Ford finds mixed blessing in end of tiered wages

DETROIT -- Entering contract talks last year, Ford Motor Co. was the most vocal of the Detroit 3 about the need to keep the two-tier pay scale that many UAW members hated.

But a top Ford executive now says that while dropping the two-tier system increased labor costs, it eliminated a major source of anxiety in the plants, helping workers focus more on their jobs rather than their colleagues' paychecks.

"One of the great things coming out of the new contract has been that we no longer talk about the differences between an 'entry-level worker' and a 'legacy worker.' All the workers are the same," Joe Hinrichs, Ford's president of the Americas, told Automotive News. "That's really good, because one of the things you really need in a manufacturing plant is there to be focus and discipline. Anxiety or distraction is the enemy of process discipline."

That focus is especially important as Ford runs most of its U.S. plants at top speed to meet voracious demand for pickups, crossovers and SUVs. It's doing so having hired nearly a third of its 53,000 hourly workers in the past five years.

More than 4,000 of those recent hires got their jobs because the previous contract gave Ford a direct incentive to in-source work from suppliers and other countries. Although Ford had a cap on the number of workers to whom it could pay second-tier wages, jobs created due to in-sourcing were exempt.

As a result, Ford moved production of the F-650 and F-750 from Mexico to Ohio and it started making parts for hybrid and electric cars in Michigan instead of buying them from Mexican and Chinese suppliers, among other such moves that helped turn Ford into the UAW's largest employer.

Now, the end of two-tier wages has altered the financial calculations Ford has to make when deciding whether to build vehicles and parts in the U.S., Hinrichs said.

"It does have an effect, primarily on the business case for in-sourcing," he said. "The business case for in-sourcing is more challenged with today's agreement versus the prior agreement."

That doesn't necessarily mean Ford will stop making such moves or start backtracking.

"We're in the cycle now where what we've done is done and it costs more money to undo it than to do it," Hinrichs said. "But there will be business choices over time that will have to be looked at, given the new cost structure that we have."

As part of the new contract, which runs through 2019, Ford committed to investing $9 billion to create or retain 8,500 U.S. manufacturing jobs. But it also plans to move small-car production from Michigan to a $1.6 billion plant it's building in Mexico, and it recently stopped making Fusion sedans in Michigan, choosing to import them from Mexico instead.

UAW Vice President Jimmy Settles, director of the union's Ford department, said he thinks the automaker, which posted a record $3.1 billion pretax profit in North America for the first quarter, can keep shifting production to its U.S. plants under the current contract.

"We believe there is ample room for continued in-sourcing and profitability," Settles said in an emailed statement to Automotive News. "We will continue discussions with Ford and we believe the momentum that has been made on in-sourcing can continue under the current contract."

UAW President Dennis Williams called Ford's upcoming Mexican small-car plant, announced last month and scheduled to open in 2018, "very troubling." But Hinrichs said switching the Michigan Assembly Plant from small cars to more profitable vehicles -- sources have said it will make Ranger pickups and Bronco SUVs, though Ford won't confirm that -- benefits the union and Ford.

"It was an opportunity to rebalance some things and make it work for everybody, including the UAW," Hinrichs said. "In the end, we get more product and a better balanced footprint for the products that need that. A small car in the North America region needs a lower cost point to be able to compete, and we were able to help make that happen while also adding product to our portfolio."