The contract negotiations have started
Ford: Cut labor tab 30%
Ford Motor Co. is entering this summer's national labor talks with a
clear, if audacious, goal: Cut hourly labor costs by about 30 percent to
reach parity with Asian rivals operating in the United States.
Ford pays its workers $71 an hour in wages, pension and health care
benefits -- "all in," according to industry parlance -- and wants to cut
that to about $50 an hour as part of CEO Alan Mulally's drive to again
make Ford "competitive," according to people familiar with the situation.
Reaching a deal of such magnitude would be no easy feat and is by no
means guaranteed, however dire Ford's circumstances are. But it would
amount to the "transformational" labor agreement Mulally is telling
insiders Ford needs if it hopes to dig out of its deepening hole.
Selling such an obviously concessionary deal to United Auto Workers
leaders, who, in turn, would need to lobby their members, likely would
require invoking apocalyptic scenarios -- including bankruptcy -- and a
willingness to risk a damaging strike.
"Anybody who says it will be simple is fooling themselves," Michael
Robinet, vice president of CSM Worldwide, an industry consultant, said
Tuesday. "It's going to be a tough sell."
Yes, it will. But the truth is that the UAW, whose institutional
lifeblood was, is and will be Detroit's three automakers, is running out
of workable options almost as fast as Ford is.
Betting on the Blue Oval
To raise cash to fund a North American turnaround, Mulally essentially
has mortgaged all of the automaker's U.S. assets, including the Blue
Oval. He sold Aston Martin. He is exploring "strategic options" for
Jaguar and Land Rover, meaning the chronic money pits (especially
Jaguar) are being shopped around by investment bankers. And don't be
surprised if word resurfaces that Ford is shopping around Volvo, too.
The clear messages: Ford needs all the cash it can get to weather what
is likely to be a very dangerous storm over the next few years, and that
survival of the 103-year-old company is not assured.
A Ford spokeswoman, Marcey Evans, declined to comment Tuesday, saying
the automaker does not publicly discuss "issues we expect to be in play
around our discussions. And we expect to keep those discussions private."
A UAW spokesman did not return a call seeking comment.
Despite Ford and the UAW reaching a deal on retiree health care,
ratifying dozens of competitive operating agreements at local plants,
agreeing to plant idlings and green-lighting a national buyout offer for
hourly workers, the automaker's intertwined manufacturing-and-labor
empire remains uncompetitive.
Since 2000, people familiar with situation say, the Dearborn automaker's
manufacturing cost per unit has steadily increased. Its fixed costs as a
percentage of revenue have jumped to 38.1 percent (compared to Toyota's
roughly 24 percent) today from 24 percent in 2000, even as Ford's U.S.
market share has slipped to 16 percent from 22.6 percent.
Left unaddressed, and in dramatic fashion, this is a recipe for going
out of business.
Competitive pressure mounts
Excluding plants scheduled to be closed this year, Ford's plant
utilization is the worst in Detroit -- 77 percent -- compared to 88
percent at Chrysler and 93 percent at General Motors Corp. Toyota, by
comparison, utilizes 103 percent of its plant capacity (through extra
shifts) and augments its sales with imports.
Even break times at Ford trail the competition. On average, Ford's
hourly workers get 46 minutes of break time per shift, compared to 30
minutes in most foreign-owed plants operating in the United States. The
16-minute difference amounts to a cost disadvantage of roughly $70 per
And the pressure is only likely to get worse. Since 2000, the number of
nameplates being offered to American consumers has jumped to 289 from
253. By 2011, the number is expected to be 345, a 36 percent increase
over a decade -- and evidence that the U.S. market will continue to
fragment, placing an even higher premium on manufacturing flexibility
How the UAW leadership, already fully briefed on Ford's issues, and its
members process Ford's just-the-facts approach to this summer's contract
talks will be crucial in determining whether there's a deal or an
explosion in Motown.
It promises to be a delicate balancing act between a) drawing a
realistic picture of where Ford is, how the union can help and what the
real risks are and b) appearing to heap too much blame, publicly, on the
union when it is management that designs, engineers and markets cars and
"They all understand the problem," says Ron Harbour, president of
Harbour Consulting in Troy. "They all recognize it. They all know
there's a gap, but how do you sell it? They have to make sure they make
decisions that protect the viability of the company going forward."
DTW's brutal reality bites
Meaning the stock bargaining phrase of just-let-me-get-to-retirement
won't cut it this year. Why? Because doing a creeping, incremental deal
means there may be no retirement to go to.
Both sides face a brutal reality. To achieve cutbacks totaling some $21
an hour, material changes likely would be made to pensions, health care
for workers and retirees and maybe even wages.
Also possible: Creation of a fund, called a Voluntary Employment Benefit
Association, that would essentially transfer the retiree health care
liability to union oversight, a closely watched move pioneered by
Goodyear Tire & Rubber Co.
As much as the UAW's understandable response to Ford's demands might
well be "we've already done enough," the facts are that they haven't if
the goal is to be competitive with foreign rivals operating here and,
most importantly, to restore profitability to ensure their employer's
"They've got tough choices," says David Cole, chairman of the Center for
Automotive Research in Ann Arbor. "Ford is the most vulnerable. If you
run out of cash, you're gone. It's a bet. The risk of saying, 'I'm not
going to do it' is you might lose it all."