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Ford and the UAW: 3 Things to Watch

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This should be welcome news for shareholders: The United Auto Workers has summoned its union plant officials to Detroit for a meeting tomorrow. The subject? The union's deal with Ford (NYSE: F  ) .

As I write this on Monday morning, no deal has (yet) been announced. But clearly the UAW thinks the parties are awfully close -- and by the time you read this, a deal may have been announced.

It's unlikely that we'll know much about the deal until after the UAW has briefed its plant leaders, but details should emerge soon after. Here's what to look for once those details start to leak out.

High expectations for a landmark contract
From the perspective of Ford's management (and shareholders), the key to this contract will be whether it holds the line on Ford's fixed costs, as I explained Friday. I certainly expect that it will, more or less, but we're unlikely to have confirmation from Ford management until after the union has voted to approve the contract. That's unlikely to happen before sometime next week, even if a deal is announced today.

So in the interim, how will we be able to tell if Ford got a good deal? Here are some key points to watch for as the contract's details are revealed:

  • Compensation tied to profits. Ford's workers are going to get more money -- that's a given. But General Motors (NYSE: GM  ) was able to hold the line on wages for "Tier 1" workers, the veterans making $28 or more an hour. Instead, those folks got an expanded profit-sharing program, with annual bonuses tied to GM's North American profits. That allows workers to participate in the company's newfound prosperity, without raising the company's breakeven point during economic downturns. Look for Ford's contract to create a similar arrangement.
  • Lots of new jobs -- but what and where? Ford CEO Alan Mulally said last week that the company would be adding about 7,000 jobs in the United States. I'm sure the UAW would be delighted if Ford were to close its huge factory in Hermosillo, Mexico, and bring production of the popular Fusion sedan (and 4,000 jobs) to the U.S. instead, and I'm sure their negotiators brought it up. But it's not happening, not least because the Hermosillo plant is one of Ford's best and most productive. A second factory producing the Fusion is a possibility, as is expanded production for other models -- or all-new models, for that matter. Here's the takeaway: If Ford is moving production that was originally scheduled for lower-cost countries like Mexico to higher-cost U.S. factories, that will bear scrutiny.
  • Entry-level workers. The last contracts between the UAW and the Detroit automakers created a system under which workers hired after the contracts' ratification would be paid about half the hourly rate earned by existing workers. This was seen as an important provision for the future -- over time, the higher-paid workers would retire, and lower-paid workers would predominate, bringing wages closer to those paid by companies such as Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) . It has since become a sore point for the UAW, and the union was able to win a wage increase for the lower-tier workers from GM. Will Ford follow GM's example, or will the Blue Oval end up paying these folks significantly more than their cross-town rivals?

Concern, not worry
I can't see Ford's current management signing off on a deal that didn't more or less hold the line on fixed costs. I also can't see UAW President Bob King pushing for a deal that would significantly weaken Ford's competitive standing, so shareholders shouldn't be too concerned right now.

Ford is -- at least from the workers' perspective -- the richest of the Detroit three, and a target for resentment because of the hefty (if arguably justified, from a shareholder perspective) pay packages given to senior executives. I expected the UAW to push Ford harder than it was willing to push GM. But I also expect a broadly similar-looking deal, even if the specifics are richer than those won by GM's workers. We should know for sure shortly.

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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 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.


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