Ford’s U.A.W. Agreement to Increase Expenses and Reduce Labor Conflict

When autoworkers went on strike in September, executives of the large U.S. automakers warned that union demands could significantly undermine their ability to compete in a fast-changing industry.

The future doesn’t look quite that bleak now that Ford and the United Automobile Workers union have reached a tentative agreement. The agreement is likely to serve as a template for deals the union eventually reaches with General Motors and Stellantis.

Ford’s costs will rise under the terms of the new contract, which includes a 25 percent raise over four and a half years, improved retirement benefits, and other provisions. The extra expense will weigh on profit and could hamper Ford’s ability to invest in new technology, according to John Lawler, the company’s chief financial officer.

But some analysts said the increases should be manageable. What will matter more for the company’s prospects, they said, is how innovative and efficient the company is in designing and producing cars and technology that can compete with offerings from Tesla, which dominates the electric vehicles market.

“They haven’t agreed to anything that will kill their competitiveness,” said Joshua Murray, an associate professor at Vanderbilt University. He also mentioned that the deal could help Ford as it ensures there would be no labor strife during an intense phase of the transition to electric vehicles.

Ford recently announced its earnings for the third quarter of 2022. The company earned $1.2 billion from July through September on revenue of $44 billion, but the division that makes electric vehicles lost $1.3 billion due to investments in new technology and increasing competition.

The roughly 17,000 Ford workers who had been on strike are expected to begin returning to factories soon. At U.A.W. Local 900 in Wayne, Mich., workers were disposing of signs and other materials that had been stockpiled for picket lines.

“This is the best contract I have seen in my 30 years with Ford,” said Robert Carter, an employee who works with engineers to lay out work stations on the assembly line. He emphasized that the new contract will have a significant impact on younger workers who had been earning less, as their pay will rise to more than $40 an hour over the next four and a half years.

Some analysts were critical of the deal with the U.A.W., saying the cost to Ford could put it at a significant disadvantage. However, the reaction on Wall Street suggested that investors did not regard the agreement as a catastrophe.

Ford stock slumped almost 5 percent in after-hours trading after the company said that, because of the cost of the strike, it could no longer stand by an earlier estimate of profit. The annual cost of pay raises and other measures in the new union contract is estimated to be $1 billion to $2 billion annually by the end of the four-year contract period.

Ford’s labor costs per vehicle are expected to increase by an average of $850 to $900. The company will aim to improve productivity and identify efficiencies to offset these higher costs.

During the negotiations, Ford expressed concerns about a big raise for workers putting it further behind Tesla in the electric vehicle market. However, Tesla and other automakers like Toyota, Hyundai, Nissan, and Honda may face pressure to raise wages, eroding any cost advantage they might have had.

The U.A.W. has declared its intention to try to organize factories of automakers that do not have union workers in the United States, like Tesla, BMW, Mercedes-Benz, and Volkswagen.

In addition to the pay increase, the contract includes cost-of-living wage adjustments, gains on pensions and job security, and the right to strike over plant closings. Ford has not yet set dates for restarting plants idled by the strike.

Walter Robinson, an experienced worker at Ford, expects to retire by the end of the new contract. He believes the new terms will greatly benefit his children who also work for Ford.

“This is going to help her immensely. This is going to make all of their lives better,” he said.