CEO Alan Mulally will likely good news on Q3 earnings, today, but it will be undercut by the UAW's rejection of proposed concessions.
With one of the worst recessions slowly dragging to a close and auto sales just beginning to show some vague signs of life after the more severe downturn in decades, one might think the likelihood of a good third-quarter earnings report by Ford Motor Co. would be something to cheer about.
Not necessarily. Ironically, it could make it even harder for Ford to compete in the long-run.
Though the automaker has so far posted profits of $834 million for the first six months of 2009 – a sharp turnaround from the $29.8 billion it lost between 2006 and 2008 – this year’s black ink was largely due to debt reduction and one-time charges and, and not a true profit from operations. But the third quarter, according to analysts’ estimates, is expected to bring black ink from what Ford is supposed to do best: build and sell automobiles.
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The forecasts variety widely. One survey, by Thompson Reuters, predicts a relatively modest loss of 13 cents, barely 10% of the $1.31 loss during the third quarter last year. But J.P. Morgan analyst Himanshu Patel is more bullish, forecasting a 16 cent profit per share.
So, why might that be a problem? Because the automakers U.S. workers have rejected a demand for concessions that would have put Ford’s labor costs on par with its two cross-town rivals, General Motors and Chrysler, and at roughly the same level as the European and Asian “transplant” assembly lines that long had a significant advantage over Detroit.
Workers have made a number of givebacks to Ford that significantly narrowed the gap with the transplants, but as part of their bankruptcy reorganizations, earlier this year, GM and Chrysler got even bigger concessions. Ford was the only member of Detroit’s Big Three to reject the bankruptcy route, foregoing the government aid that served like a pacemaker for its failing domestic rivals.
If anything, the Dearborn maker has gone to great lengths to emphasize that it can stand up on its own, starting with the Congressional hearings, late last year, in which Mulally sat alongside his one-time comrades-in-arms, then-GM CEO Rick Wagoner and Chrysler’s former Chairman Bob Nardelli.
Notably, when Mulally was asked if he, like some other embattled bosses, might agree to work for just $1 a year during the industry meltdown, he responded, “I think I’m okay where I am,” with a package worth more than $13 million when you add stock options to salary, benefits and benefits. As one of my colleagues, Detroit Free Press columnist Tom Walsh points out, workers this past week sent Ford the message that, they’re okay, too, with what they’re making.
Among other things the union has rejected are a wage freeze for newly-hired employees, a reduction in work categories among skilled labor, and a plan to subject both sides to binding arbitration should they hit a deadlock during bargaining when the current contract expires in 2011.
Such changes are relatively small, in terms of savings, when compared with the big concessions granted two years ago. That included the creation of an employee-run health care program that effectively took one of the biggest – and growing – costs Ford faced for its workforce off the company books. But, nonetheless, in an industry where a nickel a car’s savings can make a huge difference, the defeat of the revised contract is a serious setback.
Early in the decade, the UAW rejected a similar demand for concessions from Chrysler which, at the time, appeared to be the healthiest of the Big Three, and the only one not to receive an early round of givebacks. While the union was by no means responsible for Chrysler’s current mess, it certainly hurt the maker to pay more per car than its competition.
It’s not clear the fat unionist has sung, however. Automakers have a way of putting pressure on their workers, especially these days. And Ford has won some locals over with promises to provide them more work – or threats to take work away. The automaker could ramp up the heat on a few key plants, some observers believe, and change the outcome.
Perhaps, but today’s good news will likely make it even more difficult to sell a sob story to workers who’ve already given up more than at any time since the bloody battles that helped the UAW organize Ford seven decades ago. And it seems unlikely that CEO Mulally will set a belated example to show that everyone needs to pitch in.