US Economy: Ford & UAW Make Cutbacks

Detroit, 10 Mar. The US auto industry has been hit hard by the recent economic crisis, and even Ford Motor Company, the only of the Big Three to not ask for federal funds, is making defensive strategic moves.

Detroit, 10 Mar. The US auto industry has been hit hard by the recent economic crisis, and even Ford Motor Company, the only of the Big Three to not ask for federal funds, is making defensive strategic moves.

As we reported in our 5 December 2008 piece about the then-expected Big Three bailout, American cars are a major piece of American identity and the idea of them failing petrifies the nation. So when the strongest of the three takes such measures people become concerned.

The United Auto Workers (UAW) union which represents the majority of Detroit autoworkers, has made concessions on its pay and benefits package. The UAW’s job is to protect those packages and negotiate with the manufacturers. In the past, it has been highly successful, but under these extreme circumstances, it must give in or face the prospect of its members losing their jobs altogether.

The deal involves employees agreeing to wage freezes, cuts in paid vacations and bonuses, and an elimination of cost-of-living expenses.

Rising unemployment, a lack of credit and liquidity, and abysmal consumer confidence has resulted in record-low automobile sales in the US. Ford is making these cuts in anticipation of a further decline in sales. The cuts will save the firm billions.

Ford had actually started similar UAW negotiations in early 2005, which may have played a role in partially protecting it from the current recession.

The UAW reported that 59% of Ford’s production workers and 58% of its skilled workers voted in favor of the wage and benefit agreement.

UAW Vice-President Bob King commented, “We are facing an unprecedented loss of sales and revenue at Ford. The voting results show that our members are prepared to make painful sacrifices in order to be part of the solution to the problems facing Ford and the US auto industry.”

This agreement will put pressure on General Motors and Chrysler to do the same thing with their workers, especially since they are in much worse financial health than Ford. Further, wage-cutting measures are part of their bailout plan with the US Government.

General Motors and Chrysler have been granted a combined $17.4 billion in government loans, and have appealed for another $21.6 billion in aid. Ford believes it has enough financial strength to ride out the economic crisis.

Tony Escobar, EconomyWatch.com