UAW Members Reject Latest Ford Proposal as Automaker Reports $1 Billion Third-Quarter Profit

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Researched by Industrial Info Resources (Sugar Land, Texas)--In the past two years, Ford Motor Company (NYSE:F) (Dearborn, Michigan) has managed to quietly avoid the major problems that have affected the automaker's major American competitors. When both General Motors Corporation (Detroit, Michigan) and The Chrysler Group LLC (Auburn Hills, Michigan) were begging Congress for bailout funds, Ford sat by quietly and assured congressional leaders that things were going just fine in Dearborn, and that there was no need to subsidize.

While Ford's American competitors were struggling through bankruptcy, the company was quietly changing the way it did business and was negotiating with the United Auto Workers (UAW) (Detroit) union to reduce legacy and labor costs, helping the company remain competitive. However, the timing of positive news about Ford did not benefit the automaker. As Ford announced it was reporting nearly a $1 billion third-quarter profit this year, the UAW announced members had rejected the latest contract proposal offered by Ford.

This rejection of contract terms means that Ford and the UAW are unlikely to return to the negotiating table until the contract expires in 2011. Being unable to get additional concessions from the union means Ford will be operating at a disadvantage until the contract is completed. Both GM and Chrysler had managed to renegotiate their contracts with the UAW to help the companies survive bankruptcy proceedings.

While Ford did not have that hammer to bring down on the union if they were unwilling to negotiate, the automaker certainly has a valid argument for requesting concessions. Reductions in pay, as well as benefit considerations and other contract provisions, would place Ford in the same range as both GM and Chrysler when it comes to pay scales, enabling the automaker to continue its return to full profitability.

However, many workers felt that Ford did not need additional concessions since they were expected to report a third-quarter profit and avoided bankruptcy earlier this year. While both are indeed true, it does not mean the automaker does not need the same concessions from the union that both GM and Chrysler received.

The reported third-quarter profits are somewhat misleading. The cash-for-clunkers program helped to inflate U.S. sales during the quarter, something that likely will not be repeated in coming quarters. However, Ford is predicting that it will become solidly profitable by 2011, regardless of the contract negotiations falling through.

Ford's North American car and truck division surprised many by posting its first profit, $357 million, since the early part of 2005. Total revenue, however, did drop by $800 million during the quarter. Ford claims that it managed to cut costs by $1 billion during the same period thanks to job cuts in North America and Europe, reduced pension and health care costs, and programs designed to improve productivity and production in plants.

Ford is expecting a gain in market share this year, something it has not had since 1995, but it still will be a long, hard ride to return to profitability. There has been some talk about moving production to Canada, where workers approved similar concessions that were rejected in the U.S. last week, enabling Ford to assemble vehicles there at a more profitable rate.

When all is said and done, Ford probably will be fine without a new contract just yet. However, when negotiations are renewed in 2011, you can bet that Ford will be pushing for the same, if not more stringent, concessions.

Ford has managed to show a profit for a single quarter, which is a good thing for the automotive sector as a whole. But Ford, much like GM, Chrysler and the foreign automakers, has to show that they can show a profit on a consistent basis, quarter after quarter, for anyone to think the automotive sector has totally recovered.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.