Ford Sees $500M Savings in New UAW Pact

The modifications to its contract with the United Auto Workers will reduce the hourly employee cost to about $55.
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said newly approved modifications to its contract with the United Auto Workers will enable savings of $500 million annually and bring its hourly employee cost to about $55.

The changes include the elimination of $600 Christmas bonuses and 2009 and 2010 cost-of-living increases and a reduction in break time to 40 minutes per eight-hour shift.

Additionally, the deal tentatively provides that Ford can use its stock -- instead of cash -- to make up to 50%, or $6.5 billion worth, of its contribution to the Voluntary Employee Beneficiary Association, a retiree health care trust fund financed by the auto companies. These changes require court and regulatory approval.

Ford also said it will offer a new round of buyouts to nearly all employees beginning April 1.

Ford group vice president Joe Hinrichs said the deal gets Ford's hourly cost per employee competitive with those of workers at U.S. plants operated by foreign automakers.

"We think it gets us to about $55 in 2009," Hinrichs said, on a conference call with reporters and analysts. "We had $48 or $49 an hour for transplants (but) we believe that's changing." Wages for transplant workers are increasing as the number of temporary workers declines, he said.

In establishing new contract terms, Hinrichs said, Ford "looked at not just transplants in North American but also our European operations, in the first half of last year, which were very profitable. That drove us to a certain expectation, certain targets that we shared with the UAW. We focused on what we know drives profitability for Ford across the globe."

About half of the $500 million in savings result from elimination of performance bonuses, Christmas bonuses and COLA, Hinrichs said, with the rest coming from other contract changes. About three quarters of the savings will be realized this year, with full realization to begin in 2010. Additionally, the buyouts mean that "when the volume and economy and the industry come back, we're be hiring entry level," further reducing costs, Hinrichs said.

Under the new contract, the complex methodology for easing out laid off workers will be simplified. Under the 2007 contract, workers continued at full salary for up to two years, and could continue to be paid well beyond that under the controversial jobs bank program. (In both cases, acceptable job offers would end the salary payment.) The new contract caps Ford's financial liability, according to seniority, with or without a job offer.

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and Chrysler are still seeking to modify their contracts and VEBA agreements with the UAW. Unlike Ford, the two companies are bound by loan agreements with the Treasury to seek contract changes, although the new Ford contract is thought to establish a model they can largely follow.

In trading Wednesday morning, Ford shares were up 10 cents to $1.95, while shares in GM were up 5 cents to $1.94.