Ford ( F) 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."

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