A Good Deal for Ford?http://www.fool.com/investing/general/2011/09/30/a-good-deal-for-ford.aspx John Rosevear
September 30, 2011
This could be good news for Ford (NYSE: F ) shareholders: Concerns that the Blue Oval could be headed for labor trouble may turn out to have been misplaced. Although a deal hasn't yet been announced as I write this, reports suggest that contract negotiations between Ford the United Auto Workers are expected to come to a successful end soon -- perhaps as early as this weekend.
So what will a "successful" deal look like from Ford's perspective? Probably a lot like General Motors' (NYSE: GM ) new contract, though the proverbial devil will be in the details.
Success for GM. Success for Ford?
Here's why that's important: Automakers are cyclical companies, meaning their profits rise and fall with economic cycles. In the bad old days of Detroit, GM, Chrysler, and Ford would be profitable during good times but post narrow earnings or losses during recessions. As long as the boom-time profits were fat enough, losses weren't a big deal. For decades, Detroit prospered.
But over time, Detroit's fixed costs grew relative to competitors, thanks to generous union deals and a manufacturing base sized for the kinds of market share the Big Three held in the early 1970s. Simultaneously, the U.S. automakers' margins were coming under pressure thanks to the discounts needed to compete with better-managed global firms like Toyota (NYSE: TM ) and Honda (NYSE: HMC ) . Eventually, the profits shrank to nothing and the losses became enormous, and Detroit hit bottom.
Lowered costs key to current success
That's why, for GM and Ford shareholders, the big question go