Detroit 3's Q2 earnings likely to color UAW talks

DETROIT — In its last earnings report before its labor contract with the UAW expires, Ford Motor Co.'s profits plummeted 86 percent on $1.2 billion in restructuring charges — and it's warning of more pain to come.

Ford said it expects up to $3.5 billion in restructuring charges this year, and its stock suffered the biggest single-day drop in three years last week after it issued a full-year outlook that fell short of analyst estimates.

The latest financial figures — along with earnings reports scheduled to come this week from General Motors and Fiat Chrysler Automobiles — are likely to color this year's negotiations with the union, which kicked off talks this month by arguing that automakers' recent record profits should be shared with rank-and-file workers.

Analysts are forecasting lower earnings per share from both GM and FCA. If so, all three companies could point to the results to help justify their demands for more financial flexibility in the next contract.

That could lead to contentious bargaining over how to reward workers in the future with profit-sharing or raises.

"It's all a big struggle between what is locked down into base wages and what's part of something that can be canceled in the event of a downturn," Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research in Ann Arbor, Mich., told Automotive News. "Given the same set of economic indicators, the union's motivations are to make things more permanent, where the company wants to make things more contingent. I think they will absolutely use the latest quarter's profits as a sign that all good things are coming to an end and there's likely to be more caution advised ahead."

Ford's pretax earnings in the all-important North American market fell 3 percent to $1.7 billion in the second quarter. Its North American profit margin slipped 0.3 percentage points from a year earlier to 7.1 percent, putting the company farther from its goal of 10 percent. The automaker is in the midst of rolling out new products, including redesigns to the high-volume Explorer and Escape crossovers. An extensive changeover process at the Chicago Assembly Plant factored into a 72,000-unit decline for the Explorer, which contributed to Ford's wholesale numbers in North America falling 7 percent.

Revenue in the region grew 1 percent, though, as a more profitable sales mix offset the lower volume.

Ford is trying to show the UAW that it's investing in U.S. manufacturing even as it pushes to keep labor costs in check. Last week, it revealed plans to put $50 million more into Chicago Assembly and convert 450 temporary workers to full-time hourly employees in preparation for building electrified versions of the Explorer and the upcoming Lincoln Aviator.

The automaker cautioned that profits in the second half of 2019 may not be as high as the first half. After already booking $4.1 billion in the first six months, it said full-year earnings before interest and taxes would be $7 billion to $7.5 billion, which could represent growth of up to 7 percent year over year.

Part of the reason for the slower second half? The contract talks and potential for increased labor costs.

"We have Super Duty launch toward the end of the year, which is really important, and the seasonality is real," Joe Hinrichs, Ford's president of automotive, said on an earnings call. "We have the European shutdowns and we have the North American shutdowns in the summer months, and then, of course, there are the holidays later in the year. So it's launches, seasonality and UAW negotiations."