Will the UAW Wreck Ford's Comeback?

It's the question that has been in the back of investors' minds since the earliest days of Ford's (NYSE: F  ) dramatic renaissance. And now that post-bankruptcy General Motors (NYSE: GM  ) and Chrysler are showing signs of promise with historic turnarounds of their own, it's a question that is gaining great urgency:

Is the United Auto Workers about to run this thing off the road?

Part of the problem or part of the solution?
With contract talks looming -- they're scheduled to open next week -- the specter of auto industry labor problems is again rising. Casual industry observers have long had the UAW near the top of the list of ills that plagued old Detroit. The overpaid, underproductive, stuck-in-the-past auto workers and their sky's-the-limit leadership seemed perfect symbols of American industrial decline, making increasingly unrealistic demands rooted in a fast-receding past while first Volkswagen (OTC: VLKAY), then Toyota (NYSE: TM  ) , Honda (NYSE: HMC  ) , and more recently Hyundai (OTC: HYMTF) built loyal followings among consumers who had been burned one too many times by Detroit.

But as your grandma always said, it takes two to tango. Sure, over the course of several decades the UAW's leadership negotiated a level of benefits for its members that looks absurd under the harsh lights of today's globalized reality. But the key word is negotiated: The union got those benefits because the leaders of the Big Three agreed to them.

Those executives, as we've since learned, were just as stuck in the past as the union's leadership. But their successors, more clued-in (mostly) and world-wise, know the truth: The auto business today is a rough, globalized, low-margin industry where constant, relentless innovation -- coupled with the lowest possible level of fixed costs -- will be required to maintain any level of success and profitability over time.

Here's the thing that might surprise you: The UAW's current leaders seem to have figured this out, too.

This ain't your father's UAW (except when it is)
Current UAW President Bob King has been making promising statements recently, telling The Detroit News that, "The single most important thing to our membership is long-term security." King has been clear that the long-term prosperity of the U.S. automakers is in everyone's best interest, even as he has pounded home his view that the autoworkers, who made major concessions that helped ensure the automakers' survival, are now due a bigger share of the profits.

Industry leaders such as Ford CEO Alan Mulally have been saying for a while that an expanded profit-sharing arrangement is a more sustainable way to reward workers than an increase in wages or benefits. The reasoning should be obvious: Autos are a cyclical industry. When times are good, everyone should benefit -- but when profits are thin, keeping fixed costs down is key.

King has said clearly that he agrees. I think this is probably going to be the way forward, and it's why I (speaking as a Ford and GM shareholder) am not too worried about the upcoming negotiations.

But there is one possible snag, and it could be a big one: Not everyone in the UAW sees things the way King does.

The possible wrench in the works
A recent Detroit News article suggested that King might be getting a bit ahead of his membership. Some autoworkers clearly feel that they gave up an awful lot during hard times -- and they'd like to get some of that back now that the automakers have returned to profitability. Profit sharing is nice, their argument goes, but guaranteed money and benefits are better -- and they might be willing to fight over it.

Will there be real dissention in the UAW ranks? Will it hobble negotiations, or worse, lead to strikes? King -- in public, at least -- seems confident that he can bring his members around, selling them on a contract that brings them real rewards without significantly increasing the automakers' fixed costs.

I hope he's right, because labor strife might be the only thing other than an economic meltdown that could derail Detroit's comeback at this point. And I think he will be. But GM and Ford shareholders would be well advised to watch the upcoming negotiations very closely.

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Fool contributor John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors and Ford. You can try any of our Foolish newsletter services free for 30 days, with no obligation. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 20, 2011, at 3:57 PM, Brettze wrote:

    UAW didnt exactly make any CONCESSIONS during the recent major downturn.. I call it GIVE BACKS after decades of absurd demands that brought down Big Three. Also, I blame all managements all the same for being unwilling to "market " more fuel efficient models under the apparent light of our declining oil production. They knew that all along yet they continue to push pick ups and SUVs for decades. Automobile columnists never care to write about fuel efficient models as they find it far sexier to write about muscle cars and luxury cars as well as PickUps and SUVs... Econoboxes ,forget it dont write too much about it.. Americans still dont care about what is happening to declining employment in America as long as they are still gainfully employed as if they are playing musical chairs with great confidence that they are still in no danger of losing their jobs .. Sure, some Americans are indispenable workers and they know it so they continue to disregard the oil issues .. They wont blink eyes when it is urgent to send soldiers to the Middle East to protect the oil puddles there against terrorism or WMDs... They all have upper hands while the rest of us are getting our benefits cut back and lifestyles declining.. The Big Three is still confident of their customers who would never think of buying imports anyway.. There is still a core market for the Big Three despite the declining share of the car market to the imports now enjoying over half of the sales here in America.. UAW also dont care either.. Shareholders are still too impotent or they are all just mutual funds who are not too focused on the automobile stocks as they usually compromises less than 1% of most mutual fund portfolios... If you own a mutual fund and you see Ford Motor or General Motors in the portfolio,, you please call your MF and ask them to dump them at once no matter how miniscule they are.

  • Report this Comment On July 20, 2011, at 4:06 PM, Brettze wrote:

    When and if Ford Motors finally goes under with the Ford Family losing everything, whoever that might be will continue business as usual and will offer IPO for Ford all over again like GM IPO recently.. It is just finaincial shuffle without any regar d for the old shareholders as well as the new shareholders.. New GM sharehlders will never learn and Ford shareholders neither.. I dont think that UAW is making any decent efforts to unionize Honda, Toytoa , other plants here .. They just pay lipreading servcie.. I remember reading about them getting busy about getting them to join UAW , but no luck so far.. Ford and GM is abandoining here as they are now flirting with China but they are not really making money over there , anyway.. Chinese people dont exactly pay top prices for cars over there.. They can build cars over in Cina but they are not gonna make money.. I havent read anything about making money in China at all. They are using China to increase ecoomics of scale on standardized automotive components thatis being shared with us here. No profits whatsoever just stretching dollars that is devaluing anywya..

  • Report this Comment On July 20, 2011, at 4:32 PM, ssking111 wrote:

    If the workers are stupid enough to strike in this economic environment then they deserve what they get! They sure do have inflated views of themselves, though! I wouldn't buy a car from Chrysler or GM now. I'll stick with my dependable Honda, thank you very much!

  • Report this Comment On July 20, 2011, at 5:09 PM, gettinmine wrote:

    mr.ssking111, stick with your dependable honda and keep buying foreign so maybe one day they will give you a job. One day there will be nothing left of this country and you will keep blaming the Unions who actually set the bar for others to follow. Since the unions decline there has been a direct coralation with wages and benefits. Then they went after the teachers,firefighters, and police.they took away their coolective bargaining rights. How safe do you feel where you live. Maybe your ignorance wont let you see. What do you do for a living?? sell oranges??

  • Report this Comment On July 20, 2011, at 5:15 PM, gettinmine wrote:

    also, are the shareholders wooried about the gross amount Mr.Allan Mullally received for his so called saving of the company. what he received was enough to fix the health care in this country and bail out the banks twice. So who exactly is ruining the company?? Who is overpaid for what they do?? maybe Mr.bretzze knows.He seems to be full of everything else..

  • Report this Comment On July 21, 2011, at 9:42 AM, Smitty3213 wrote:

    geetingmine must not be able to tell the difference between millions and billions... Besides if one considers the change in Ford's market cap since Mullaly took over, it is really hard to argue with his compensation package...

    Brettze please note that Ford has signicantly paid down its debt and continues to improve margins... I am unsure how anyone could speculate that Ford will be failing anytime soon, without the help of an act of God or an extended UAW strike...

    Here's hoping the UAW members know that there are less jobs out there now, people are making less and paying more for health care... Unfortunately, objective facts are not always able to negate emotions...

  • Report this Comment On July 21, 2011, at 10:22 AM, SoapyJohnson wrote:

    After forcing mandatory pit stops during NASCAR's Chevrolet Volt 400, this sort of thing can be expected from UAW ... http://placeitonluckydan.com/2011/05/nascar-pulls-plug-on-ch...

  • Report this Comment On July 21, 2011, at 8:05 PM, gettinmine wrote:

    mr.smitty3213, it seems like you have all the answers, so tell me why there are less jobs out there now. maybe its executives like mullaly who have been sending all the jobs over sees to improve Ford's market cap, while the middle class is slowly exiting and the there is less money for the middle class to spend to stimulate the economy. just curious, what kind of car you drive these days?

  • Report this Comment On July 27, 2011, at 2:50 AM, gqmac26 wrote:

    interesting - gettinmine thinks ford's accountability is to the economy and jobs. by the time mullaly took over, job migration took place already. sorry, jobs went over to keep competitive, and to cater to selling in the international market. that's exactly what i would hope out of a CEO with guts - make the tough decisions and yes, improve profitability. and why is this a good idea?

    simple - unions have killed american competiveness in the space. if you take labor+healthcare+pension you could go up to a quarter of the cost contribution per unit built - which is just less than half what it would cost non-unionized companies. for mostly unskilled labor, their package is ridiculous, and the past few years have validated it by simple economic principles of supply and demand. where did the 2million jobs go? of course "overseas", or maybe outside the US! that's a no brainer, as cost scales are much more reasonable, and you don't have unions that will block moves to modernize plants to operate more efficiently with less UNSKILLED workers. go through any plant in Guangzhou (that's china for the ethnocentric) and you'll see the stark contrast.

    so no - those 2 million auto industries are surely not going to make their way back onshore, and you have the unions mostly to thank for that. and probably the spineless CEOs before that didn't have the guts to stand up to the unions. and probably the greedy politicians that accept the handouts for union support.

    i wouldn't touch a GM or chrysler, but ford's got a great rep in europe (and GM in china), and are bringing in some of it's best sellers in the econo space - i.e. the focus and fiesta hatch! if they can keep the unions at bay and be price compeitive with these offerings, they might be worth owning at some point.

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