Ford and UAW Have the Last Dance

No strike expected this time around

By Brendan Moore

10.15.2007

Ford and the UAW are next, and last, for the Big 3 labor hoedown, and there may be some different moves coming up in this last pas de deux.

Yes, pattern bargaining is the way the UAW likes to go, but there may be some problems with sticking to the same script that GM and Chrysler used in their labor agreement.

One, Ford’s financial position is more tenuous than either GM’s or Chrysler’s (they lost $12.6 billion USD last year and are still losing market share every month this year) and therefore they have less to give. Second, their workforce is a little younger then the other two of the Big 3, so Ford has less to gain. Third, at this point, Ford does not have all its North American product plans nailed down even 36 months out, so with that in mind, giving the UAW production guarantees for the desired 48-month contract term is going to be problematic.

But, all that notwithstanding, I expect that Ford and the UAW will reach agreement without the UAW going out on strike as they did with GM and Chrysler. Why?

Well, first and foremost, the UAW has always historically had the best relations by far with Ford, out of all the domestic auto companies. Second, the UAW is acutely aware of Ford’s financial bleeding. The UAW union official in charge of Ford, Bob King, is known as a straight-ahead, astute, well-informed practical negotiator and is not going to waste time with any wild-eyed demands or ridiculous posturing just for the sake of appearances. Third, the union has already signaled that they are willing to be flexible around the margins of the contract in order to accommodate Ford’s special business situation. Fourth, Ford has previously implemented in years past what GM and Chrysler fought hard for in their current contracts; that is, “competitive operating agreements” that have allowed them to outsource a lot of non-essential positions. Fifth, Alan Mulally, CEO of Ford, has a warm personal relationship with Ron Gettlefinger, the UAW president, and has stated that he considers Gettlefinger his “business partner” in the Herculean effort to bring Ford back from the edge of the abyss.

I am not unique in this perspective; some people in the markets are already anticipating a quick agreement between the UAW and Ford as evidenced the fall in rates for credit-default swaps regarding the debt of auto-parts makers. Credit-default swaps protect investors that buy the debt of the auto-parts companies, and if its considered more likely that the auto companies (Ford, Chrysler, GM, et al) will pay for the parts they order (because their financial situation has improved), then the rates for that debt insurance go down. As an example, the Wall Street Journal has reported that Visteon, Ford’s largest supplier, experienced a considerable drop in their costs of insuring against defaults – in a single 24-hour period, the cost fell to $695,000 for $10 million in bonds, down from $754,000 just a day earlier. That is a huge drop in one day, and obviously, most market analysts feel that UAW and Ford will get a deal done with a minimum of fuss.

I have to assume that’s why Ford was scheduled for last on the UAW’s dance card. They knew they would have to give more concessions to Ford in order for Ford to have a chance of staying in business, and the last thing the UAW wanted was for the more-generous Ford agreement to establish the template for the GM and Chrysler contracts.

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