UPDATED: 11/30/15 4:15 pm ET - adds stock close
DETROIT -- Ford Motor Co.’s labor costs will rise by less than the projected rate of inflation in each of the next four years, largely because its new contract with the UAW allows the use of more temporary workers and greater flexibility to move production to lower-cost countries if necessary, executives said today.
Ford said it expects no more than a 1.5 percent annual increase in costs related to the contract, even as it gives veteran workers the first raises in a decade and allows lower-paid employees to reach top-tier wages within eight years. It said an estimate by the Center for Automotive Research that Ford’s labor costs, including wages and benefits, will rise to $60 an hour by 2019 essentially matches its own projections, leaving an $8 to $10 gap with the U.S. operations of foreign automakers.
CEO Mark Fields said the deal eliminates a slight advantage that General Motors held over Ford’s labor costs and “substantially narrows” its gap with Fiat Chrysler Automobiles.
“At the end of the day we have a contract that lays a good foundation for the company,” Fields said on a conference call to discuss the contract with analysts and reporters this morning. “It allows our UAW workers to share in the success of the company going forward.”
But in exchange for higher pay, the contract allows Ford to take a number of steps that the UAW has long opposed.
Ford will use “significantly more” lower-paid temporary employees to cover employee absences and increase production during vehicle launches, said Bill Dirksen, its vice president for labor affairs. That will let the company grow its workforce while having greater ability to cut back if the economy or demand for a vehicle changes.
“We have a good amount of flexibility to adjust the workforce if needed in the future,” said Joe Hinrichs, Ford’s president of the Americas.
Ford also can lean more on production in other countries with lower labor costs, as long as it meets all of its U.S. sourcing agreements, Fields said.
“We’re not restricted from sourcing products anywhere in the Ford world,” Fields said. “We do have the opportunity to utilize our global manufacturing footprint.”
Ford already has said it will move production of two small cars, the Focus and C-Max, out of its Michigan Assembly Plant in suburban Detroit in 2018. Hinrichs said they would be built “a lower-cost location,” but he wouldn’t be more specific. The contract also calls for production of the Fusion to be consolidated in Mexico and production of the Taurus to end in the U.S.
That leaves Ford building mostly SUVs and pickups and the U.S., while lower-margin cars will be imported. Fields said he isn’t concerned that a shift in consumer preferences away from larger vehicles will recreate the problems it experienced leading into the recession, because he said Ford offers a vastly improved selection of vehicles in all sizes, regardless of where they’re assembled.
“We feel comfortable with how we’re positioning the business from that standpoint,” Fields said.
Ford shares fell 1.4 percent to close the day at $14.32.