A Crisis Averted for Ford

Concerns that Ford (NYSE: F  ) workers might reject their proposed new contract with the automaker, a real worry as recently as Friday, are beginning to fade: A tally late Sunday showed a solid 62% in favor, following on votes by key locals over the weekend.

Credit this one to cooler heads prevailing. While early votes reflected many workers' initial anger at what they saw as continued austerity, a few days' reflection seems to have brought the sense that this deal might really be the best one available, as UAW leaders have been saying for a week.

That's a good thing, because it probably is -- even if that has been hard for some workers to see.

A good deal that looks forward, not back
Given the reality of industrial America, from the perspective of an average outsider who has never experienced anything like the pay and benefits seen in Old Detroit, the new contract looks like a great deal. It preserves a high hourly rate, enhances a robust suite of benefits (including a generous health-insurance plan and educational opportunities), boosts annual profit-sharing opportunities, and will pay a near-immediate bonus to every worker once it's ratified. And all of its key provisions are more generous (in some cases much more generous) than those at Ford's Detroit rivals.

Longtime workers, though, feel like they've given up a lot -- and that's understandable, because it's true. Benefits that a generation of auto workers took for granted were slashed in the last contract. More to the point, these folks haven't had a raise in years, and under the new contract, they won't have a raise for at least four more. And given Ford's recent prosperity, raises given to white-collar rank-and-file, and the large pay packages CEO Alan Mulally and other executives received over the last year, some are left rankled.

A lot.

But the reality that's sinking in is that this contract could have been a lot worse. Ford's offering real money, even if it's not in the form of a cost-of-living increase. And -- more importantly, from a longer-term perspective -- Ford's not only committing to continued manufacturing in the U.S., but it's actually increasing its efforts here. And with a lineup of profitable models that (finally) compete well with imports such as Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) , Ford's prospects as an employer for the long term are looking brighter than they have in years.

Voting is scheduled to conclude Tuesday night. At this point, it's looking likely that the contract will be approved by a solid margin. That should be a relief for shareholders, though again, the details will be worth watching.

Up soon: management's perspective on the deal?
Management at General Motors (NYSE: GM  ) chose to present its perspective on that company's new UAW contract to analysts and the media soon after voting at GM plants ended. Assuming that Ford's contract is in fact approved by workers, Ford executives may make a similar presentation later this week. Expect management to reassure investors that the company's breakeven point has not changed significantly.

But while I expect they'll be right, the details will be worth watching: Ford's costs, though much lower than they used to be, were already on the high end of industry averages before this new contract. GM CEO Dan Akerson has said that his company could still eke out a profit even if U.S. auto sales fell to an annual rate as low as 10.5 million. As a shareholder, I will want to hear something similar from Ford's leaders -- and to see numbers supporting such an assertion.

But with this crisis averted, Ford's stock is back to looking like a bargain -- one that potential buyers might want to take advantage of before the company reports earnings next week.

Worried about the effect of higher energy prices? You're not alone, but here's the good news: It's not too late to profit. In the new special report,"3 Stocks for $100 Oil," expert Motley Fool analysts name three outstanding companies that should benefit handsomely from rising oil prices. The report is available free of charge for Fool readers -- and here's your chance to get instant access.

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.


Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1571335, ~/Articles/ArticleHandler.aspx, 11/26/2014 6:20:43 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement