2023-10-27 16:19:02 ET
Summary
- Ford Motor Co. faces a $1.3 billion profit loss due to a 41-day strike at its Kentucky plant.
- The United Auto Workers union demanded higher wages and an end to tiered wages based on seniority.
- The strike has led to concerns about the future of Ford's BEV business and the competitiveness of UAW operations.
Once the United Auto Workers union struck Ford Motor Co.'s ( F ) most profitable plant on Oct. 11, a pickup giant truck assembly facility in Kentucky, the automaker was facing mounting lost production of its most profitable vehicles, pickup trucks.
Two weeks later, the sides reached an agreement, Ford clearly is at the limit of what it was prepared to spend on higher wages. UAW workers increasingly were complaining that $500 strike pay wasn't enough to support families, and they wanted to return to their jobs.
Ford announced on Thursday, as it released third quarter financial numbers, that the 41-day strike will cost it at least $1.3 billion of profit - assuming Ford union workers agree to ratify the contract. Accordingly, the company withdrew its financial guidance for the year, which was an expectation of adjusted earnings before interest and taxes of $11 billion to $12 billion.
Striking is not fun
Labor stoppages are never pleasant - this one felt particularly bitter. In part, the acrimony was fanned by the UAW's new president, Shawn Fain, who was openly contemptuous of the Big Three's management and of the profits he accused the company of refusing to share fairly with its hourly workers. He opened talks in the summer by declining the traditional handshake with company negotiators.
The automakers so far have pushed back against demands for a four-day work week, replacement of 401(k) retirement plans with pensions and an end to tiered wages based on seniority - arguing that returning to wage and benefit packages such as those paid prior to industry turmoil sparked by the Global Financial Crisis would lead to further competitive losses against transplant manufacturers from abroad like Toyota (TM), Honda (HMC), Mercedes-Benz, Hyundai (HYMTF) and others, not to mention Tesla (TSLA).
How much of Ford's decision to cut back and delay its BEV business was caused by lower-than-expected consumer demand for plug-in vehicles and how much was caused by the strike probably can't be quantified precisely, though both play a role. Union hostility toward Detroit automakers has been rising because the UAW understands that future BEV production requires fewer workers than those needed to build vehicles powered by internal combustion engines. The UAW also is worried that battery plants, some of which could be owned as joint ventures, would be considered separate businesses and, therefore, not covered under the UAW's master contract.
Not just wages
Much attention has been paid to the wage rates and other economic benefits (minus union dues) that the UAW is attempting to improve, as analysts have pointed out - accurately - that hourly wages are a relatively small percentage of overall vehicle manufacturing cost. Moreover, the competitive labor-cost gap with U.S. transplant work forces is likely to narrow as transplants raise the wages of their hourly workers to insulate themselves against UAW organizing campaigns.
The competitive threat that Ford faces is much greater than simply having to pay higher wages than its rivals to assemble vehicles. The inefficiencies, delays and sub-optimization of running plants as UAW operations heaps a cost on Ford (as well as GM and Stellantis) that steadily flows to the bottom line, damaging the ability to raise capital, to invest, to expand market share and to enter new markets.
The extra cost of operating as a UAW shop is manifest, for example, by strict work rules. The UAW will argue that forcing employers to abide by negotiated work rules ensures greater safety in the plant when, for example, certain procedures must only be carried out by skilled trades. Transplants view elaborate work rules as a path leading to featherbedding, a means of deploying more workers during a shift than truly is necessary.
Transplants, on the other hand, point to higher absentee rates in UAW plants , which force the employer to keep more permanent workers on the payroll. Many transplants hire temporary workers, which tend to moderate labor costs, a practice the union opposes on ideological grounds.
Another difficult-to-quantify cost, placing Ford and Detroit peers at a disadvantage is the atmosphere of hostility toward the company incited by Fain and the UAW in the runup to negotiations and the strike. Yes, after a new contract is signed and the anxiety of the picket line subsides, the opponents will kiss, make up and go back to work.
The best U.S. transplants, by contrast, are studying and deploying the most advanced and innovative labor management practices. The goal: Optimizing worker satisfaction and continuously improving health and safety.
The managements of Ford, GM and Stellantis realize they are at a disadvantage as union shops, though federal law provides no practical way to unwind from the UAW. All three would have long ago done so if the matter were simple.
Southern strategy
Theoretically, the Big Three could "even the playing field" with the non-union automotive companies is by urging the United Auto Workers to organize factories such as Toyota's massive Georgetown, Kentucky, assembly plant, BMW's Spartansburg, South Carolina, factories and the rest.
Since the 1980s, organizing campaigns at transplant factories have either failed because workers rejected the proposal or never gained sufficient critical mass to justify an election.
Last week, Fain vowed to reverse the trend.
"Workers at Tesla, Toyota, Honda and others are not the enemy - they're the UAW members of the future," Fain said. "We're going to organize non-union auto companies like we've never organized before."
The UAW's latest defeat took place in 2019 at Volkswagen AG's manufacturing complex in Chattanooga, Tennessee.
Not surprisingly, the UAW tends to blame its lack of success on scare tactics by the manufacturers and has filed unfair labor complaints with the U.S. Department of Labor. A more likely reason is an anti-union bias in southern states, along with a view among some workers that the UAW hasn't served Detroit particularly well.
No doubt the current price of Ford shares, which has slid precipitously since the tentative agreement was signed, will attract investors betting on a rebound once the sting of the strike has faded. As a long-term investor, my bias is to see whether the automaker can regroup and grow earnings for several quarters - a distinct possibility, since spending on BEVs will be muted until consumer demand shows more robust growth. Until then, Ford remains a Hold.
For further details see:
Ford: Profit Hit Hard By Strike, Withdraws Financial Guidance, Slows EV Spending