Ford, in `Meltdown,' May Seek Wage Cut, Analyst Says
Feb. 20 (Bloomberg) -- Ford Motor Co. is in ``a company meltdown'' and may
ask the United Auto Workers union to accept reduced pay and benefits during
this year's contract talks, a labor economist said.
A 20 percent cut in wages and benefits could lower Ford's costs by $1.4
billion per year for four years, Sean McAlinden, an an analyst with the
Center for Automotive Research in Ann Arbor, Michigan, said today. Such a
reduction would provide Ford with only temporary relief, because U.S. rivals
General Motors Corp. and DaimlerChrysler AG's Chrysler would quickly demand
matching concessions, he said.
``If Ford's market share falls to 10 or 12 percent by this summer, and if
they start to burn cash at twice the rate they've planned, something will
have to be done,'' McAlinden said at a labor-relations seminar in Ypsilanti,
Ford, the world's third-largest automaker, captured 15.2 percent of U.S.
sales in January. The company lost a record $12.7 billion last year on
plunging sales of pickups and sport-utility vehicles. The company's UAW
contract, along with similar agreements at GM and Chrysler, expire Sept. 14.
Ford spokeswoman Marcey Evans declined to comment on the company's goals for
the contract talks. In a Jan. 3 meeting with reporters, Ford Chief Executive
Officer Alan Mulally said he plans to ask the union's help in strengthening
the company. He said wages, benefits and flexibility in deploying workers
would be issues.
``We're really, really worried about Ford,'' said McAlinden.
Ford shares rose 11 cents to $8.64 at 12:20 p.m. in New York Stock Exchange
composite trading. GM shares fell 18 cents to $36.16, and DaimlerChrysler's
U.S. shares fell 40 cents to $72.93.
Ford's Labor Bill
During 2006, Dearborn, Michigan-based Ford spent $3,227 per North
American-built vehicle on labor, a 15.1 percent increase in two years,
McAlinden said. The 2006 figure includes $2,592 per vehicle for wages and
health care for active workers, and $635 for retiree health care.
GM last year spent $3,289 per North American-built vehicle on labor, for a
14.7 percent increase over the two-year span, McAlinden said. The GM figure
includes $2,339 per vehicle for wages and health care for active workers,
and $950 for retiree health care.
Detroit-based GM, the world's largest automaker, reported net losses of
$3.03 billion through three quarters of last year, and has delayed its
fourth-quarter earnings release.
When Ford's current UAW contract expires in September, its number of active
UAW employees will have declined by 41 percent in four years to 55,000,
McAlinden said. GM's UAW headcount will have declined by 39 percent to
76,000, and Chrysler will have dropped by 30 percent, to 46,000, he said.
The three companies combined hope to cut another 20,000 UAW jobs by 2011,
`Baby Boomers' Retire
By that time, about 90 percent of GM's current workers --the so-called
``Baby Boom'' generation hired during the 1960s and 1970s, will have
retired. The company's willingness to replace them depends on whether the
UAW accepts wages and benefits for newly hired workers that match those at
Japanese-owned assembly plants in the U.S., McAlinden said. The replacement
rate will also depend on the union's flexibility in factory work rules that
Toyota Motor Corp. now pays its U.S. assemblers $26 an hour, compared with
$28 an hour at Detroit-based companies, he said. Toyota enjoys an even
bigger overall cost advantage because, among other things, it doesn't offer
a UAW-style early retirement option after 30 years of service.
``If these rates aren't matched by the UAW, the Detroit 3 will replace very
few workers,'' McAlinden said. ``They will move (manufacturing) capacity to
Mexico or off-shore.''
One of the UAW's goals during the talks, McAlinden said, will be to
replenish a Voluntary Employee's Beneficiary Association fund, or VEBA, set
up at GM and Ford to minimize out- of-pocket health costs for retirees. If
the current funds in the VEBAs are used up, these out-of-pocket costs could
double to $1,500 per family, he said.
With the average age of GM's existing workforce at 49 years, and with the
company carrying 400,000 retirees and surviving spouses, McAlinden said the
UAW may not allow its VEBA to be expanded to include GM's entire retiree
health care liability.
GM Chief Financial Officer Fritz Henderson said in January that he may be
interested in mimicking a similar plan adopted by Goodyear Tire & Rubber Co.
The UAW is also negotiating with Cerberus Capital Management LP about future
wages and benefits at the bankrupt auto-parts supplier Delphi Corp., which
GM spun off in 1999. Cerberus is the lead negotiator for a group of
investors that have offered $3.4 billion for most of Delphi's assets.
That offer expires on Feb. 28. McAlinden said the talks may continue for
another month as Cerberus is pressuring the union to trim wages for
skilled-trades workers such as pipefitters and electricians.
Skilled-trades workers at Delphi now earn $31.75 an hour, or twice as much
as non-skilled assemblers, McAlinden said.
"If they pull a knife, you pull a gun. If they put one of yours in the
hospital, you put one of theirs in the morgue."
Sean Connery, "The Untouchables"