When auto workers went on strike in September, executives at major U.S. automakers warned that union demands could significantly harm their ability to compete in a rapidly changing industry. Ford Motor’s chief executive said the company may have to abandon its investments in electric vehicles.
The future doesn’t look quite so bleak after Ford and the United Automobile Workers union reached a tentative agreement that will likely serve as a template for deals the union eventually reaches with General Motors and Stellantis, maker of Ram, Jeep, etc. , negotiates Chrysler.
Ford’s costs will rise under the terms of the new contract, which includes a 25 percent increase over four and a half years, enhanced pension benefits and other provisions. The additional costs would weigh on profits and could hurt Ford’s ability to invest in new technologies, John Lawler, the company’s chief financial officer, said Thursday.
However, some analysts said the increases should be manageable. What’s more important to the company’s prospects, they said, is how innovative and efficient the company is in developing and producing cars and technologies that can compete with the offerings of Tesla, which dominates electric vehicles, the fastest-growing segment of the company Automotive industry.
“They didn’t agree to anything that would threaten their competitiveness,” said Joshua Murray, an associate professor at Vanderbilt University and author of a book that examined how U.S. automakers were losing ground to Japanese and European rivals. He said the deal could even help Ford, in part because the four-year contract ensures there is no labor dispute during an intense period of the transition to electric vehicles.
“They will not be embroiled in labor disputes as they deal with technology change,” Murray said.
Ford said Thursday it earned $1.2 billion on sales of $44 billion from July to September; The company lost $827 million in the third quarter of 2022. But the division, which makes electric vehicles, lost $1.3 billion due to investments in new technologies and increasing competition that has driven down prices.
The approximately 17,000 striking Ford workers out of the company’s 57,000 UAW workforce are expected to return to factories soon. At UAW Local 900 in Wayne, Michigan, across the street from a Ford plant that was among the first three factories attacked by the UAW, workers dumped signs, firewood and bottled water that had been stored for picketing.
“This is the best contract I’ve seen in my 30 years at Ford,” said Robert Carter, 49, who works with engineers to set up jobs on the assembly line. He said younger workers earning well below the top wage of $32 an hour would see the greatest impact of the new contract; Her wages would rise to more than $40 an hour over the next four and a half years.
“For some people, their salary will almost double,” he said. “How can you say this isn’t huge?”
The reaction on Wall Street suggested that investors did not view the deal as a disaster. The car maker’s shares fell 1.7 percent in regular trading on Thursday.
But Ford shares fell nearly 5 percent in after-hours trading after the company said the costs of the strike meant it could no longer stick to an earlier estimate of profit before interest expense and taxes of $11 billion to $12 billion. Dollars would be 2023. Mr. Lawler also said the strike would cost the company $1.3 billion this year.
Analysts at Barclays estimated the annual cost of salary increases, enhanced pension benefits and other measures in the new union contract to be between $1 billion and $2 billion annually through the end of the four-year term, or about 1 percent of sales.
Mr. Lawler said in a conference call that the contract would increase the company’s labor costs by an average of $850 to $900 per vehicle. He said that given higher labor costs, Ford would look to “identify efficiencies and improve productivity to help us achieve our goals.”
Some analysts criticized the deal with the UAW, saying the cost to Ford could put the company at a significant disadvantage and potentially prompt the company to move more production to Mexico.
“It represents an additional constraint in a very competitive market,” said Jonathan Smoke, chief economist at Cox Automotive. “It’s definitely a compromise that I think will either limit Ford’s performance in the future or force them to think about alternatives.”
During the contentious negotiations, Ford complained that a large wage increase would put the company further behind Tesla in the electric vehicle market. Sales of Ford’s two main battery-powered models, the F-150 Lightning truck and the Mustang Mach-E sport utility vehicle, have been disappointing this year, and the company recently scaled back plans to increase production of the Lightning.
“There is tremendous downward pressure on electric vehicle prices,” Lawler said.
But Tesla and other automakers such as Toyota, Hyundai, Nissan and Honda, whose factories in the United States do not have unions, may now be under pressure to raise wages, erasing any cost advantages they may have had.
The UAW has stated its intention to try to organize these factories. The Ford agreement, by far the largest pay increase the union has won in decades, is expected to serve as a powerful promotional tool for collective bargaining.
“Elon Musk better look at this,” said Madeline Janis, executive director of Jobs to Move America, an advocacy group with close ties to organized labor. “Hyundai and Toyota should take a better look at this. This is a new era in which workers rise up.”
Tesla, the company Mr. Musk runs, and other automakers that don’t have unionized workers in the U.S., such as BMW, Mercedes-Benz and Volkswagen, may decide to hand out preemptive pay raises to keep union organizers at bay.
“One strategy to deter unionization is to raise wages,” said Rebecca Kolins Givan, associate professor of labor studies and industrial relations at Rutgers University.
The deciding factor in the electric vehicle market will be the ability of Ford, GM and Stellantis to produce innovative products, Ms. Givan and others said. This is the responsibility of management, not the assembly line workers.
“It’s clear that these companies still have a lot of work to do in the electric vehicle market,” Ms. Givan said. “There is nothing in this contract that imposes any restrictions.”
In addition to the 25 percent wage increase, the contract gives Ford’s contract workers cost-of-living wage adjustments, significant increases in pensions and job security, and the right to strike during plant closures. The union initially demanded a wage increase of 40 percent.
Ford has not yet set dates for restarting plants shut down by the strike. The company previously said it could take up to four weeks to reach full production. Ford also needs around 600 suppliers to restart production and supply parts.
“Starting up a plant is much more difficult than tearing it down,” Bryce Currie, vice president of manufacturing for the Americas at Ford, said this month.
Workers at the Wayne plant that makes the Ranger pickup and sport-utility vehicle had not received orders to return to work Thursday but expected to be back on the assembly line next week.
Walter Robinson, 57, has worked at the Wayne plant for 34 years and is expected to retire at the end of the new contract. But he said three of his children worked for Ford and would see great benefit from the new conditions.
“My daughter has only been here two years and it would take years for her to get top pay,” he said. “This will help her tremendously. This will improve all of their lives.”