Is Ford (NYSE: F) about to close another good labor deal?
It didn't have quite the drama of last year's trip to the brink with the United Auto Workers, but Ford's negotiations with the Canadian Auto Workers seem to be coming to a similarly fruitful end.
Ford and the CAW announced yesterday that they had reached a tentative agreement on a new four-year contract. While CAW workers have yet to ratify the new deal -- voting is scheduled to happen this weekend -- it's expected that the new contract will be approved.
If so, that will be a good thing for the Blue Oval.
The one thing that could have really hurt Ford
Last year, when Ford was gearing up for what was expected to be a difficult negotiation with the United Auto Workers over a new contract, I worried that labor troubles were perhaps the only thing that could run Ford's turnaround off the road.
Ford had already returned to solid profitability, and its latest models were winning new fans and praise from critics. But the possibility of strikes by disgruntled workers -- which looked quite real for a time -- threatened all that. Even short strikes at Ford's U.S. factories would have cost the automaker millions, while disrupting carefully planned production schedules that could have put the company's dealers at a competitive disadvantage.
Avoiding such an outcome was critical for Ford. At the same time, the company needed to preserve key concessions won from the UAW in the prior round of negotiations, changes that had helped Ford reduce its ongoing costs and return to solid profitability. Those changes were key to enabling the company to compete with the likes of Toyota (NYSE: TM) and Honda (NYSE: HMC), both of which use lower-cost non-union workers in their U.S. plants.
Many rank-and-file workers were eager to win those concessions back, though. For several worrisome days, the outcome of voting on the proposed contract was in doubt, as workers complained that they had given up too much. Some UAW locals went so far as to make formal preparations to strike. But in the end, cooler heads prevailed: Members realized that things could have been a lot worse, and a crisis was averted as the contract was approved.
Ford is surely hoping that its new contract with the UAW's Canadian counterparts is adopted with a bit less drama.
A solid deal that averts a major headache
The new agreement has yet to be ratified by CAW members -- and following industry custom, Ford itself won't comment on the agreement until after that happens. But, assuming that workers vote to accept it, which looks likely, the deal, like the UAW's deal made last year, appears to represent a reasonably fair outcome for both sides.
Ford's presence in Canada isn't nearly as big as its U.S. footprint, and it's smaller than it was a few years ago. The Blue Oval closed a factory in St. Thomas, Ontario, last year, in part over concerns about the rising value of the Canadian dollar. But even now, its operations aren't trivial: The CAW still represents about 4,500 Ford workers at factories that make Ford's Edge and Flex SUVs, as well as engines for many of the company's trucks.
If the contract is ratified, those workers will get C$2,000 lump-sum payments and C$3,000 ratification bonuses, but -- like their UAW counterparts last year -- no cost-of-living raises that would increase Ford's fixed-cost base. Workers will also see their pension plan preserved, and Ford has committed to create about 600 new jobs and to give laid-off CAW members first crack at them. Meanwhile, the CAW will use its deal with Ford to pressure General Motors (NYSE: GM) and Chrysler to accept similar terms.
The upshot: another good deal for Ford
Here's the takeaway: Ford's presence in Canada may seem like relatively small potatoes, but labor trouble at the Blue Oval's Canadian plants would have been a costly headache for the company. Assuming it's approved, this new deal should bring Ford four more years of labor peace in Canada -- at a price it can reasonably afford, that doesn't compromise the hard-won changes that enabled its turnaround. That's nothing but good news for shareholders.
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