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: Detroit News: Ailing Ford gets deal that fits its needs

11-05-2007, 07:00 AM
Monday, November 5, 2007

Ailing Ford gets deal that fits its needs
UAW agrees to less cash for retiree health care fund in exchange for plant investments
Bryce G. Hoffman and Daniel Howes / The Detroit News

The tentative agreement between Ford Motor Co. and the United Auto Workers departs in significant ways from the union's deals with General Motors Corp. and Chrysler LLC, positioning Ford to close the cost gap with foreign rivals and make the Blue Oval competitive again.

The deal -- reached early Saturday after a week of marathon negotiations that included face-to-face bargaining between CEO Alan Mulally and union President Ron Gettelfinger -- appears to be the sort of transformational contract that Mulally promised and Wall Street demanded.

In exchange for increased investment in new cars, trucks and Ford's manufacturing operations, according to a source familiar with the negotiations, Ford would fund an independent trust for retiree health care with $6.9 billion in cash, a smaller percentage of cash than GM or Chrysler are putting into similar trusts.

For Ford, that represents roughly 40 percent of the $17.3 billion the automaker agreed to pay toward its total $23-billion retiree health care obligation, with the remainder financed by convertible notes. GM, by contrast, paid roughly 54 percent of its obligation in cash.

In a novel twist proposed by Gettelfinger and quickly embraced by Mulally, Ford will invest the cash it would have paid into the trust, known as a voluntary employees' beneficiary association, or VEBA, in its U.S. assembly plants. Factories that do not already have flexible body shops will get them, making Ford a far more nimble manufacturer than it is today. The cash also will be used to upgrade equipment in older facilities.

The trade-off appears to be a win for factory-level UAW locals worried that Ford would close as many as six more factories across North America, including two assembly plants. It also reinforces a mantra Gettelfinger repeated during the talks, according to a source familiar with the situation: "If Ford is stronger, that will make our membership more secure."

Additionally, unlike the GM and Chrysler deals, Ford's contract does not define hourly jobs as "core" assembly line jobs and "non-core" manufacturing jobs, such as materials handling, to justify permanently lower wages for new hires. Ford and the UAW agreed that 20 percent of the automaker's hourly work force would be second-tier workers -- meaning, effectively, that virtually all new hires, no matter what their job, would be paid the lower wage-and-benefit package until the 20 percent cap is reached.

Current hourly workers would not be directly affected by the two-tier wage plan. The change would ease pressure sooner on Ford's payroll, conserving cash for other uses, and allow the automaker to keep open U.S. assembly plants targeted for closure under Ford's "Way Forward" restructuring plan, though some U.S. parts plants likely will be shuttered.

In another departure from the GM pattern, bargainers also agreed to stiffer rules for the UAW-Ford "jobs bank," called "GEN," which essentially pays idled workers not to work. Should the contract be ratified, workers would be limited to one year in the jobs bank and be given one opportunity to take a new job.

"This is exactly what Ford needed," Wall Street analyst Bradley Rubin of BNP Paribas said Sunday of the deal. "This will allow them to focus on product. Ford is now much more competitive than GM or Chrysler."

Ford declined to comment Sunday. The tentative agreement still must be approved by rank-and-file UAW members, which is more than a mere formality. It required intense lobbying from senior UAW officials, including Gettelfinger, before Chrysler workers narrowly approved their contract.

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11-05-2007, 07:02 AM
DetNews:Key terms of Ford's contract with the UAW

Here are some of the terms of Ford's contract with the UAW and how they compare with the details of the UAW's agreements with General Motors Corp. and Chrysler LLC.
Retiree health care: Ford will be required to put up substantially less cash than GM or Chrysler to fund a voluntary employees' beneficiary association, or VEBA, that will take over responsibility for hourly retiree health care. Only 40 percent of Ford's contribution will be in the form of cash, compared with GM's 54 percent and Chrysler's 59 percent.

Factory investment: Ford will invest cash that would have gone into the VEBA in its plants to make them flexible, enabling them to produce more than one kind of model. Ford intends to make all of its North American plants flexible, except for those it expects to close as part of a previously announced restructuring plan.
Job security: Ford agreed to remove two plants -- Wayne Stamping and Assembly Plant and the Ohio Assembly Plant in Avon Lake -- from its list of facilities targeted for closure and will not close any other U.S. assembly plants beyond those already slated to be shuttered. Ford also made specific new product commitments to Wayne and other facilities. GM set a moratorium on outsourcing, agreed to retain current product plans at 16 UAW assembly plants and made investment and future allocation commitments for 12 of those plants. Chrysler made no future product commitments but identified $15 billion in potential investment in U.S. plants during the term of the contract. The company announced $3 billion in powertrain investments in June.
Two-tier wages: Ford may hire new workers in assembly and other types of jobs at lower wages until the overall number of workers in the lower-wage tier reaches 20 percent of its UAW work force. GM and Chrysler may hire workers at lower wages but only for certain jobs not core to making vehicles.
Jobs bank: Ford workers may not stay in the jobs bank, earnings nearly full wages, beyond one year. In that time, if they are offered another job at Ford, they must take it or leave the company. GM workers may turn down one offer but must take the second one. Chrysler workers without jobs may spend up to two years in the jobs bank. After that, the UAW and Chrysler would negotiate a plan for workers.