GM, Chrysler may not follow Ford's lead with Canadian auto workers' union

MarketWatch
April 30, 2008

Detroit (AP) -- Canadian Auto Workers President Buzz Hargrove said Wednesday he expects Chrysler LLC and General Motors Corp. (GM <http://www.marketwatch.com/quotes/gm> General Motors Corporation GM <http://www.marketwatch.com/tools/quotes/quotes.asp?symb=GM> ) to agree to the same contract the union reached Monday with Ford Motor Co. (F <http://www.marketwatch.com/quotes/f> Ford Motor Company F <http://www.marketwatch.com/tools/quotes/quotes.asp?symb=F> ), but industry analysts say the other two automakers may not go along with the higher costs.

The surprise deal, reached five months before the CAW's national auto contracts expire in September, keeps Ford's labor costs essentially the same as they are now, the union says.

Several analysts said both Chrysler and GM were expecting to cut costs in the CAW talks like they did last year with the United Auto Workers in the U.S. Ford executives previously made public statements about being cost-competitive in Canada.

"I think it was relatively easy for Ford to duck in and duck out on this thing," said Mark Warnsman, an analyst with Calyon Securities in New York. "But I think it's going to be less easy for GM and Chrysler."

Hargrove said the deal freezes wages and cuts vacation pay but avoids changes to base wages. It also prevents a two-tier wage system used in the U.S., where new hires would be paid about half the hourly wages of older employees. New hires would start work at 70% of the top wage, reaching the maximum three years later.

About 8,000 CAW workers still must vote on the tentative deal with Ford.

In a telephone interview, Hargrove said he expects Chrysler and GM to accept the Ford agreement before the CAW bargaining convention starts June 10.

"The cloth is cut. It's just a matter of pulling the pieces together," he said.

CAW economist Jim Stanford said Ford saves money in some areas under the deal, but the savings are offset by small pension increases and cost of living adjustments in the final two years of the deal.

The CAW says Ford's total labor costs for active production workers will stay around $67 per hour, about $7 per hour more than the UAW.

Stanford says the difference is wiped out by higher productivity at Canadian plants "so in the end, we think it's a wash."

A message was left for UAW spokesman Roger Kerson.

Greg Gardner, an analyst with the Oliver Wyman Group, said Ford may have agreed to the higher costs in order to avoid a strike that would disrupt supplies of some higher-margin vehicles.

CAW workers make the strong-selling Ford Edge and Lincoln MKX crossover vehicles at a plant in Oakville, Ontario, near Toronto, and the same plant is scheduled to build the Flex large crossover later this year.

"Given the products that Ford's building in Oakville, it has become a strategically important plant," Gardner said. "These are profitable vehicles that are selling reasonably well given the overall economic climate."

Ford spokeswoman Lauren More declined to comment on the agreement because negotiations on contracts for individual factories are continuing. Both GM and Chrysler said they were still analyzing the Ford deal.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, said GM and Chrysler probably were stunned by the agreement.

Ford, he said, may get further cost cuts out of the local bargaining, so it's too early to judge the deal. But if the higher costs hold, Cole said the CAW may lose in the long term as automakers decide to build future products elsewhere.

"Any way you want to look at it from a Canadian perspective, it does potentially jeopardize their long-term role in the industry," he said.

Warnsman said GM may balk at the Ford deal because it produces a higher percentage of its cars and trucks in Canada and would incur more costs. CAW workers covered by the contract accounted for about 19% of GM's North American production last year, compared with just over 12% at Ford. Chrysler made 23% of its North American vehicles in Canada.

Warnsman said GM or Chrysler may be able to negotiate different terms than Ford, similar to what Ford did with the UAW. Ford's U.S. contract allows the company to pay a lower wage to any new hourly employee, while Chrysler's and GM's pacts with the UAW only allow the lower wage for jobs not directly involved in making vehicles or parts.

Yet Hargrove says the Ford deal will be the pattern for the others.

"If Ford is saying this is a good deal for us, we do not anticipate a problem with GM or Chrysler," he said.

He also called statements that auto production could be shifted out of Canada due to the higher costs "absolute nonsense."

"It's a contract that kind of keeps things where they're at today," Stanford said. "That's something Ford can live with and that's something we can live with. It doesn't in our judgment undermine the case for investing in the Canadian facilities."