak in the 1970s. It so far has
avoided wholesale concessions, unlike unions in the steel and airline
industries where many companies have restructured through bankruptcy
proceedings. But just in the past year, GM, Ford and Chrysler have announced
restructuring moves that will eventually eliminate about 80,000 UAW jobs,
which would lower its membership to just under 500,000. More cuts could be
on the way, particularly if DaimlerChrysler decides to sell or spin off its
Yesterday Ford announced another big monthly drop in sales -- 13.5% for
February. Chrysler said its sales dropped 8.3% for the month. GM announced a
5% cut in production despite a slight sales uptick.
Ford, based in Dearborn, is navigating the worst financial crisis in its
103-year history. It expects to keep losing money until at least 2009
because it banked for too long on its sales of trucks and SUVs continuing to
thrive. Instead they have begun sliding because of rising oil prices and
For most of the 1990s, Ford was rated the most efficient Detroit auto maker.
The company made $7.2 billion in 1999, at the time a record for any auto
maker, despite a steady rise in market share in the 1990s by the Japanese
companies. In 1998, a key auto-manufacturing efficiency study called the
Harbour Report estimated Ford could assemble a new vehicle in about 36 hours
of labor. That was five or six hours slower than its Asian counterparts like
Toyota and Nissan -- but 10 hours faster than GM or Chrysler.
Ford acknowledges it rested on its laurels as the profits from its popular
sport-utility vehicles and pickups masked underlying problems in its
manufacturing systems. By 2000, GM and Chrysler began to gain on Ford. Last
year, the Harbour Report estimated that Ford was two hours slower than GM
and Chrysler, and also had slipped to six or seven hours behind the Japanese
"No question, we let others pass us on these things. We took our eye off the
ball and got intoxicated with just making trucks," said Chris Bolen, a Ford
director of manufacturing who started out as a Lima line worker. "Internally
we ignored a lot of waste....We let manufacturing get in trouble, and now
we've painted ourselves into a corner where without radical changes we could
go out of business."
To avert disaster, Ford asked for the union's help, says Joe Hinrichs,
Ford's head of North American manufacturing. Instead of just confronting UAW
leaders with a list of work practices management wanted to change, Mr.
Hinrichs and his staff have showed their union counterparts how big the cost
gaps are at their factories, using the Harbour figures and internal data.
"We really need our people to realize we aren't competitive," says Mr.
Hinrichs, a 40-year-old Harvard graduate who came to Ford after serving as
one of the youngest plant managers in GM history. "No one has a right to be
For many UAW members, some of the changes at Ford would have been
unthinkable just a few years ago. The talks have ventured into sensitive
areas, such as high UAW absentee rates. At Ford plants, workers only needed
a doctor's note to be absent without using a vacation day, and Ford's
absentee rate on plant floors has been about 11% -- which the company
asserts is about twice the rate of its Asian rivals. Each percentage point
costs Ford about $20 million per year, say Ford executives. The new
agreements cap the number of absences regardless of excuse, though the
company would not discuss the figure.
Still, Ford and other U.S. makers still are not nearly as efficient as their
Japanese rivals. "Really they are just now getting to rules or processes
that Toyota already had in place at their plants," said Laurie
Harbour-Felax, the auto-efficiency consultant whose figures Ford used. "They
have a long way to go."
Some work-rule changes remain beyond reach for Ford. At the Dearborn Truck
Assembly factory, for instance, if the company wants to bring in an outside
company for specialized repairs to its assembly equipment, it must also pay
the same number of company repairmen to work.
Last summer, Ford executives went to Mr. Sullivan as the auto maker was
looking at its plans for the next generation of its F-150 pickup truck due
out in mid-2008. The F-150 is the best-selling and most profitable vehicle
Ford makes, but sales slipped last year and it faced two redesigned
competitors in GM's Chevy Silverado and Toyota's Tundra, the latter built at
a new plant in San Antonio. Ford planned to close its Norfolk, Va., truck
plant and make fewer F-150 trucks, and wanted cuts at Dearborn before they
would move some of Norfolk's work there rather than elsewhere.
Mr. Sullivan didn't have to look far for a worst-case scenario. He also
represents 3,000 workers at nearby Rouge Steel, a steelmaking operation spun
off from Ford that began bankruptcy proceedings in 2003. "Bankruptcy is
devastating. People's pensions and health care can just be lost, taken
away," he says. "We understand our work practices weren't the best. We know
how dire it is."
Mr. Sullivan and company officials said he, like other UAW locals, had the
national union's backing to negotiate changes, though UAW national officials
wouldn't comment on its locals' agreements.
Dearborn Truck Assembly, Ford's most recently constructed U.S. plant, sits
at the heart of the company's Michigan home base. It's on the site of a
previous plant that hosted famous battles by the UAW in the 1930s to
organize the auto maker's workers over founder Henry Ford's resistance. To
try to persuade workers to accept what amounted to a retreat from the UAW's
tradition of always adding to pay and benefits, Ford plant manager Rob
Webber and Kenneth Macfarlane, director of manufacturing operations for Ford
trucks, shut down the plant floor one day last July to mount a rousing
presentation for about 900 workers seated in folding chairs.
"This is about the uncompetitiveness of us," Mr. Webber announced, and put
on a video of Toyota unveiling its new Tundra at the Chicago Auto Show.
"Notice it is Ford blue," shouted Mr. Macfarlane. He pointed out Toyota used
the same George Thorogood song, "Bad to the Bone," that Ford had used in
commercials for its F-Series. "Make no mistake who they are after," shouted
Mr. Macfarlane. "It is us." The crowd roared back at him.
To cut costs, Messrs. Webber and Macfarlane asked Local 600 to let Ford hire
workers employed by outside contractors to handle unskilled tasks such as
wheeling bins of parts and sweeping up the plant floor. This kind of
outsourcing has long been anathema to the UAW.
Gary Walkowicz, a 57-year-old former UAW plant chairman who has 32 years
with Ford and now works on the line installing engine wires and other parts,
handed out fliers to rally dissent. "I don't believe in concessions. The
company will always want more from us," he says. About 65% of the workers at
Dearborn Truck Assembly and other Dearborn plants in Local 600 voted in
favor of the new agreement. Elsewhere, winning margins have been even
Now, UAW members making $18 to $26 an hour, plus benefits that more than
double their compensation, work for Ford at the Dearborn truck plant
alongside hourly workers making about half the wages and few of the
benefits. Painted yellow safety lines marking walkways between assembly
areas on the shop floor now also divide the Ford assembly-line work force
from the outside workers, who stay between the lines.
While Ford outsourced about 100 to 150 jobs, the UAW didn't lose that many
members. As part of the contract, Ford agreed that any outside firm it hired
would have to support the UAW organizing the new workers, albeit at the
lower pay scale.
Mr. Webber, the plant manager, says the agreement at Dearborn Truck saves
Ford about $70 million, the largest savings at any one Ford plant. Ford says
it also will avoid paying about $30 million it would have had to pay in
annual overtime for workers to adopt four-day, 10-hour shifts in place of
five-day, eight-hour shifts. The four-day schedule allows Ford to save on
utility bills and schedule maintenance on weekdays.
At an engine plant in Lima, Ohio, Ford has achieved savings a different way.
Workers there were faced with the threat that engine work could be shifted
south to Mexico or another plant. In addition to accepting outsourcing of
work, they agreed to shift many managerial duties to union employees. This
allowed Ford to cut the nonunion head count at Lima from 280 people to about
90. With the new agreement Lima's union work force dropped to about 800
workers, from 1,100.
The UAW supervisors are called "team leaders," and work in a structure
borrowed from Japanese assembly lines. Overseeing eight to 12 other union
members, the team leaders use big electronic scoreboards above their heads
to track each day's target for assembling engines. If line speeds need to be
increased or slowed, "rebalanced" in Ford parlance, the decision is made by
UAW members instead of salaried engineers, who typically were paid $60,000
or more annually.
Ford had long given up on the union accepting such a move. "There are days I
wonder why I am doing all this," says Brad Caskie, now a team leader and
veteran of 22 years at the Lima plant. "It's pretty much like being a
manager, and also a worker. Ford said to us this is what Toyota and Honda
do, so it's what we need to do."
Until last summer, Mr. Caskie's job at Ford was to put timing components on
car or truck engines as they chugged down the line, just under 100 of them
an hour. When the plant adopted a competitive operating agreement last May
and team leader jobs opened paying 50 cents more an hour, Mr. Caskie
Now the 49-year-old Ohio native manages 11 workers, scheduling vacations,
overseeing quality of work, and arranging meetings to discuss safety or
downtime problems. When he gets a chance, he jumps on the computer near the
engine line to see how his team stacks up in terms of quality and speed
compared with other teams.
"I'm loyal to the company. They put my kids through college," said Mr.
Caskie, who got his first Ford job in part because his stepfather and uncle,
both UAW workers for Ford, helped him get in. "I feel like we had no choice,
really, but to do this."
Plant manager Jan Allman says the Lima agreement saves the auto maker about
$27 million a year overall. Her goal is for Lima to pass Toyota in the
Harbour efficiency studies in 2008.
The process hasn't always gone smoothly. Earlier this year Ford, despite its
continuing losses, said it was considering giving bonuses to white-collar
workers -- in part thanks to the cost savings it achieved in getting the new
At the Michigan Truck plant in Wayne, Mich., workers were furious that they
were taking cuts while their managers were in line for bonuses. A vote on a
cost-cutting deal there was delayed for weeks. After Ford acknowledged any
bonus plan must include the union, the vote was rescheduled and the
"That bonus thing sent a bad message," says Mr. Sullivan. "This is a
partnership, right? We are in this together, right? We made our concessions,
so let's be fair." The company is still working out details of the bonus
"Your best, last and only line of defense-a cohort of Roman Heavy Infantry"