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UAW contract could cost Ford more than GM; FCA impact unclear: analysts

A United Auto Workers contract similar to the deal General Motors Co. agreed to could have a bigger financial impact for Ford Motor Co. since it employs more union members than GM, analysts said.

The impacts of a potential union deal on Fiat Chrysler Automobiles NV are uncertain, with the parties to begin negotiating once Ford's contract is ratified, experts said.

Ford's UAW-represented members have until Nov. 15 to ratify or reject a proposed agreement between the automaker and the union. The union chose to negotiate with GM first, setting the contract pattern for the other two Detroit automakers.

More than 48,000 GM workers went on strike for six weeks starting in mid-September after the automaker and union failed to reach an agreement. The strike, which ended Oct. 25 with a new contract ratified, cost GM $1 billion during the third quarter with further impacts expected in the fourth quarter, executives have said.

Under the proposed agreement between Ford and the UAW, the automaker would invest $6 billion in new product development, creating and retaining more than 8,500 jobs, the union said. Full-time workers would receive ratification bonuses of $9,000, and Ford would close an engine plant but not lay off the 600 UAW-represented workers there, according to CNBC.

Full details of Ford's tentative contract have not been released. A Ford spokesperson declined to comment on the reported details of the deal.

Art Wheaton, an auto and labor expert at Cornell University's Worker Institute, said Ford's reportedly smaller ratification bonus — compared to $11,000 for full-time GM workers — was a result of Ford's lower profitability.

Ford's gross profit for 2019 as of Sept. 30 was $10.24 billion, compared with GM's $12.24 billion, according to data compiled by S&P Global Market Intelligence. Ford's gross profit margin for the same period was 8%, while GM's was 11.5%.

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The new contract will probably add several hundred million dollars to Ford's annual costs before any offsets are factored in, Morningstar's Ford analyst David Whiston said.

Increasing wages and not raising healthcare costs for workers will hit Ford harder than GM since Ford has more U.S. workers, Whiston said. Ford has about 55,000 UAW-represented hourly workers, while GM has approximately 48,000.

"Also, Ford did not make major plant closings to offset some of these wage and benefit increases, while GM did," he said.

GM closed three plants and agreed to 3% raises in the second and fourth year of the UAW contract as well as 4% lump-sum payments in the first and third year.

Michelle Krebs, executive analyst at Autotrader, said Ford will be disappointed on the healthcare front. GM tried to get workers to share healthcare premium costs and agree to higher deductibles but conceded to the UAW's protests, resulting in no change.

"One of Ford’s top priorities was to get more contribution from workers on healthcare," she said.

The wildcard

Fiat Chrysler officials have been negotiating with UAW officials for the past couple of months and will work to finalize an agreement beginning the week of Nov. 18, according to a company spokesperson.

Too many variables exist to determine the financial implications yet for Fiat Chrysler, but the wages and healthcare portions of the contract will most likely stick to the GM template, Morningstar's FCA analyst Richard Hilgert said.

However, Fiat Chrysler's plans to add about 5,000 jobs as part of a plant expansion in Detroit to bolster Jeep production could provide more contract flexibility compared with GM, which faced union opposition to plant closures and layoffs.

"This represents some negotiating room" for Fiat Chrysler, Hilgert said.

"Fiat Chrysler is the wildcard because it is almost all new leadership on both sides," Wheaton said, and the automaker's workers rejected the proposed contract in 2015.

Mike Manley took over Fiat Chrysler as CEO in July 2018 after Sergio Marchionne, who led the Italian-American automaker for 14 years, stepped down due to illness. UAW President Gary Jones was elected to his role in June 2018 but took a leave of absence starting Nov. 3 amid a federal corruption investigation into the union and automaker. Thirteen former UAW officials and Fiat Chrysler executives have been charged with misusing union funds as part of a kickback scheme. The union's vice president, Rory Gamble, is now the acting president.

Fiat Chrysler is also in the midst of a 50/50 merger with France's Peugeot SA, which would create the fourth-largest global automaker.

Hilgert said the UAW will at least want verbal assurance that a merger will not result in job losses.

The two automakers have said the merger will save €3.7 billion in four years without needing to close plants, Hilgert said.

"I do not foresee any complications in FCA members ratifying an agreement," he said.

Wheaton, meanwhile, said there is "almost zero chance" of Ford striking while Fiat Chrysler has a 30% to 40% or higher chance if it refuses to offer similar terms to the union.

"The Ford family owns stock and do not want to threaten bankruptcy to save a dollar," he said. "Fiat may be Peugeot before too long and is reeling from scandals regarding joint programs. Fiat rejected the contract four years ago and is very unstable."