DETROIT (AP) -- A new contract with the United Auto
Workers has nearly eliminated a $30-per-hour labor cost gap with
Japanese competitors, setting up Ford Motor Co. to roll out more new
products and return to profitability, the automaker said Thursday.
Marty Mulloy, the company's vice president for labor affairs,
said shifting Ford's long-term retiree health care costs to a
union-run trust and a new lower-tier wage scale will remove much of
the gap.
"I'd say very close but not all the way," he said during a
conference call to explain the landmark four-year deal with the UAW.
The union announced on Wednesday that Ford's 54,000 UAW workers
overwhelmingly ratified the contract, reached Nov. 3 after a
marathon bargaining session.
Ford also said it will make another round of buyout and early
retirement offers to UAW workers by the end of the year, with
departures expected to begin in the first quarter of 2008. Terms and
timing have yet to be negotiated with the union.
The contract eventually will shift a $23.7 billion retiree health
care liability into the trust, which Ford will fund with a
combination of $13.2 billion in cash and notes, the company said.
That amounts to roughly 56 percent of the obligation.
In the presentation, Ford said it expects a net cash flow benefit
of $1 billion per year once the retiree health care costs are
shifted to the trust in January 2010.
Ford said the cash flow benefit includes health care cost savings
of $1.6 billion per year, offset by the cost of contributions to the
trust, called a voluntary employees beneficiary association.
The company's contribution breaks down to $2.7 billion in cash,
$3.8 billion from an existing VEBA, a $3.3 billion note convertible
into about 363 million new shares of Ford stock, a $3 billion second
lien term note and $400 million in deferred payments.
The VEBA still must be approved by a federal judge, and Ford
would continue to be responsible for retiree health care until the
trust takes over, the company said. But benefits from the reduced
health care liability will begin to show up on Ford's balance sheet
next year, the company said.
The other big savings component for Ford is wages, including the
UAW agreeing to a pay structure for new hires starting at $14.20 per
hour, about half that of a current worker.
Up to 20 percent of Ford's hourly work force can be paid the
lower wages, plus all the workers at parts-making plants in
Ypsilanti Township and Sterling Heights.
Ford would use buyouts and early retirements to get existing
workers to leave, clearing the way for the new, lower-cost hires.
Before the lower wages can be paid, Ford must take on workers who
want to return to the company from factories now in a holding
company awaiting sale or closure. About 1,100 of those workers have
signed up to return and 5,200 remain, Mulloy said, adding that he
could not give a timetable on when the company would begin taking
advantage of the lower wages.
Unlike similar deals the UAW reached with Chrysler LLC and
General Motors Corp., the Ford contract allows the company to pay
the lower wage to any new hourly employee. The Chrysler and GM pacts
only allow the lower wage for jobs not directly involved in making
vehicles or parts.
Ford also won the ability to contract out grounds maintenance,
housekeeping and janitorial functions at its facilities, and
contract language requiring minimum employment numbers at each plant
was eliminated, the company said.
The deal was tailored to Ford's needs and "is a product of
collaborative bargaining with the shared goal of creating a viable
and profitable Ford Motor Co.," President and Chief Executive Alan
Mulally said. "We are now in a position to really accelerate our new
product development with great new products built by our UAW work
force."
The contract, like those with GM and Chrysler, has no base pay
increases, but gives lump-sum payments of $3,000 this year and in
the remaining three years averaging $2,200 to $3,000, Ford said.
In exchange for the deal, Ford agreed to save from closure five
factories that it had planned to idle under a restructuring plan.
The plants are Louisville Assembly in Louisville, Ky.; Wayne
Assembly and Wayne Stamping in Wayne, Mich.; the Rawsonville parts
plant in Ypsilanti Township, Mich.; and Dearborn Diversified
Manufacturing near Ford's headquarters in Dearborn, Mich.
In addition, the company agreed to extend for one year the life
of the Cleveland Casting plant in Brook Park, Ohio, and Twin Cities
Assembly in St. Paul, Minn., both of which were to close.
The company also decided not to build a low-cost assembly plant
in North America, giving it one assembly plant more than it had
targeted in the restructuring plan, said Joe Hinrichs, Ford's vice
president of North American manufacturing.
Ford has the ability in the contract to idle a factory if
necessary, "but that's not what our plans entail going forward,"
Hinrichs said.
Ford also will spend millions to build state-of-the-art body
shops at five assembly plants, making them flexible enough to build
multiple models, Hinrichs said.
Still, Ford has too much factory capacity, but the benefits from
the deal seem to be worth keeping the plants open, said Erich
Merkle, vice president of auto industry forecasting for the
consulting firm IRN Inc. in Grand Rapids.
"I think they did what they had to do," Merkle said. "They
probably did not want to approach it at this particular time, but
the capacity issue at some point is going to have to be addressed."
Ford shares fell 18 cents, or 2.26 percent, to $7.80 in afternoon
trading.
Ford Motor Co.: http://www.ford.com/