Ford CEO Mark Fields noted the automaker paid $600 million for labor peace with the UAW.
Ford Motor Co. is setting aside $600 million in the fourth quarter to cover the cost of its newly ratified labor agreement with the United Auto Workers.
The $600 million will be used to cover the cost of the $8,500 ratification bonus due each of the company’s 53,000 hourly workers under the new contract, Ford executives said during a conference call.
It also handles back pay due employees to cover the incremental wage increases due under the terms of agreement. The retroactive pay goes back to the Sept. 14 expiration of Ford’s old pact with the UAW under the terms of the agreement.
Mark Fields, Ford Motor Co. chief executive officer, said during a conference call with analysts that while the new contract gives legacy workers hired prior to 2007 a 4% pay increase, their first in 10 years, and boosts significantly the pay of second-tier workers hired since the end of the recession, the overall cost to Ford is minimal.
“We estimate the contract will raise our labor costs 1.5% per year over the term of agreement, which is below what we anticipate as the rate of inflation,” Fields said.
Under the new contract, Ford has agreed to retain or create 8,500 jobs that might have been lost to attrition, efficiency improvements or outsourcing, but there is no specific commitment to increase the number of blue-collar employees beyond the current base, he said. The contract does call for the investment of $9 billion in plants in the U.S. where the UAW represents Ford employees.
During the next four years, Fields said the contract will eliminate almost all of the advantage in labor cost held by its domestic rivals, General Motors and FCA U.S., both of which went bankrupt during 2009. But the $8 to $10 per hour cost differential of nonunion plants operated by the transplants such as Honda and Toyota will persist, Fields noted.
(To see more about the approval of the new contract by the UAW, Click Here.)
Labor accounts for about 7% of the cost a new car and Ford will have to meet the challenge by increasing efficiency and productivity and creating new products that bring in more revenue, Fields said.
He side-stepped the question about Ford moving car production out of the U.S., but he noted the agreement will allow Ford to utilize its production base worldwide without violating its commitments to the UAW.
Overall, Ford expects its workforce to remain stable during the four-year term of the contract, but retirements should increase by 2019, giving Ford an opportunity to hire less expensive employees. The decision to expand medical benefits for new employees should have minimal effect on the company’s costs because new employees tend to be younger and less expensive to insure.
(Click Here for details about the F-150’s victory as Green Truck of the Year.)
Joe Hinrichs, president of Ford’s operations in the Americas, also turned aside questions about whether Ford plans to move production of the Ford Focus to Mexico. The announcement will be made at a later date, he said.
The new contract also gives Ford the flexibility it needs to make wider use of temporary workers to increase production and overtime if consumer demand increases or to reduce production in a downturn and improve efficiency, Hinrichs. The new contract includes more mandatory overtime and allows for the greater use of alternative work schedules, Hinrichs said.
(Ford develops suit to simulate driving while stoned. For more, Click Here.)
Fields also deflected a question suggesting the narrow margin of ratification, 51% to 49%, indicated rising dissatisfaction with working conditions in Ford factories. “If you look back over the last several years, these things are always close,” he said.