2007 UAW contract talks

Ford may seek deeper cost cuts

Automaker worries UAW's deal with GM doesn't go far enough in cutting labor costs.

Bryce G. Hoffman / The Detroit News

The tentative agreement between the United Auto Workers and General Motors Corp. may be the game-changing deal that paves the way for GM's revival in its key home market, but executives at Ford Motor Co. already worry that it may not cut costs deep enough for them.

Ford is in worse financial shape than its crosstown competitor, a fact that is not lost on the UAW. The union's president, Ron Gettelfinger, said Wednesday that he expects the deal with GM to set the pattern for agreements with Ford and Chrysler LLC, as is traditional in Detroit. But experts say it is likely Gettelfinger will take a broad interpretation of that pattern, at least when it comes to Ford.

CEO Alan Mulally has made it clear that he is unwilling to accept a deal that does not make Ford fully competitive with its Asian rivals. To do that, Ford needs to cut its U.S. labor costs 30 percent.

Ford bargainers are poring over details of the UAW-GM agreement. Sources familiar with the situation told The Detroit News they still are not sure how far the deal goes on some key points, but executives in Dearborn are concerned it won't achieve Ford's cost-cutting goal.

Experts such as David Cole, chairman of the Center for Automotive Research, agree. They also believe the union is prepared to offer more favorable terms.

"The last thing the UAW wants to do is jeopardize the future of Ford," he said. "They'll get some modification that fits the situation."

Ford's turnaround is years behind GM's, and the Dearborn automaker has mortgaged all of its U.S. assets to pay for it. Ford lost $12.6 billion last year compared with GM's $2 billion.

The two-tier wage component of the GM deal helps that automaker far more than Ford. GM's work force is much older than Ford's, so more GM workers are likely to retire sooner, making room for lower-paid new hires. Moreover, Ford still has to make room for thousands of former Visteon Corp. workers that it agreed to take back as part of a bailout agreement with its former parts subsidiary in 2005.

Even the much-touted agreement on retiree health benefits helps GM more because it has about twice as many retirees and retiree dependents as Ford. The math is simple: the voluntary employees' beneficiary association, or VEBA, will save Ford about half what it saves GM.

GM agreed to pay the union about 70 cents on the dollar to take over its retiree health care liabilities. Ford could negotiate a deeper discount or lobby for temporary wage rollbacks with the condition that the money saved would be invested only in the United States.

"Of course, GM would scream bloody murder," said Sean McAlinden, chief economist for the Center for Automotive Research. "It's going to be difficult for them with GM leaning over their shoulder."

Departing from the pattern agreement would not be without precedent, however.

After the 1982 federal bailout of Chrysler, the UAW negotiated much more generous terms with that automaker than with GM or Ford. More recently, Gettelfinger refused to grant Chrysler the same concessions on retiree health benefits that he gave to Ford and GM in 2005.

Sources familiar with the situation say Chrysler will push to get those concessions as part of this year's contract, and will also want the union to agree to let it sell off certain assets to raise cash as part of its restructuring.

But McAlinden said it will be more difficult for Chrysler to negotiate better terms with the UAW because it is in comparatively better financial shape than the other Detroit automakers, is not losing market share as fast and already had some retiree liabilities trimmed as part of the purchase agreement with DaimlerChrysler AG.

Gettelfinger sent mixed signals Wednesday about which automaker the union would negotiate with next. The UAW signed indefinite contract extensions with both of those automakers. Either side can cancel those extensions.

Selling UAW-Ford members a different deal than their counterparts at GM would likely be a real challenge for Gettelfinger. But there may be ways to structure a pact with Ford that gives it more of what it needs while giving something to the UAW.

For example, many local competitive operating agreements the UAW already has with Ford allow the automaker to outsource many of the same sort of jobs covered by the two-tier wage component of the GM deal.

Ford could agree to give those jobs back to the union at that lower wage. It would not cost Ford much more, and it would give the UAW something it desperately needs: more members.

Wall Street is viewing GM's deal with the UAW as a positive for Ford, but some analysts say any deal that does not make Ford fully competitive is not worth signing.

"Who says the UAW gets to negotiate with GM and then jam it down the other guys' throats?" said Bradley Rubin of the bank BNP Paribas. "Ford is worse off. They need more. It's as simple as that."