The torturous path to ratification for the tentative labor agreement between Chrysler and the United Auto Workers could have bad implications for Ford ( F), where negotiations with the union are now gathering steam. Chrysler's pact with the UAW met more resistance from its union-represented workers than a similar deal recently ratified at General Motors ( GM), but it's expected to win a majority of support as the voting winds up this weekend. Ford is viewed as Detroit's weakest link, which could put it in a position to win the biggest concessions from labor. That said, Ford also is in the worst position to handle a labor strike of any magnitude, so any problems the company has in ratifying a deal could lead to calamity. "Chrysler negotiations really strengthened the union's hand going into negotiations with Ford because it revealed some dissatisfaction on the part of workers with these agreements," says Calyon Securities analyst Mark Warnsman. "Ford executives will be acutely aware that ultimately the UAW is a democratic organization and that 50% plus one of their members have to vote for the deal." GM set the tone in this year's historic negotiations between the UAW and the U.S. auto industry, which are viewed on Wall Street as a key opportunity for Detroit's automakers to achieve labor concessions that will put them on a more equal footing with foreign-based manufacturers with lower operating costs.
GM reached a deal with the union to set up a union-controlled health care trust fund, dubbed a VEBA, that will free the automaker from the crushing burden of its long-term health care obligations to its workers in 2010. It also set up a two-tier wage structure that allows the company to pay new hires at lower rates. UAW members are now voting on a similar agreement at Chrysler, which was taken private recently by buyout firm Cerberus Capital Management. Ford is behind GM in its restructuring, so it needs more breathing room on labor costs than its counterpart to reap the same level of optimism about its future from investors. But as last in line to negotiate its own deal with the union, Ford may have an opportunity to wring more concessions from workers. "Ford is in a better position to plead poor, and that's helpful," says Warnsman. The company is using a lower level of its plant capacity in the U.S. than its counterparts, raising the prospect of more plant closings and layoffs than have already been announced. Ford has said it expects to offer retirement buyout packages to as many as 30,000 workers by the end of 2008, but the Associated Press reported Thursday that Ford and the UAW have already reached an agreement in principle on further reductions to its hourly workforce.
Ford spokeswoman Marcy Evans declined to comment on the negotiations. A spokesman for the UAW did not return a phone call. While Ford's financial weakness translates into an asset in labor negotiations, the company also has some forces working against it. Ford has fewer retirees than GM, so a VEBA would be less beneficial to the company. Its workers, on average, are about five years younger than GM's, so it will be harder to buy them out and transition to a two-tier wage structure. Also, GM's over-funded pension liabilities allowed it some wiggle room in negotiating the cost of financing a VEBA. Ford will not have this advantage (its pension is under-funded). And like Chrysler, Ford may be less willing than GM to put forth its future product plans and make manufacturing commitments as a pledge to preserve UAW jobs in the U.S. "Given all the financial turmoil within the company, I'd be surprised if Ford has even settled on their plans to a degree that they're sufficiently confident to make actual product commitments," says Warnsman. Those issues, combined with the contentious vote on ratification at Chrysler, will make things more difficult for Ford. "At the end of the day, Ford is in exactly the same boat as GM in that it has to work with the union and its key competition does not," says Warnsman, referring to Asian-based manufacturers like Toyota ( TM) and Honda ( HMC). "Going forward, that will continue to define the potential success for both companies."