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Is Ford's New Labor Contract in Trouble?

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Voting has begun on Ford's (NYSE: F  ) new labor agreement, and as I write this on Tuesday afternoon, the early returns are even closer than I had predicted: With 7.3% of locals reporting, the UAW said on Tuesday, only 50.1% of regular production workers and 45.2% of "skilled trades" (a category of specialist workers, typically senior) voted to approve the contract. One key UAW local has already voted to reject it.

Voting still has several days to go, but those are grim numbers.  How is this likely to play out?

Cooler heads have yet to prevail
UAW's Local 900 represents workers at the factories that produce the Ford Focus, in Wayne, Mich. Of the 2,582 Local 900 workers who voted on the contract, 51.1% voted to reject it, according to media reports on Tuesday. A UAW official with the local told the Associated Press that workers rejected the contract because it doesn't include cost-of-living increases, and because they are angry about Ford CEO Alan Mulally's lavish pay package.

Given the importance of keeping Ford's fixed costs as low as possible, those reasons may sound inane to shareholders and disinterested observers. But they shouldn't be surprising to those who have followed this story closely. While General Motors (NYSE: GM  ) workers passed a broadly similar (but less rich) contract with only a moderate amount of grumbling, the anger of Ford workers who feel they have been left out of the company's renaissance has been palpable for awhile.

Ford has been generating solid profits and seeing big sales gains, but while white-collar workers and executives saw raises and bonuses last year, UAW-represented workers have so far not had the opportunity to share in the spoils. This proposed contract attempts to address that with enhanced profit-sharing, raises for entry-level workers, and roughly $10,000 in payments that workers will receive shortly after the contract is ratified.

That is, if it's ratified. If not, workers could be in for a much harder time.

What if they really reject it?
Ford has several options if workers reject the contract. One possible outcome is that Ford could attempt to impose the contract despite the rejection, but workers could respond in turn with a strike. That would hit both sides hard, but it could hit the UAW harder: Although the lost production would be expensive for Ford, the huge hit it would probably take in the court of public opinion could end up being a disaster for the UAW.

The consequences of a failed contract vote are easy to imagine: a public-relations disaster for the UAW that ends their efforts to organize the "transplant" factories owned by foreign companies like Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) ; an effort by Ford to shift more production to places like Mexico and possibly even China; and a poisoned relationship that makes the success of future efforts to preserve U.S. jobs much less likely.

Will workers think that through? Expect the UAW's leadership to make a major effort to ensure that they do. UAW Vice President Jimmy Settles has been visiting Ford plants in recent days to argue in favor of the agreement, but UAW leaders are likely to turn the heat way up in light of these early returns. Expect other union leaders, including possibly President Bob King himself, to make appearances in plants that have yet to vote -- and to argue forcefully for the ratification of this agreement.

When all is said and done next week, I think the contract will ultimately pass. Unions are very good at getting the votes they want from their membership. But it'll be close, and I'll reiterate what I said the other day: If you're thinking of buying Ford stock, you might want to hold off until this thing is resolved -- one way or another.

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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 October 11, 2011, at 10:53 PM, pryan37bb wrote:

    "With 7.3% of locals reporting, the UAW said on Tuesday, only 50.1% of regular production workers and 45.2% of "skilled trades" (a category of specialist workers, typically senior) voted to approve the contract."

    Theoretically, isn't that like trying to call a baseball game in the bottom of the first inning when the score is tied? (Considering 7% of 9 innings is just over half an inning, 50% is basically 1:1, etc.)

    Additionally, for what it's worth, I read an article today saying that the "skilled workers" only make up about 20% of Ford's workforce, thus their less-than-promising numbers are even less relevant than those of production workers.

    My main point being, I think it's a little early to start assuming that it's not gonna pass. People at both Ford and the UAW have said they're optimistic about the contract passing, and considering the richer deal that GM got and the solid 9% unemployment rate, Ford workers complaining about this deal should really consider the bigger picture here.

  • Report this Comment On October 12, 2011, at 4:53 AM, TMFMarlowe wrote:

    @pryan37bb: Nobody's calling the game yet. The results we saw on Tuesday are a sentiment check, a way to get a sense of how things are going. Right now, the sentiment isn't great. Give it a couple days and we'll see if that changes.

    Thanks for reading.

    John Rosevear

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