Ford Avoids a Strike, While GM’s Suppliers Are Still Reeling

(Bloomberg) -- Ford Motor Co. managed to avoid a strike when it reached a tentative agreement with the United Auto Workers on a U.S. labor contract Wednesday, but suppliers to General Motors Co. are still suffering from the six-week walkout that halted production at more than 30 American factories.

Auto-parts makers’ shares are sliding after reporting lower sales and cutting profit forecasts following the strike at GM that ended Oct. 25 when more than 48,000 workers ratified a new four-year contract.

While Ford’s new UAW pact came together after just three days of talks on economics, the negotiations will be more fraught at Fiat Chrysler Automobiles NV after it agreed to merge with Peugeot-maker PSA Group, creating the world’s fourth largest automaker. Talks were already viewed as more tricky with Fiat Chrysler because it has more younger and temporary workers, whose improved compensation from the GM deal will be costly.

At Ford, the accord includes $6 billion of product investment in U.S. facilities and the creation or retention of more than 8,500 jobs, according to a statement released late Wednesday. The union will meet in Detroit on Friday with hundreds of local leaders to go over the details of the deal. If they approve it, the deal will be put to a vote of Ford’s 55,000 U.S. workers.

The Ford package is expected to follow the basic pattern set in the GM contract, which included lump-sum payments and annual pay increases that lift production wages to $32.32 an hour by 2023. As part of the proposed agreement, the automaker also will close an engine factory that employs 600 workers, according to people familiar with details of the deal who asked not to be identified.

Supplier Impact

The longest national strike in nearly a half century at GM will lower that automaker’s earnings this year by about $2.9 billion. Its suppliers are feeling the pain as well.

Auto-parts maker Aptiv Plc on Wednesday reported a $30 million hit to operating income in the third quarter from the GM strike and said it expects to shave $135 million off earnings this year. AK Steel Holding Corp. also cut its profit forecast due in part to the walkout, sending its stock plunging as much as 10% Thursday.

Supplier Delphi Technologies Plc announced a new four-year cost restructuring program on Thursday after reporting “pretty rough numbers” for the third quarter due in part to the strike, Chris McNally, an analyst with Evercore ISI, wrote in a note to investors. Car seat maker Lear Corp., which relies on GM for almost 20% of its revenue, cut its 2019 profit and sales forecast last week.

For ratifying the contract, Ford workers will receive a $9,000 signing bonus, said two people familiar with the details who asked not to be identified. That’s less than the $11,000 signing bonus GM workers are receiving. But Ford workers didn’t lose wages to a walkout. Four years ago, Ford staff received $10,000 when they ratified the deal, including $1,500 pulled forward in profit sharing.

“This was an expensive deal at GM and it’s going to be even more expensive at Ford, depending on what offsets Ford was able to get to tailor it to their needs,” said Kristin Dziczek, vice president of the labor and economics group at the Center for Automotive Research.

Read more: If You Thought Strike Was Bad for GM, Look at Ford and Chrysler

Ford shares were little changed at 3:25 p.m. in New York. The stock is down about 7.3% since Oct. 23, when it cut its profit forecast for the year by $500 million.

The new product commitments might include the Bronco sport-utility vehicle that’s scheduled to go into production at a Michigan factory next year. Ford is overhauling its aging lineup with new and redesigned models such as the Explorer SUV and the Lincoln Aviator.

Ford also has said it will spend $11 billion to bring electric vehicles to market, but the union has been concerned that will result in fewer jobs because battery-powered cars are less labor-intensive.

“Pure electric vehicles require 40% fewer hours to assemble the powertrain than internal combustion vehicles,” said Mark Wakefield, head of the automotive practice at consultant AlixPartners. “The automakers and their workers have some difficult EV realities to tackle over the next few years.”

Ford Ratings

Ford can ill afford a strike. After the company pared its profit forecast, S&P Global Ratings became the second credit grader to cut its rating on the carmaker in as many months. S&P called Ford’s performance “subpar” and outlined risks to Chief Executive Officer Jim Hackett’s $11 billion turnaround plan, including sluggish industry sales and costly emissions standards.

The UAW also had less reason to take a hard-line approach with Ford. Whereas GM was seeking to close several U.S. plants, Ford entered talks having made commitments to invest in electric and self-driving car facilities in Michigan. The company also employs more UAW members than GM or Fiat Chrysler, known as FCA.

“Given Ford did not have plans for U.S. plant closures, the deal was expected to go through quicker,” Arndt Ellinghorst, auto analyst for Evercore ISI, wrote in a note Thursday. “FCA is next in line with a comparatively greater younger/temporary workers than GM or Ford.”

Fiat Chrysler CEO Mike Manley said Thursday that 59% of Chrysler’s U.S. workforce is “in progression,” meaning they are newer workers who are still climbing the wage scale. He said 13% of the company’s American workers are temporary.

--With assistance from Angus Whitley, Will Davies and Gabrielle Coppola.

To contact the reporter on this story: Keith Naughton in Southfield, Michigan, at knaughton3@bloomberg.net

To contact the editors responsible for this story: Kevin Miller at kmiller@bloomberg.net, Chester Dawson

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