Is the UAW a Threat to Ford?

Is Ford (NYSE: F  ) in for some labor trouble?

On one hand, it seems unlikely. Contract negotiations between General Motors (NYSE: GM  ) and the famously combative United Auto Workers were smooth and collegial, from all appearances, and the resulting contract has so far won solid support among workers. It doesn't seem unreasonable to expect that the UAW's negotiations with Ford will follow a similar course.

On the other hand, Ford's situation is different from GM's in some important ways -- ways that could lead to trouble.

It's not quite time to worry, but …
What's so different about Ford's situation? The biggest difference is that Ford didn't want, need, or get a federal bailout during the economic crisis. That was a very good thing for Ford's business and shareholders, as it turned out, but it could complicate labor negotiations for a few reasons:

  • Ford has been more successful. Despite solid results in recent quarters, GM is still a turnaround story in progress. The people who build GM's products know that better than anyone else -- it'll be a few years before GM's product line is fully updated and competitive. Meanwhile, Ford's turnaround is nearly complete, and the company is strong and healthy -- so the union may feel comfortable pushing harder.
  • Ford's CEO makes a lot of money. As long as the U.S. government continues to hold GM shares, the pay of GM's top executives will be sharply limited -- that was a condition of the bailout. But Ford's under no such restrictions -- and CEO Alan Mulally received a package of stock worth more than $50 million earlier this year. That stock was a reward for meeting goals set two years earlier, arguably a well-earned one -- but it drew a sharp outcry from UAW leader Bob King and has been a focus for union grumbling since. Workers who feel like they gave up an awful lot to help save Ford aren't likely to be in the mood for continued austerity at the bargaining table, and they may feel entitled to more than their GM compatriots agreed to take.
  • The UAW can -- and could -- strike Ford. The UAW agreed not to use its trump card against GM and Chrysler as a condition of the bailouts -- but no such restriction applies at Ford. While talks have so far seemed more collegial than combative, it might not take much for the UAW to decide that a show of strength is in order. Union locals have already been ordered to prepare for the possibility of strikes, as is standard during contract negotiations. And while a protracted strike is highly unlikely, even a short strike would be an expensive disruption for the company -- one that would set a harsh precedent, with lingering effects.

So should Ford shareholders be worried? I think the answer to that question is not yet. While the UAW is still powerful, its leadership is savvy enough to know that public opinion won't favor them in a dispute with a just-turned-around Detroit automaker. I still think the union is more likely to get what it can from Ford (and next, Chrysler) with at least a veneer of civility, keeping its powder dry for its next set of targets: the non-union U.S. plants of foreign automakers like Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) .

Signs are still positive … for now
In recent days, negotiations between Ford and the UAW have shifted into a much more intense phase, with King himself joining the talks at Ford on Monday. But things seem to be going well at the moment: In an update to members released on Monday night, union leaders expressed optimism that an agreement will be reached by the end of the week.

The current sticking points are said to be largely "economic issues." I suspect that what's happening is that Ford and the UAW have agreed to a basic framework for the contract but are still negotiating the percentages and dollar amounts that will be paid under the new arrangements. If negotiations continue to be smooth and end soon, I expect to see a contract that looks a lot like GM's, with somewhat richer terms -- terms that allow Ford's workers to share in the company's remarkable success but that don't significantly raise the low level of fixed costs that has enabled that success.

Speaking as a Ford shareholder, that would be a fine result. Can it get there? We'll know soon enough.

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Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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  • Report this Comment On September 27, 2011, at 8:44 PM, rmiers wrote:

    The UAW and Ford have unique relationship. Edsel Ford upon his father's death and the firing of the thug that ran ford 1933-1945, made peace with the unions and let them into the automobile business. Since then, Ford has always be the last to strike.

    Ford employees are the highest paid today. Ford, in fact, needs the union's help to reduce costs.

    A unfair deal for Ford will cost GM both sales and loss of votes for Obama.

    The GM/China deal stinks.

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