By on November 30, 2015

 

Ford will pay only 1.5-percent more in labor costs each year under a new contract with the United Auto Workers, the automaker reported Monday.

Ford announced it would take a $600 million charge this year to pay out the $10,000 ratification bonuses to their workers as part of the new deal.

The new deal allows the automaker to hire more low-cost workers who will either be temporary or entry-level employees, shift production of some of its cars overseas and continue using controversial “alternative work schedules” that favor fewer, longer shifts instead of traditional work days.

The contract closes the gap to other U.S. automakers because “the agreement aligns our labor cost structure more closely with our competition and improves our manufacturing productivity and staffing flexibility,” Ford president and CEO Mark Fields said in a statement.

According to Bloomberg (via Automotive News), Ford’s anticipated labor cost per car will rise to $2,600 in 2019 from $2,401 in 2014, which would still be the most for any Big Three automaker: Fiat Chrysler Automobiles’ cost would be $2,500 and General Motors $2,350, according to the report.

Ford’s hourly labor cost will also rise to $60 per hour in 2019, up from $57 this year.

The union contract was narrowly approved in an 11th hour vote at one of Ford’s biggest facilities. According to the UAW, its contract with Ford was approved by 51.3 percent of production workers and 52.4 percent of skilled trades workers.

All three of the Detroit automakers are shifting higher-margin vehicles to North American plants, in part to offset the labor costs. In some cases — such as the Ford C-Max and Focus and Chrysler 200 — automakers are moving car production to Mexico where labor costs are lower.

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48 Comments on “Ford Softens Labor Impact Under New Agreement...”


  • avatar
    Lorenzo

    It sounds like Ford needed, and got, a lot of what the workers were complaining about (longer shifts, keeping the lower tier). The UAW appears to realize how tenuous American auto competitiveness is, and is opting to preserve jobs over gaining benefits and working conditions. They really need to sell that to their members who probably see the sales and profits and think the makers are rolling in cash and the record sales/profits conditions will last forever.

    • 0 avatar
      highdesertcat

      The UAW aren’t that smart. If they were smart they would not have driven GM and Chrysler into the grave, bailouts, handouts and nationalization notwithstanding.

      What the UAW MAY have come to recognize is that the vast majority of real-world new-car buyers choose for non-UAW-built vehicles.

      Ford’s F150 most likely will remain the best selling vehicle in the US, but the rest of the product line remains also-rans. And in the overall scope of things, the F150 sales numbers are just a small percentage of a 17+million SAAR.

      • 0 avatar
        28-Cars-Later

        I think in its purpose the UAW fails to plan strategically many years into the future, nor does it need to have a grand decades long strategy – it is not a business. The fact it has a monopoly doesn’t help the situation either. If workers were dissatisfied with the conduct of the organization, what recourse do they have?

      • 0 avatar
        bball40dtw

        If you remove the F-Series out of Ford’s US Sales, they still have a 12% market share. That’s pretty significant market share, even without the F-Series.

        • 0 avatar
          28-Cars-Later

          Must be all of those MKTs being driven by big shots.

        • 0 avatar
          highdesertcat

          It’s always better to sell, than not. Some OEMs would kill for 12% even if augmented by fleet and rental car sales, yet others have a larger share of the sales pie.

          Were one automaker to fail or stop selling in the US, another would take up the slack.

          Were VW to fail or be forced to quit selling in the US, there would be no shortage of choice as others would step up to the plate and simply sell more of their products to fill the void.

          • 0 avatar
            28-Cars-Later

            I’m waiting to see if this eventually happens to VWoA but I’m thinking probably not.

          • 0 avatar
            bball40dtw

            I think it’s too expensive for them to close up shop.

          • 0 avatar
            highdesertcat

            VW is big in other markets, countries around the planet. The US arm of VW will simply be supported by the profits made in other parts of the world. Kinda like a “loss center” instead of a profit center or cash cow.

          • 0 avatar
            28-Cars-Later

            I agree, HDC. Although we already have seen how subsidizing loss making operations with margins from other product lines only works until a major business or geopolitical event occurs and the whole edifice comes crashing down.

          • 0 avatar
            highdesertcat

            Yup, and for big business, that’s what’s it all about.

            In my area, Sears/K-Mart, JCPenney and Bealls are subsidized by their parent companies because customer traffic is sparse.

            OTOH, Wal-Mart SuperCenter, Home Depot and Lowe’s brightly outshine everything else in customer traffic and kah-chingggggg.

      • 0 avatar
        Big Al from Oz

        highdesertcat,
        The F-150 is NOT the best selling vehicle in the US. More Silverado 1500s are sold than F-150s.

        From a manufacturer, even the F Series is number two behind General Motors pickup line of Silverados, Colorados, Canyons and Sierras.

        I believe that puts Ford in the number two spot.

        Also, GMC and Chev have the same shareholders.

        • 0 avatar
          Lou_BC

          Big Al – Chevrolet Silverado, Chevrolet Colorado, GMC Sierra, and GMC Canyon are ALL legally considered separate product lines from separate divisions.

          I do not recall Ford ever tallying Ranger and Lincoln sales with that of F Series to claim the crown?

          GM used to be #1 in sales globally…… they still went bankrupt.

          And lastly, it isn’t a recent phenomenon to see Chevrolet 1500 outsell Ford F150.

          I might as well brace myself for the “steel pickups saves Ford’s sales crown/bacon” rebuttal.

          • 0 avatar
            highdesertcat

            Lou_BC, I never did understand why Ford lumped all their F-series trucks in one category but AFAIK it’s been like that since forever.

            And that’s what the US auto industry goes by. All Ford’s F’s in one category while GM splits theirs between Chevrolet and GMC.

  • avatar
    RHD

    The 10,000 dollar signing bri-, I mean, bonus, comes out of the pockets of future employees.

    • 0 avatar
      28-Cars-Later

      Xer explained the signing bonus acts as more of a COLA raise than a “bonus” per se. Someone please correct me if I am wrong in this thinking.

      • 0 avatar
        highdesertcat

        I believe that both you and Xer are right with this conclusion, but no matter what it is ultimately called, it remains money received for services NOT rendered and not part of the existing contract.

        IOW, a remuneration to achieve a desired outcome in order to get member support. Therefore, a b-r-i-b-e.

        • 0 avatar
          dwford

          Still confused as to why Ford needs to bribe their workers to continue doing a job that pays them $120k in wages and benefits

          The UAW workers really have no idea how far out of sync they are with the rest of America.

          If I were management I’d have built a couple empty plants in Mexico, ready for equipment, then dare the UAW to strike.

        • 0 avatar
          bball40dtw

          It’s good for all parties though. Ford gets to pay it in a year where they have record setting profits, the UAW gets a deal done, and $10,000 right now is better than $10,000 spread over 4 years.

        • 0 avatar
          28-Cars-Later

          I’m not up on this, but to my understanding you get X pay or X benefits in Y contract and it is not to change during the period. When Z contract is negotiated pay may or may not go up but the signing bonus acts as a COLA increase based on the Y contract’s during the previous contract period when raises could not be issued. So, effectively a retroactive COLA increase. Maybe the way it is structured workers feel like its a bit of a “bribe”, I dunno, but the math seems to work out as a COLA raise.

          • 0 avatar
            highdesertcat

            COLA means Cost Of Living Allowance, and the cost of living has gone down since oil crashed because of its overabundance and availability.

            The COLA moniker is a misnomer. It should be b-r-i-b-e.

          • 0 avatar
            28-Cars-Later

            Personally, I haven’t seen *anything* come down but conventional gasoline.

          • 0 avatar
            highdesertcat

            Diesel is down in my area as well, as is AVGAS, JP-8, etc.

          • 0 avatar
            bball40dtw

            I think 28 is referring to other costs. Rent and food ain’t dropping in price.

          • 0 avatar
            highdesertcat

            Rents nationwide are at an all-time high. In fact, we’re (the bid’ness) going to jack up our rents eff 1 Jan 2016 by 5%-10%, depending on if apartments or SFD, with or without pool.

            Gotta get a slice of that anticipated increase in minimum wage.

            We’re not alone. I believe MOST landlords will also. And if they don’t, they’re stupid. Nay, beyond stupid.

          • 0 avatar
            28-Cars-Later

            I think its down here as well but I think its still around $2.89 with gasoline between $2.15 and 2.30 in the tri-state area. I don’t buy diesel so I don’t pay much attention to it.

            RBOB Dec futures are trading at $1.3850, Jan at $1.327 so this is about as cheap as its gonna get. WTI trading at 41.88/42gal per bbl=$1.002/gal for the raw material.

            Additional:

            @HDC You can’t get blood from a stone. COLA/inflation etc is what it is but 10% sounds a bit excessive and in this fake economy only so much fiat can be generated by the average prole. Did you know an $80K/USD income is somewhere in the range of 75% percentile of the highest in the nation? $80K/taxable is nothing, hell $80K cash doesn’t buy one much these days.

            @bball

            Indeed.

          • 0 avatar
            bball40dtw

            I’m not raising the rent of our rental property in Tucson. $600 more a year isn’t worth making our tenant, that used to work with my wife, think about moving elsewhere. Plus, the condo is paid off now. I’ll just wait until they move out.

          • 0 avatar
            28-Cars-Later

            Speaking of real estate, what do you guys think of a $275 HOA fee, or for some perspective, about 1/3 of your total cost per month in HOA? Covers everything but electric and taxes (the latter of which is another 1/3).

          • 0 avatar
            bball40dtw

            $275 isn’t terrible. How much are property taxes? My condo/townhome HOA is $125/month. My taxes are less than $100/month though. What are the taxes like? I don’t have an HOA for my owner occupied house in Michigan, but my property taxes run $6000/year.

          • 0 avatar
            highdesertcat

            “@HDC You can’t get blood from a stone. ”

            It’s just business. If they don’t like it, can’t afford it, whatever, they’re free to move.

            We don’t pay for water, elec, gas, cable, sat, landline phone, whatever. That’s over and above the rent they pay us. We think our clients are getting a great deal and they are properly vetted.

            We’re not a charity. We’re a business. We’re not a car maker that can count on a government bailout, handout or nationalization if we go bust.

            Our turnover is no better and no worse than any other agency in this area.

          • 0 avatar
            28-Cars-Later

            @bball

            Obviously it varies but figure 2K in property and school taxes for a 900sqft condo. In contrast a 3 or 4 bedroom house can run anywhere between 3 and 4K or more depending on the area (nearby Mt Lebanon typically has $10K in taxes on most *nice* properties). If the one I looked at only had a $125/HOA I’d probably be in the process of closing on it. Everyone I talked to felt $275/HOA was high enough for a nosebleed.

            @HDC

            In the capacity of a private property owner, I agree with you. I speak in broader terms, if everyone everywhere starts thinking $10%/year increases more and more people are going to be out money and fed up, or even possibly homeless. This is a societal problem, when people en-masse are in discontent, chaos may later ensue. We’ve already seen several riot situations but they have all been contained. What happens when there are not enough resources for containment and sh*tbags roam free? I see the endless welfare propagated by Dear Leader and the Communists as not only being part of a long term strategy to destroy the nation but also as a stop gap measure to temporarily bribe the lower half of society in order to maintain stability until the time is right.

          • 0 avatar
            highdesertcat

            ” if everyone everywhere starts thinking $10%/year increases” I think it is happening in most places where allowed. For businesses, the added cost of doing business has got to be passed along to the customers or tenants.

            Businesses are not charity organizations. The utilities keep raising the rates because they can.

            Restaurants keep raising their prices because they have to.

            Ford and GM keep raising their new car prices because the UAW-expense cuts into their margin and shareholder-profit.

            The buyer of these goods is the ultimate chump because they end up paying those padded prices if they choose badly.

            That could be why so many people opt to buy non UAW-made vehicles.

            We’re one of the smallest realty businesses in this area and we don’t sell or manage anymore. That portion was sold back in 2012. So we’re not trend-setters. We’re more like followers.

            Maybe that’s why we can offer more to our tenants for their money. There has never been a shortage of applicants thanks largely due to word-of-mouth.

          • 0 avatar
            28-Cars-Later

            I can’t speak for HDC Inc, nor can I speak for your region, I’m just pointing out a general trend which may not end well. But don’t worry, Mr. Yellen said there was no inflation…

          • 0 avatar
            highdesertcat

            ” I’m just pointing out a general trend which may not end well”

            I understand that but it you plot out the national trend you’re interested in over the past five years, the past ten years and the past 15 years, you will see a gradual trend upwards.

          • 0 avatar
            28-Cars-Later

            Upwards, how so?

          • 0 avatar
            highdesertcat

            Just about everything costs more. Couple that with the fact that today’s dollar generally buys less and you could come away with the concept of “the harder you work, the behinder you get.”

          • 0 avatar
            sgeffe

            From what I see, $50 buys you what $20 did 15 years ago.

            What’s driven that? Petroleum cost. Ever since oil could be traded on the commodities markets beginning in 2000, everything’s gone higher.

          • 0 avatar
            highdesertcat

            sgeffe, I always thought that correlation interesting in view of the fact that oil, gasoline, diesel, etc, was artificially kept high for so long by the advocates of renewable energy who hoped that high oil prices would make their shpiel for expensive sun, wind energy more palatable, and oil less desirable.

            But even the oil doomsday sayers could not obscure the fact that we have so much oil that we’re drowning in it.

            People are buying cars again. This is the best time ever to buy a new car! Toyota blew all the other car makers away with another increase in sales and market share. VW and their lame squirrel diesels not so much.

            Hopefully, in the future coal will make a comeback as well. I believe it can be done.

        • 0 avatar
          ect

          In my experience, employers tend to prefer signing bonuses or other 1-time payouts because they don’t raise the base rate, that will be the starting point for wage negotiation the next time out.

          Put another way, the cost of the signing bonus might be roughly equivalent to a wage increase of $5 per hour over the life of the contract. Because it’s a signing bonus and not a wage increase, the base rate from which 2019 negotiations start will be $5 per hour lower than it would have been if the signing bonus amount were baked into the wage rate. Or so management will be telling themselves.

  • avatar
    Big Al from Oz

    This comment from the author;
    “All three of the Detroit automakers are shifting higher-margin vehicles to North American plants, in part to offset the labor costs.”

    The comment is not good for the US auto manufacturers. What it states is they can’t compete. Most of these vehicles are not viable outside of the US market.

    Their viability is based on the price of energy.

    Diversification is required. Spread the pain.

    GM and Ford Australia made a similar mistake with the Falcon and Commodore. Big vehicles only have so long left.

    What will the unions do when the large, high profit, US exclusive vehicle demand gradually dries up?

    • 0 avatar
      Big Al From 'Murica

      The manufacturers and the unions are not one in the same. To answer your question, they move production to more favorable environments, has looses clout, eventually some production comes back as the transplants have shown the US to ba a favorable market in which to build cars, UAW aside. Still, even with the UAW Ford has managed to be quite profitable. The Mustang sells well as does the Explorer off the top of my head. I am not the world’s biggest UAW cheerleader, but those saying the drove Chrysler and GM into bankruptcy must have missed all of that stellar product they were pumping out for a couple decades. Darn the luck…if only those idiot UAW workers could have screwed that Cimmaron together or put those headgaskets on Neons in a manner they didn’t blow.

    • 0 avatar
      SCE to AUX

      “The comment is not good for the US auto manufacturers. What it states is they can’t compete. Most of these vehicles are not viable outside of the US market.
      Their viability is based on the price of energy.”

      Actually, they can compete, but the goal of most modern mfrs is to maximize profits, not just be profitable. So if they can gain another dollar of margin by outsourcing something, they will.

      As for these high-margin vehicles being unviable outside the US market, that is true, but remember that the US market is enormous. While Ford would like to sell pickups in Europe, it doesn’t really need to.

      As for their viability being tied to energy prices, that doesn’t seem to be true. Trucks and SUVs sold quite well when US gas prices were over $4/gallon and climbing. Demand for these vehicles seems to be only partially elastic, which demonstrates that a) people really need trucks, or b) vehicle purchases are driven by emotion.

    • 0 avatar
      Lou_BC

      It is always easy to blame organized labour for costs. Labour tends to be a large part of any business expense. Profit margins tend to be made on the backs of labour since almost every other process has been leaned out as much as possible. There is much debate over what constitutes a “fair” wage. I do believe that UAW did take things too far over the decades which made it tougher for car companies to compete. Another issue is whether or not consumers are willing to pay more to support domestic labour. They obviously are not interested in doing that because “mom and pop’s” stores no longer exist and Wallmart is king.
      We do seem to forget that labour movements have been responsible for marked improvements in the standard of living. The key is to strike a balance between what is good for labour and good for business. One tends to paint one side as good or bad depending upon one’s political ideology.

  • avatar
    turf3

    Is the $120k/hr referenced above a figure for salary and benefits alone, or is it a per-hour imputed manufacturing cost including manufacturing overhead? Given a 2000 hour year, $60/hr is a quite reasonable total manufacturing cost, when the following calculations are used: Many companies throw all their manufacturing overhead into a bucket, add actual salary and benefit costs, divide by hours worked, and state a per hour manufacturing cost. This kind of accounting, of course, overstates the cost of labor and understates the cost of purchased parts, resulting in a strong incentive to outsource and purchase all the parts. Moving manufacturing to successively impoverished hellholes has minimal effect on imputed labor costs when they are calculated that way, but it provides a good excuse for management to get ready of troublesome first world workers and replace them with less troublesome third world workers.

    You should not assume that labor costs reported by manufacturers are necessarily what they say, especially when those labor costs are being used as justification for decisions that they want to make anyway. The general public do not understand the extent to which accounting is used and manipulated to justify theories of management.

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