Is a financially weaker Ford
The UAW has notched two pacts with General Motors
Ford should be thankful.
Room to move
Production guarantees prevent an automaker from meeting changing market conditions. Not that not having such guarantees has helped U.S. automakers sell many cars these days, but when oil spiked and people fled pickups and SUVs for smaller cars, Ford could at least turn out a more fuel-efficient Focus, say, instead of the gas-chugging F-150 pickups that it had been making before. It's simply not easy or quick to convert a truck plant into a compact-car plant.
Ford might also be able to wrangle more flexibility with its wages than either GM or Chrysler did. For example, Toyota
A new health-care model
We can also be assured that the negotiations will offload retiree health-care benefits to a union-run group. The automakers have crafted a voluntary employee beneficiaries association (VEBA) that removes benefit obligations from their balance sheets in favor of a union-operated trust fund. The union requires an upfront funding by the company, similar to the $1 billion payment required of Goodyear
GM had $51 billion in unfunded retiree benefits and Chrysler about $19 billion. GM was able to get the UAW to take over the retiree health costs at about $0.70 on the dollar, while Chrysler's deal is said to be between $0.55 and $0.60. Ford might be able to gain a concession on better terms because of its financial predicament. At a funding level of 50%, it might be able to get out with a payment of around $10 billion, a move that could improve Ford's credit rating.
With sales 21% lower in September than they were last year, Ford lost $12.6 billion for all of last year. It has already assumed huge levels of debt. It's essentially pledged its entire asset base -- which is nearly equal to its market value -- to maintain liquidity, and that means it doesn't have much wiggle room.
Bargaining from weakness
It also seems clear that the UAW set negotiations with Ford for last because of Ford's financial situation. Since the union might have to give up more in this case, going with Ford first might have made it harder to win the concessions it wanted from GM and Chrysler. This is also probably the reason the union says it will wait till after the ratification process with the Chrysler contract is underway before it begins negotiating in earnest with Ford.
Although Ford is particularly vulnerable right now, that vulnerability can ultimately work in its favor down the road, with lower costs and greater flexibility. Yet unless it starts designing cars that consumers want to buy, it won't matter how much the workers concede.
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