Can Ford make it with the UAW?

[Ohio XB]

http://online.wsj.com/article/SB1000...googlenews_wsj

How Ford Is Making Its Comeback
The news from Dearborn is sunny, except for the auto maker's labor relations.

By PAUL INGRASSIA

A year ago, Ford Motor Co. steered clear of the auto industry's version of the "public option." You know, a government-funded bankruptcy. Maybe the decision wasn't entirely altruistic. Plan B, as in bankruptcy, would have ended more than a century of Ford family control.

Whatever the motives, Ford chose a private solution for regaining its corporate health, and today the patient is walking without a government crutch. Last week Consumer Reports gave the company quality ratings comparable to those of Honda and Toyota. On Monday, Ford reported its second consecutive quarterly profit—and more impressively, a swing from a $7.7 billion cash burn a year earlier to positive cash flow of $1.3 billion in the just-ended third quarter, helped by but not due to Washington's cash for clunkers program. The company gained a percentage of market share in the first 10 months of this year, no easy feat in an ultra-competitive market.

In fact, there's almost too much good news coming out of Ford's Dearborn, Mich., headquarters these days. In the often-bizarre world of labor relations in Detroit, good news can be bad news in dealing with the United Auto Workers union. Exhibit A is the UAW's recent rejection of contract amendments at Ford to parallel the provisions that the government imposed on GM and Chrysler. The implications aren't pretty for Ford and they're even worse for the union itself.

Before parsing those implications, though, it's worth examining Ford's recent spate of good news because there has been precious little of that from Detroit in recent years. The company's turnaround actually began three years ago with decisions that amounted to zagging every time that General Motors zigged, which was remarkable for a company whose strategy for decades was to follow GM.

When General Motors kept its CEO (the recently deposed Rick Wagoner) a few years ago, Ford brought in a new one, Alan Mulally from Boeing. While GM kept its unwieldy assortment of eight brands, Ford sold Jaguar and Land Rover, cutting its brand lineup down to a manageable size. (Another Ford brand, Volvo, appears close to being sold.)

The zig-versus-zag pattern continued when General Motors bet big on home mortgages through GMAC and then sold control of the financing unit, which now is on government welfare, just like General Motors itself. Ford avoided home mortgages and held onto its finance arm, Ford Motor Credit, choosing instead to mortgage all its assets to raise money to fund its turnaround effort.

Ford's self-help strategy carries a cost: The company now has much more debt than GM, about $27 billion to $17 billion, because the General had some three-fourths of its borrowings washed away in bankruptcy court. But controlling its source of dealer and consumer financing is a huge advantage for Ford, and the company is shoring up its balance sheet by swapping some of that debt for new equity.

What's more, shedding brands and shunning the mortgage business has helped Ford focus on quality, where it had slipped badly early in this decade. Consumer Reports said last week that 90% of Fords, Mercurys and Lincolns rate average or better in quality, right up there with Honda and Toyota. When the economy recovers and car sales increase, Ford could be in great shape. That presumably will happen by 2011, when the company says it expects "solid profitability."

It's sadly ironic, then, that the rain on this parade came the very same day that Ford reported its stellar financial results. Monday also brought the news that the UAW rejected contract amendments to freeze the pay of new hires, to forgo strikes for the next six years, and to reduce the number of job classifications in Ford factories.

The 70% vote against those changes was a stinging setback for the UAW's leadership, which had accepted similar provisions at GM and Chrysler in return for the government bailouts of those two companies. Obviously, Ford isn't desperate enough in the eyes of the union's rank-and-file, even though the company barely avoided bankruptcy, and its bond ratings remain deep in junk territory. UAW President Ron Gettelfinger tried to contain the damage by telling Automotive News that the proposed contract changes would have saved Ford "only" about $30 million a year anyway.

But that statement has more spin than Mariano Rivera's cut fastball. Forget about the wage freeze and the no-strike clause. Factory wages aren't Detroit's problem, and strikes are very rare in the auto industry nowadays. The real issue is the job classifications.

Ford's UAW contract has lots of them, governing who can and who can't perform specified tasks on the factory floor. So if a machine breaks down, an assembly line can come to a halt while everyone waits for the worker with the proper classification to arrive at the scene. If other workers nearby are perfectly capable of fixing the machine, well, that doesn't matter. The number of job classifications is less than it was a decade ago, but it's still far too many to maximize a factory's efficiency.

The classifications and attendant work rules are enforced by union bureaucracies—members of each plant's shop committee, grievance committee, health and safety committee, etc. They're all paid by the companies, as are their legions of corporate counterparts. One man's feather-bedding is another man's job.

All this begs a fundamental, and uncomfortable, question. Can a UAW-represented car company compete effectively, long term, with its nonunion competitors? At the very least, companies organized by the UAW have lots of extra costs to bear at their factories located in the U.S.

It's interesting, then, that Consumer Reports rates the quality of the four-cylinder Ford Fusion higher than the Toyota Camry and Honda Accord, and the Lincoln MKZ higher than its Acura and Lexus counterparts. The Fusion and MKZ are built in a factory without job classifications because it's in Hermosillo, Mexico, and isn't represented by the UAW. If Ford targets future expansion in Mexico, the recent contract vote will spell further decline for a union that, like Detroit's car companies, badly needs cultural change.

Ford's shares jumped more than 8% Monday on the company's earnings news. But investors should understand that in buying Ford stock they're also buying the company's relationship with the UAW, with all its implications.

Mr. Ingrassia is a former Dow Jones executive and Detroit bureau chief for this newspaper. His book "Crash Course," about the recent bankruptcies and bailouts of General Motors and Chrysler, will be published by Random House in January.

I think this is a pretty good article. It shines some positive light on some good things at Ford and it also lists a couple concerns. It could have been written in a worse way but it seems that it's author is not looking to villianize the UAW, just point out things about it that raise concern for him. I am good with that....for the most part.

...to positive cash flow of $1.3 billion in the just-ended third quarter, helped by but not due to Washington's cash for clunkers program.

I appreciate the author reiterating what Alan Mulally had stipulated about the latest profit results.

Exhibit A is the UAW's recent rejection of contract amendments at Ford to parallel the provisions that the government imposed on GM and Chrysler.

This was one of my points about the latest concession round. While Ford was attempting to compare the requested modifications to "Pattern Bargaining," the reality is that they wanted what the workers at the other companies were forced by the Government to accept to remain a viable company. There was no "bargaining" involved.

Ford sold Jaguar and Land Rover, cutting its brand lineup down to a manageable size. (Another Ford brand, Volvo, appears close to being sold.)

Ford also sold Aston Martin, reduced it's interest in Mazda from 30% to 13%, sold Hertz Rental Cars (2005), and GreenLeaf Acquisitions, an automotive recycling company.

Ford's self-help strategy carries a cost: The company now has much more debt than GM, about $27 billion to $17 billion, because the General had some three-fourths of its borrowings washed away in bankruptcy court.

Ford chose to avoid bankruptcy, so they cannot complain that they still have all their debt. They are doing the honorable thing, paying their bills like the rest of us do. GM has a huge price to pay for the bankruptcy as the Government now has a lot of say at the company, even choosing a retired banking head for the CEO of GM, a person that knows not square one about manufacturing. Meanwhile, Ford has Alan Mulally, who knows manufacturing and how to turn a manufacturer around, as he has already done so with Boeing.

But controlling its source of dealer and consumer financing is a huge advantage for Ford, and the company is shoring up its balance sheet by swapping some of that debt for new equity.

To help pay back it's debts Ford has been taking advantageous and wise steps to raise funding and improve it's books with moves such as:

Ford Sells 300 Million Shares to Fund UAW VEBA
http://www.thetruthaboutcars.com/for...fund-uaw-veba/

“Today’s equity offering is another example of the fast, decisive action we are taking as we build momentum on our plan, including further progress on improving our balance sheet.”


Ford completes debt restructuring, reduces debt by $9.9 billion
http://www.egmcartech.com/2009/04/06...by-99-billion/

FoMoCo announced today that it has successfully completed its debt restructuring reducing it by $9.9 billion from $25.8 billion on Dec. 31, 2008. This will reduce Ford’s annual cash interest expense by more than $500 million based on current interest rates.

“By substantially reducing our debt, Ford is taking another step toward creating an exciting, viable enterprise,” said Ford President and CEO Alan Mulally. “As with our recent agreements with the UAW, Ford continues to lead the industry in taking the decisive actions necessary to weather the current downturn and deliver long-term profitable growth.”


Ford is currently preparing for another stock offering.

Obviously, Ford isn't desperate enough in the eyes of the union's rank-and-file, even though the company barely avoided bankruptcy...

I have a problem with that line. Ford barely avoided bankruptcy in November-December 2008....a year ago. Ford is in a VERY different state now than it was then. The author cannot attempt to apply Ford's condition of a year ago as the basis for opinion of the UAW rejecting last week's "modifications."

Factory wages aren't Detroit's problem...

Somebody get me a glass of water.......I feel faint. Yeah, he actually put it in writing!!!! It's about time someone did.

So if a machine breaks down, an assembly line can come to a halt while everyone waits for the worker with the proper classification to arrive at the scene. If other workers nearby are perfectly capable of fixing the machine, well, that doesn't matter.

This makes it sound like there is one man, in another far corner of the plant, who is the only one that can fix the machine. The reality is not like this. I believe some lines of demarcation can be relaxed, but there is much more involved to the implications of this than one would think. If anyone would like me to ellaborate on this just ask. However, I don't think merely making one "Mechanical" classification is the solution. That's like putting all motor vehicles under one classification such as "motor vehicle" so that every car, motorcycle, and dump truck is treated as equal.

The classifications and attendant work rules are enforced by union bureaucracies—members of each plant's shop committee, grievance committee, health and safety committee, etc. They're all paid by the companies, as are their legions of corporate counterparts.

Yeah, bureaucracies:

Health and Safety - has enabled Ford to achieve one of the highest safety rankings in industry in the US. It is a "joint" committee, Union and Company working together. How dare they create an environment where workers can work safely and go home to their families at the end of the day.

Grievance Committee - one of the biggest reasons that the Union is there. Someone is getting screwed. Auto Companies without Unions? This is the reason things are as good as they are in those places. If they weren't their workers may join the Union and have a grievance procedure. In any case, this is what keeps the compaines from screwing employees at Union and non-Union companies.

Shop Committee - I don't know what he is talking about.

All this begs a fundamental, and uncomfortable, question. Can a UAW-represented car company compete effectively, long term, with its nonunion competitors? At the very least, companies organized by the UAW have lots of extra costs to bear at their factories located in the U.S.

First of all, Alan Mulally thinks so, as he has said in many interviews and articles. As if there weren't major cost changes in the past 5 years, a new era starts on January 1, 2010 when healthcare for retirees comes off of Ford's books.

Lots of "extra costs?" Yeah, American car manufacturers have hundreds of thousands of retirees, the transplants have a few hundred only. Even with this, the labor costs between Ford and the transplants will be within $2 per hour, or less. No, no "extra" costs. Didn't the author say "Factory wages aren't Detroit's problem... "?

It's interesting, then, that Consumer Reports rates the quality of the four-cylinder Ford Fusion higher than the Toyota Camry and Honda Accord, and the Lincoln MKZ higher than its Acura and Lexus counterparts. The Fusion and MKZ are built in a factory without job classifications because it's in Hermosillo, Mexico, and isn't represented by the UAW.

The author cleverly left out the fact that there ARE cars built in the US (UAW) that also have the same ability to claim quality higher than their Japanese counterparts.

Ford's shares jumped more than 8% Monday on the company's earnings news. But investors should understand that in buying Ford stock they're also buying the company's relationship with the UAW, with all its implications.

Yeah, implications like best initial quality of all full-line auto makers in the US, safest manufacturing plants, highest productivity, and within a few months - labor costs as low as the transplants. We have also taken historical steps to reopen contracts and approved all negotiated concessions that the company said it needed 4 times. There's more too.



Steve

[G6ET8U]

Good read.

[Bossxr8]

Is that author dumb or what?

Why is he trying to imply unionised factories can't compete with non union factories because of job classifications? It makes no sense. If a machine breaks down it doesn't matter who fixes it, it has no bearing on quality ratings and the companies chance of survival. He's drawing a ridiculously long bow. Just because a machine is fixed by a fitter and turner or an electrician, is it still not fixed? :

[Ohio XB]

Originally Posted by HYPOG6

Good read.

It was a heck of a write on my part. :gren: Thanks. I would have crapped if a glitch caused everything to be lost before it got posted!


Steve

[Iggypoppin']

once again steve, your position of knowledge about Ford.US has helped us better understand the goings-on over in america. its good to read these sorts of articles and your thoughts on them too. thankyou.

[GreenMachine]

Well thought out post, mate.

People are quick to jump on the UAW here, but you need to keep in mind that it wasn't a bunch of fat blokes in cardigans in the UAW office who rejected that agreement - it was a vote of workers in the factory. If you've got no say in your pay and conditions, you're either a machine or a slave.

[RIPGMH]

Originally Posted by Bossxr8

Is that author dumb or what?

Why is he trying to imply unionised factories can't compete with non union factories because of job classifications? It makes no sense. If a machine breaks down it doesn't matter who fixes it, it has no bearing on quality ratings and the companies chance of survival. He's drawing a ridiculously long bow. Just because a machine is fixed by a fitter and turner or an electrician, is it still not fixed? :

Have you ever worked in an industry with heavy demarcation? It is slow, expensive and frustrating. Multi-skilling is good for employees and business, if we are to compete with Asian manufacturing we have no choice but to be efficient.

[GreenMachine]

Compete with Asian manufacturing? Are you nuts? I'm getting sick of hearing about competing with 3rd world economies - if you're going to stick your hand up for Korean wages, conditions and living standards, more power to you. The rest of us (FoMoCo included, I'd say) will continue to look for a competive edge NOT based on cut-price manufacturing

[RIPGMH]

Originally Posted by GreenMachine

Compete with Asian manufacturing? Are you nuts? I'm getting sick of hearing about competing with 3rd world economies - if you're going to stick your hand up for Korean wages, conditions and living standards, more power to you. The rest of us (FoMoCo included, I'd say) will continue to look for a competive edge NOT based on cut-price manufacturing

There are billions of people who would and are working for "Korean" wages. We're not competing for wages but sales. Have a look how good electronics are that are now manufactuered outside Japan, cut price manufacturing doesn't mean reduced quality.

[Mr Brooksy]

Thanks for that write up! Its fantastic!

[Falc'man]

Good write-up, Steve.

[Iggypoppin']

Originally Posted by RIPGMH

There are billions of people who would and are working for "Korean" wages. We're not competing for wages but sales. Have a look how good electronics are that are now manufactuered outside Japan, cut price manufacturing doesn't mean reduced quality.

yep, theyre living in the asian countries and have never had it any better. hardly an adequate comparo to other nations workforces.

[Director]

interesting read. Seems unusual that the plight of Ford now rests with the UAW and they seem to be the focus of this article.
Why no mention of the colossal wages and packages and bad business decisions that have been occurring for decades.
Secondly if the workers at the other companies are represented by the same union why did they vote differently? There must be a reason for 70% no vote, something which is not mentioned here.

[GreenMachine]

Might have the wrong end of the stick re this particular case, but US unions are structurally different from most Australian unions (AMWU etc for Ford employees here) - the UAW seems to have a phemoninally complex branch structure (locals) - rather than a single set of union leadership (elected by the whole membership), they have mini-structures at a site level with elected local presidents/secrataries/treasurers etc - basically a bunch of smaller site-specific unions under the UAW banner. With such strong site-based middle-leadership, you end up with stuff like that. But then again, the leadership can provide advice about whether it's a good deal or not, but ultimately the membership will make the decisions. Steve will probably have some insight on this.

[Ohio XB]

Originally Posted by 76txcoupe

once again steve, your position of knowledge about Ford.US has helped us better understand the goings-on over in america. its good to read these sorts of articles and your thoughts on them too. thankyou.

Thanks for all the accolades everyone. My only desire is to dispell myths and one-sided, agenda driven comments in the press about Ford or the UAW.


The knee-jerk reaction to the Union (UAW) does have a legitimate basis in the past when there were abuses. The problem is that many people are not willing to learn enough about the current practices and condition with the UAW and prefer to just go with the hate-mongering that was mostly justifiable in the past. However, we live in the present, and the past was some time ago.

As I mentioned, the lines of demarcation could be reviewed and relaxed. It would need to be done in a serious way that looks at all ramifications from doing so and how to remedy them. The company's shotgun approach of grouping EVERYONE that is not an electrician into one classification is not the way though, I feel.

Have a look how good electronics are that are now manufactuered outside Japan, cut price manufacturing doesn't mean reduced quality.

I don't know how old you are but in my "old fart" experience I have seen that electronics goods outside of Japan are mostly inferior. You can get something well made, but it will be the exception.

Younger people are used to a "throw-a-way" society where whatever they have will be replaced in short order because a better version will be available shortly, so their electronics do not need to last very long since they will be replaced in a year or two (MP3 players, cell phones), sometimes sooner. Portable CD players never seemed to last very long when they became commonplace. They were made cheap and sold cheap, so replacing it was not viewed as a horrible thing. Besides, the replacement would have more features and better "skip" protection too.

I still have my Sony D-5 portable CD player that was made in Japan in 1986. It works as good as the day it was new. This is long winded enough though.

interesting read. Seems unusual that the plight of Ford now rests with the UAW and they seem to be the focus of this article.

So the author would have you believe. I think Ford, under Mulally's leadership, has done more to improve the company than the UAW has. The "Ford culture" needed to change and it finally has. The UAW does NOT run the company, it never has. The Company does. Upper management has done an amazing job (yeah, I said it) in finding ways to reduce the company's debt and improve terms to repay loans. Working with the UAW they have also been able to reduce operating costs better than at any of the other two. Upper management's committment to making the highest quality cars and trucks has finally become more than just lip service too. That was a long time coming. Yes, the UAW has also done a lot by taking monumental changes in compensation and work rules.

If the above paragraph doesn't demonstrate that I am not a "died in the wool" Union guy I don't know what does.

Why no mention of the colossal wages and packages and bad business decisions that have been occurring for decades.

Because this is past history. Let's see the headlines after the new year when the VEBA takes affect.

Secondly if the workers at the other companies are represented by the same union why did they vote differently? There must be a reason for 70% no vote, something which is not mentioned here.

If you are talking GM and Chrysler then there is a BIG reason for this. At GM and Chrysler the Government said "You will do this if we are going to reorganize you through bankruptcy and for the money that we've given you, and for the more money we are giving you, or else you will have to close down the company." Being a Union this agreement had to be voted on. Basically it was procedural: vote yes or go out of business.

http://www.upi.com/Business_News/200...5171243611752/

UAW approves GM concessions
Published: May 29, 2009 at 4:18 PM

(exerpts)

UAW members voted 74 percent in favor of the deal that includes giving up cost-of-living raises and performance bonuses and one paid holiday in 2010 and 2011.

We already did this at Ford in March.

The deal also suspends tuition assistance and dental coverage, and reduces prescription drug coverage, the Detroit News reported Friday.

This was also done in March at Ford, but we retained dental coverage. We had already approved most all of what the other two were forced to accept before they did. This last round of concessions (October) were for a few other things that the Gov wanted from GM (no strikes while you are operating on our money) that are not as significant at Ford. Ford also has the best relationship with the UAW. The UAW has not struck Ford since 1976. Having the ability to strike makes Ford have to work to a resolution. Now, why would Ford want, or need, the UAW to agree to the same strike clause?

In the latest restructuring plan, the U.S. government would likely end up with 72.5 percent of GM, while the UAW would end up with 17.5 percent. Bondholders would receive 10 percent, the Detroit Free Press said.

Here it is stated that the Gov has a 72.5% hold of GM, which means they call the shots. The Gov also dictated that the UAW end up with 17.5% I BELIEVE due to the use of stocks to fund the VEBA instead of cash. The UAW did not ask for this, they did not want this, but they agreed to it. It was that or close the company down.

GreenMachine, you've basically got it right.

Each plant has it's own local Union structure. The locals basically make up the whole. It's kind of like each City having it's own government structure. Most all Union positions are elected with just a few appointed positions. There is also a local agreement that supercedes the National agreement on site specific issues. This allows flexibility in bargaining. For example, each plant in 2005 negotiated it's own "Competitive Operating Agreement" in order to benefit each plant in ways that would be most beneficial to it's own circumstances. Yes, there were many similarities in all the agreements but the flexibility to deal with unique local issues was also positive in helping Ford to become competitive.


Steve

[Director]

Lets hope everyone gets through this, Ford and the workers. All involved need to forget the past and look to the future, all business need a flexible workforce and not be restricted by historical agreements, all workers need a work/life balance with financial rewards for good work and commitment.

[Ohio XB]

I agree. And when USA workers give the company everything they ask for in cost savings and work rule changes then that company should do more manufacturing in the USA with the money saved to validate what was sacrificed.


Steve