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MarketScreener Homepage  >  Equities  >  Nyse  >  Ford Motor Company    F

FORD MOTOR COMPANY

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UAW Pact Sets Up Costly Deals for Ford, Fiat -- WSJ

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10/28/2019 | 01:48am EST

By Nora Naughton and Mike Colias

The new labor deal secured at General Motors Co. this past week to end a 40-day strike will not only add to the auto maker's labor costs but could also pose problems for its Detroit rivals.

The United Auto Workers will use the agreement at GM as a template that is expected to reach similar terms on wages and benefits in separate contract talks with Ford Motor Co. and Fiat Chrysler Automobiles NV, under the union's traditional pattern bargaining.

GM workers won considerable gains in this latest contract, including across-the-board wage increases, an accelerated timetable for new hires to reach top hourly pay and a path to full-time status for temporary workers.

The labor agreement approved by union members Friday after the UAW called a nationwide strike that lasted six weeks also held steady employees' out-of-pocket contribution for health benefits at about 3%, a fraction of what private-sector workers pay.

The new contract, covering more than 46,000 UAW-represented workers at GM, is likely to add roughly $350 million in annual labor costs to the company's finances by the end of its four-year term, Barclays analyst Brian Johnson wrote in an investor note. That is equivalent to about 3% of the annual operating profit GM has posted in recent years.

Any such labor-cost inflation would be more difficult to absorb at Ford and Fiat Chrysler, which are less profitable than GM and operating on thinner margins in North America, a region that delivers much or all of their profit, industry analysts say. The UAW said Friday it will bargain with Ford next, saving Fiat Chrysler negotiations for last.

The Detroit car companies usually wrap up labor talks with the UAW in the fall, but the extended strike at GM has delayed that timeline. Bargaining could still wrap up before the end of the year if there isn't another strike.

Ford has the second-highest labor costs of the three Detroit car makers, spending an average of $61 an hour on wages, benefits and other expenses for the company's unionized workforce, according to the Center for Automotive Research. Fiat Chrysler spends $55 an hour, and GM, $63.

Ford shares came under pressure last week after the company cut its profit forecast for the year, citing higher warranty costs, weakness in China and growing pressures in the U.S. market. Its profit margin in North America slipped to 7.1%, from 7.4% a year earlier.

Chief Executive Jim Hackett is trying to boost free cash flow to ease investors' concerns about how the company would fare as the U.S. auto industry prepares for an expected downturn in car-market sales.

Moody's Investors Service last month cut Ford's bond rating to junk status, citing weak cash generation and Ford's ability to weather a cyclical downturn. Standard & Poor's on Friday cut its rating on Ford to one notch above junk.

Ford executives are concerned about rising health-care costs for its 56,000 UAW-represented workers, which is a larger number than at GM. Ford's health-care tab is expected to top $1 billion next year for the first time, according to people close to the talks.

If forced to maintain the status-quo on health benefits, Ford bargainers are likely to push to offset with savings in other areas, these people say. One option could be to press for a smaller signing bonus than the $11,000 payout that GM workers are to receive for ratifying their contract, the people close to the talks said.

Matthew Schulte, a worker at Ford's truck plant in Dearborn, Mich., said he isn't too concerned about Ford matching that hefty signing bonus. But he expects the company to hold the line on bigger issues such as health care.

"With GM workers doing 40 days on strike, that's perhaps a sign for the auto makers that this is the pattern we established, and you need to take it," Mr. Schulte said.

For Fiat Chrysler, the Italian-American auto maker could have more trouble with the changes to new-hire pay and temporary workers' status, because many of the company's 47,200 UAW-represented workers were hired within the past decade and haven't yet reached the highest pay rung.

The GM contract cuts in half the time it takes for new hires to reach the new top rate of about $32 an hour, from eight years to four, meaning many Fiat Chrysler employees could top out much sooner and cost the company more for labor. New hires now start at roughly $17 an hour.

As is typical in pattern bargaining, the main economic gains made by the union in the first round of negotiations, such as on wages and health care, are largely carried over to the next two companies -- sometimes with minor changes to meet each auto maker's unique financial needs.

But after four years of steady profits, those tweaks will likely be more difficult for company bargainers at Ford and Fiat Chrysler to make, labor experts say.

If the other two companies push back on deals reached with GM on temporary workers or health care in particular, that could trigger another walkout because the UAW isn't likely to bend on terms that it fought hard for by striking GM, said Colin Lightbody, a former Fiat Chrysler negotiator and labor consultant.

"On economics, there is usually very little wiggle room, but this could be more of a strict pattern than we have seen in quite a while," Mr. Lightbody said.

Write to Mike Colias at Mike.Colias@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BARCLAYS PLC 1.35% 171.68 Delayed Quote.12.54%
FIAT CHRYSLER AUTOMOBILES -0.86% 13.148 End-of-day quote.4.57%
FORD MOTOR COMPANY -0.11% 9.01 Delayed Quote.17.91%
GENERAL MOTORS COMPANY -0.45% 35.38 Delayed Quote.6.25%
THE HACKETT GROUP, INC. -0.20% 15.24 Delayed Quote.-4.62%
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Financials (USD)
Sales 2019 146 B
EBIT 2019 5 567 M
Net income 2019 2 105 M
Finance 2019 7 233 M
Yield 2019 6,66%
P/E ratio 2019 17,6x
P/E ratio 2020 8,88x
EV / Sales2019 0,20x
EV / Sales2020 0,21x
Capitalization 35 724 M
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Mean consensus HOLD
Number of Analysts 21
Average target price 10,21  $
Last Close Price 9,01  $
Spread / Highest target 44,3%
Spread / Average Target 13,3%
Spread / Lowest Target -11,2%
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Managers
NameTitle
James P. Hackett President, Chief Executive Officer & Director
William Clay Ford Executive Chairman
Timothy Stone Chief Financial Officer
Jeff Lemmer Chief Information Officer & Vice President
Kenneth E. Washington Chief Technology Officer
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