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There's no doubt that there's an awful lot to like about Ford (NYSE: F ) as an investment. With its great product lineup that competes handily with the likes of Toyota (NYSE: TM ) and Honda (NYSE: HMC ) , an increasingly robust balance sheet, and some of the best managers in the business, Ford is on a historic -- and solidly profitable -- upswing.
And it's cheap, too. While Mr. Market's recent volatility has taken Ford's stock price for something of a wild ride, it's still under $11 as I write this. That's good enough for a price-to-earnings ratio just above 6 -- well below historic levels, and an intriguing lure for value-oriented buyers.
I'm a Ford shareholder, and I like the company's long-term prospects a lot. But if I were looking to buy right now, I'd wait another week or so -- because there could be some trouble looming.
Yep, it's the pesky UAW again
After weeks of closed-door negotiations, Ford executives and United Auto Workers leaders emerged on Tuesday with a major new labor agreement. All things considered, it's a solid deal for both sides -- with richer terms than those agreed to by General Motors' (NYSE: GM ) workers, but structured in a way that shouldn't increase Ford's fixed costs significantly. And given that GM's workers approved their new contract by a roughly 2-to-1 margin, approval of Ford's more generous deal seemed likely to many observers.
Investors seem to agree, as Ford's stock has risen almost 20% since the deal was announced early Tuesday -- not bad for a week when the Dow Jones Industrial Average (INDEX: ^DJI) was able to manage only a roughly 2% gain. But there's just once catch: Since Tuesday, Ford workers have had a chance to review the details of the proposed agreement, and many don't like what they've seen. In online forums like the UAW's Facebook page, workers have posted extensive complaints with the new deal, many boiling down to this: It's been years since we had an increase in wages, and now it'll be at least four more.
Anyone familiar with the rough-and-tumble of labor deals knows that no contract passes without some grumbling. That's just part of the process. But there's real, burning anger here, driven by one of the very few things that Ford management has arguably mishandled in the past few years: compensation for non-union employees and executives.
Cause for anger, cause for concern
Ford's blue- and white-collar workers all took big cuts in pay and benefits (and many lost jobs) during the dark days of the Blue Oval's fight for survival. But Ford's recovery hit its stride in 2010, and the company's salaried workers saw their merit-pay increases reinstated last year. Worse, from the workers' perspective, CEO Alan Mulally was rewarded with a fat compensation package totaling more than $26 million. Meanwhile, union members feel like they got nothing -- and that irked the UAW enough that the union filed a formal grievance for "inequality of sacrifice."
Some expected that the grievance would be settled as part of the contract negotiations, but it wasn't -- the case will be heard in November. That's yet another sore point for some, who seem to believe that the UAW leadership is out of touch with their concerns.
The leadership, and cooler heads within the rank and file, point out what must seem obvious to many outside observers: The economy is in iffy territory, Ford needs to keep its costs stable to stay profitable during lean times, and, truth be told, Ford's UAW members (especially the highly paid veteran "Tier 1" workers) still have it awfully good compared with a lot of Americans. They still have a pension plan, they contribute only a small percentage of their health-insurance costs, and they're still making a premium wage -- $28 an hour or more for those veterans. This contract adds some solid bonuses, and -- more to the point for some -- guarantees lots of investment in facilities, and lots of new American jobs.
But for a worker who has always had those things, and who feels long overdue for a raise and is facing four more years without one while the executives seem to pad their pockets, that's an argument that's hard to hear.
The UAW's leadership is going to do its best to argue that this was the best deal to be had under the circumstances. I think they're right. I just wish I were more confident in their chances of success.
Wait to see how this plays out
Workers will vote on the contract next week. If it passes, Ford will get four more years of labor peace in the U.S. at a reasonable price -- and, most likely, credit-rating upgrades that will reduce its ongoing financing costs significantly. If it doesn't pass, Ford can seek to impose it anyway -- and the union, in turn, can declare a strike.
That would probably be an expensive debacle for both sides, one that would (among other effects) hammer Ford's share price. That's why I suggest investors hold off on buying Ford until this plays out. As of right now, it still seems reasonably likely that workers will approve the contract -- but margins are likely to be close, and if negative sentiment grows in the next few days, it could be rejected. Those who already own Ford stock should keep watching this one closely.
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