Can Ford survive the UAW deal?
Ford Motor Company and the United Auto Workers have settled on a new contract, subject to ratification by the UAW members at Ford. The contract terms are thought to parallel those of the previously reached UAW contract with GM, including the VEBA trust to take over retiree health care costs.
But the question of whether Ford can survive the contract remains an open one. Articles discussing the new deal indicate that Ford, as did General Motors, has made plant by plant commitments to continue operating specific assembly facilities, and may even have agreed to back down from the previously announced plan to close sixteen plants over the next several years.
According to the Detroit Free Press, Ford may have promised to keep six of those plants open though the duration of the four year contract. Of the sixteen, Ford had already designated ten for closure. That means Ford is abandoning the plans to close six further plants. In return, Ford ostensibly gets more flexible rules for suspending production and laying off workers at the plants remaining open. However, the bottom line is that plants which were to have been closed won’t be closed.
The ramifications are symbolized by two Wayne plants. The Wayne assembly plant that currently manufactures the Focus will remain open after Focus production ends in three years. That means the plant will remain open for more than just the length of the present four year contract, as the company is unlikely to close the facility only a year after putting a new product into it. The Wayne Truck plant also stays open, even though the market for the SUVs built there has diminished drastically and shows no real signs of recovery. Thus, Ford has committed to building products for longer than the new contract and has committed to keeping plants open that are producing products not selling.
Ford also achieved a two tier wage plan which ties into their earlier-announced plan to buy-out more current workers from their jobs. New hires will come in at a lower wage scale than those being bought out, though it appears that this is not tied to whether or not the job is considered “core.” In the GM contract, the lower scale applied to non-core workers, rather than assembly line workers.
Ford has already achieved the workforce reduction it had targeted under the Way Forward restructuring plan, so the new buy-outs will be reducing employment below that level. 33,000 jobs have already been eliminated, of which 27,000 were UAW hourly workers employed at Ford plants.
The initial reaction by investment analysts was decidedly guarded. Though that response may have been due, in part, to the expectation that the Ford contract would be like the GM contract in most of its particulars, so that the substantial cost reductions achieved by the contract aren’t news, the decision to back off the plant closing plan previously announced is likely to raise doubts about Ford’s commitment to cost cutting.
Of course, it is also possible that Ford had been bluffing. That it had announced it would close 16 plants but named only 10 can be interpreted as a bargaining ploy, one in which they hold in reserve the ability to close more plants or trade off that threat in exchange for something else. Also, it is possible that the company genuinely concluded that the benefits of closing an additional six plants would be outweighed by having greater lay-off flexibility.
Eliminating the threat of further plant closings seems certain to lead to ratification of this contract. The specter of Chrysler’s decision to dump 12,000 employees right after settling with the UAW makes the deal reached with Ford look pretty good for the UAW members.
The overall impact, though, is reminiscent of the Peggy Lee song refrain, “Is that all there is?” To that might be added another question, “Is that enough?” Unlike General Motors, Ford is some distance away from bringing a number of new models to the market. While GM’s introduction of the new CTS and new Malibu for the 2008 model year are the product of commitments made long ago and appear to be paying off big, when Ford announced the Way Forward restructuring plan under then-CEO Bill Ford, Jr., it cancelled or delayed a number of new product projects. That means it is playing catch-up even more than before.
The real question is whether Ford, both the company and the former CEO, vacillated when it/he should have acted and whether the new CEO, Alan Mulally, has – or could have – made up for earlier product decisions. When former Ford announced the Way Forward restructuring plan, it cancelled or postponed a number of new product programs. Having done that, it did not act decisively to put other new product plans into place. Instead, it brought in a new CEO with no experience in the automobile industry, someone not equipped to make crucial new product decisions quickly.
Ford management has not shown leadership in achieving this new contract. The form of the contract was established by General Motors. What is good for GM, though, may not be so good for Ford, a company which has significantly less new cars in the development pipeline and significantly less money in the bank.
It is known that a segment of the Ford family, which controls the company, has favored consideration of selling out the family’s holdings. Bill Ford, Jr. has reportedly opposed those family members. But, the new contract’s terms lead one to question whether he’s opposed to the idea, or merely to the timing.
There are those who believe the plan of Cerberus Financial at Chrysler is merely to bolster the balance sheet and then “flip” the company to some other buyer at a profit.
The new Ford contract makes you wonder if maybe that’s the real plan at Ford.