Ford’s (F) talk with United Auto Workers (UAW) on modifications to its 2007 labor contract has taken an unpalatable turn, as some members of the union have declined to ratify the changes. Gary Walkowicz – a member of the bargaining committee at the Dearborn Truck Plant in Michigan – and six other plant leaders had signed a letter to employees urging them to vote against the agreement as it would require too many concessions and would limit the workers’ right to strike. Ford’s 41,000 UAW members have started voting this week, which is expected to end by Nov 2.

The ratification agreement, which would run till 2011, would have helped Ford end its cost disadvantage. The company was upset with its higher labor costs compared to its Detroit rivals, General Motors and Chrysler. Both of its rivals were given concessions by UAW as they headed into bankruptcy protection earlier this year. Thus, Ford intends to lower its labor costs to match its rivals.

However, the workers opposing the deal have a different standpoint. They have argued that, Ford is presently a healthier company compared to General Motors and Chrysler, which accepted federal bailout funds and went into bankruptcy earlier this year. Ford showed a net income of $2.3 billion or 69 cents per share in the second quarter of the year, its first profit since the first quarter last year. This was against a net loss of $8.7 billion or $3.89 per share in the second quarter of 2008.

If the members of UAW ratify the agreement, they will be given bonus and additional work with investments at some factories. The $1,000 bonus is payable in March next year to every UAW worker. Additional work includes manufacturing a new product in the Chicago assembly plant with a planned hiring of 300 workers in 2010.

However, the deal bans strikes over wages or benefits, freezes entry-level wages and changes work rules to require some skilled-trade employees to multi-task. Under the deal, the union is also required to enter arbitration with Ford rather than strike in the next round of contract talks in 2011.

We continue to recommend the shares of Ford as Neutral.

Zacks Investment Research
View original at: Zacks.com News Feed

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