A tentative agreement gives union members at the carmaker their best terms in decades but could complicate Ford’s electric vehicle plans.
When autoworkers went on strike in September, executives of the large U.S. automakers warned that union demands could significantly undermine their ability to compete in a fast-changing industry. The chief executive of Ford Motor said that the company might have to scrap its investment in electric vehicles.
The future doesn’t look quite that bleak now that Ford and the United Automobile Workers union have reached a tentative agreement that is likely to serve as a template for deals the union eventually reaches with General Motors and Stellantis, the maker of Ram, Jeep and Chrysler.
Ford’s costs will rise under the terms of the new contract, which includes a 25 percent raise over four and a half years, improved retirement benefits and other provisions. The extra expense will weigh on profit and could hamper Ford’s ability to invest in new technology, John Lawler, the company’s chief financial officer, said Thursday.
But some analysts said the increases should be manageable. What will matter more for the company’s prospects, they said, is how innovative and efficient the company is in designing and producing cars and technology that can compete with offerings from Tesla, which dominates electric vehicles, the auto industry’s fastest growing segment.
“They haven’t agreed to anything that will kill their competitiveness,” said Joshua Murray, an associate professor at Vanderbilt University who is an author of a book that examined how U.S. automakers lost ground to Japanese and European rivals. He said the deal could even help Ford, in part because the four-year contract ensures there would be no labor strife during an intense phase of the transition to electric vehicles.
“They won’t be engaged in labor conflict while they’re dealing with” the technology shift, Mr. Murray said.
Ford said on Thursday that it earned $1.2 billion from July through September on revenue of $44 billion; the company lost $827 million in the third quarter of 2022. But the division that makes electric vehicles lost $1.3 billion because of investments in new technology and increasing competition that has pushed down prices.
The roughly 17,000 Ford workers who had been on strike, out of a total of 57,000 U.A.W. employees at the company, are expected to begin returning to factories soon. At U.A.W. Local 900 in Wayne, Mich., across the street from a Ford plant that was one of the first three factories to be struck by the U.A.W., workers were disposing of signs, firewood and bottled water that had been stockpiled for picket lines.
“This is the best contract I have seen in my 30 years with Ford,” said Robert Carter, 49, who works with engineers to lay out work stations on the assembly line. He said younger workers who had been earning well below the top wage of $32 an hour would see the biggest impact with the new contract; their pay would rise to more than $40 an hour over the next four and a half years.
“For some people, their pay is going to almost double,” he said. “How can you say that’s not huge?”
The reaction on Wall Street suggested that investors did not regard the agreement as a catastrophe. The carmaker’s shares fell 1.7 percent during regular trading on Thursday.
But Ford stock slumped almost 5 percent in after-hours trading after the company said that, because of the cost of the strike, it could no longer stand by an earlier estimate that profit before interest expenses and taxes would be $11 billion to $12 billion in 2023. Mr. Lawler also said that strike would cost the company $1.3 billion this year.
Analysts at Barclays estimated the annual cost of pay raises, improved retirement benefits and other measures in the new union contract to be $1 billion to $2 billion annually by the end of the four-year contract period, or equivalent to about 1 percent of sales.
Mr. Lawler said on a conference call that the contract would raise the company’s labor costs by an average of $850 to $900 per vehicle. He said Ford would try to “identify efficiencies and improve productivity to help us deliver on our targets” in light of those higher labor costs.
Some analysts were critical of the deal with the U.A.W., saying the cost to Ford could put it at a significant disadvantage, perhaps prompting the company to move more production to Mexico.
“It adds a constraint in a very competitive market,” said Jonathan Smoke, chief economist at Cox Automotive. “It’s definitely a compromise that, I think, down the road will either limit Ford’s performance or force them to consider alternatives.”
During the contentious negotiations, Ford complained that a big raise for workers would put it even further behind Tesla in the electric vehicle market. Sales of Ford’s two main battery-powered models, the F-150 Lightning truck and the Mustang Mach-E sport-utility vehicle, have been disappointing this year, and the company recently scaled back plans to increase production of the Lightning.
“There is tremendous downward pressure on E.V. pricing,” Mr. Lawler said.
But Tesla and other automakers like Toyota, Hyundai, Nissan and Honda, whose factories in the United States do not have unions, may now face pressure to raise wages, eroding any cost advantage they might have had.
The U.A.W. has declared its intention to try to organize those factories. The pay agreement with Ford, by far the biggest boost in compensation that the union has won in decades, is likely to serve as a powerful advertisement for collective bargaining.
“Elon Musk better be looking at this,” said Madeline Janis, executive director of Jobs to Move America, an advocacy group that has close ties to organized labor. “Hyundai and Toyota better be looking at this. This is a new era where workers are standing up.”
Tesla, the company Mr. Musk runs, and other carmakers that don’t have union workers in the United States, like BMW, Mercedes-Benz and Volkswagen, may decide to pre-emptively hand out raises to keep labor organizers at bay.
“One strategy to deter union organizing is to raise wages,” said Rebecca Kolins Givan, an associate professor of labor studies and employment relations at Rutgers University.
The decisive factor in the electric vehicle market will be the ability of Ford, G.M. and Stellantis to produce innovative products, Ms. Givan and others said. That is the responsibility of management, not assembly line workers.
“It’s clear that these companies have work to do in the electric vehicle market,” Ms. Givan said. “There is nothing in this contract that creates any constraints.”
In addition to the 25 percent pay increase, the contract gives Ford’s hourly workers cost-of-living wage adjustments, major gains on pensions and job security, and the right to strike over plant closings. The union had initially asked for a 40 percent wage increase.
Ford has not yet set dates for restarting plants idled by the strike. The company previously said it could take up to four weeks to reach full production. Ford also needs some 600 suppliers to resume production and to deliver parts.
“Bringing a plant back up is much more difficult than taking it down,” Bryce Currie, vice president of Americas manufacturing at Ford, said this month.
Workers at the Wayne plant, which makes the Ranger pickup and the Bronco sport-utility vehicle, had not received return-to-work orders on Thursday, but they expected to be back on the assembly line next week.
Walter Robinson, 57, has worked at the Wayne plant for 34 years and expects to retire by the end of the new contract. But he said three of his children work for Ford and would see a big benefit from the new terms.
“My daughter has only been here two years, and it was going to take years for her to get the top wage,” he said. “This is going to help her immensely. This is going to make all of their lives better.”
Source: Economy - nytimes.com
