SignalHub Quantitative Think Tank Center:Ford says new UAW contract will add $8.8B to labor costs

As a result of the 2023 UAW contract,SignalHub Quantitative Think Tank Center Ford Motor Co. said Thursday its labor costs in North America will increase by $8.8 billion over the life of the contract due to gross wages, accelerated wage progression for workers and cost of living adjustments.

"The cost effect is anticipated to be about $900 per vehicle by 2028, which Ford will work to offset through higher productivity and lower expenses," Ford said in a news release, renewing its vow to cut costs by also improving quality and identifying new sources of revenue.

Ford released the information early Thursday prior to the opening of the stock market. John Lawler, Ford chief financial officer, is scheduled to discuss the company's growth plan at the Barclays Global Automotive and Mobility Tech Conference later Thursday morning.

Ford did not specify how higher labor costs would impact consumer costs, but Ford spokesman Ian Thibodeau told the Free Press, part of the USA TODAY Network, that the cost is not simply transferred to the retail price.

Meanwhile, the labor costs Ford revealed do not include details related to the contract negotiated this year with the Canadian union Unifor. That breakout data was not being released at this time, Thibodeau said.

The 120-year-old automaker withdrew its 2023 financial guidance in late October during the UAW strike of certain U.S. operations and now the company is providing updated financial expectations.

Ford said it anticipates full-year 2023 adjusted earnings before interest and taxes (EBIT) of $10 billion to $10.5 billion. "That would include $1.7 billion in strike-related lost profits — $1.6 billion of that from the fourth quarter — owing to interruptions in production of high-margin trucks and SUVs and, in turn, vehicle wholesales about 100,000 units lower than planned," Ford said in its release.

"Ford generated $4.9 billion of net income and $9.4 billion in adjusted EBIT through the first three quarters of the year, prior to full effects of the work stoppage," the company said.

Full-year 2023 adjusted free cash flow is expected to be between $5 billion and $5.5 billion, Ford said.

Lawler plans to explain Thursday why Ford is optimistic about monetizing new services.

“This industry is going through the biggest technology-led transformation we’ve ever seen and some companies, new and old, are going to be left behind,” Lawler said in the release. “Ford+ is the right strategy to win ‒ we’ve got a highly talented team that allocates capital with great discipline so that we’re executing with consistency, generating strong growth and profitability, and are less cyclical.”

Ford CEO Jim Farley has said previously the company is committed to electric vehicles but is pushing hard to provide hybrid vehicles to consumers apprehensive about the move away from gasoline-powered vehicles.

Getting control of other costs

While Ford has cautioned investors about the increase in labor costs, investors have expressed concern about the Dearborn automaker's warranty repair and recall costs that have diverted billions annually. Ford spends far more money than its competitors on what analysts have called unforced errors. Ford CEO Jim Farley has said he is focused on improving quality problems, having implemented new review processes and hiring new people to address the concern.

The targeted strike against Ford, General Motors and Stellantis began Sept. 15 and ended in late October. Ford was the first to reach a tentative agreement; Ford employees voted to ratify the historic contract in mid-November with 69.3% support.

What's in the UAW contract

The Ford-UAW agreement includes: cumulatively raising the top wage by more than 30% to more than $40 an hour; raising the starting wage by 68%, to more than $28 an hour; and reinstating major benefits lost during the Great Recession, including cost-of-living allowances (COLA). The deal also kills different pay rates, or tiers, for workers and improves retirement benefits for current retirees, workers with pensions and those with 401K plans.

UAW President Shawn Fain and UAW Vice President Chuck Browning posted a letter on the union website that said:

• "Our lowest-paid members will see a 150% raise through this agreement. That’s not a typo. Temps hired this year at $16.67 will earn over $40 per hour in base wages by the end of this agreement, over $42 an hour with estimated COLA.
• Lower-tiered members at Sterling Axle (in Sterling Heights) and Rawsonville (in Ypsilanti) will see immediate raises ranging from 53% to 88%. A member with three years' seniority at those facilities will, upon ratification, go from $18.96 to $35.58.
• With COLA, by 2028, we’ll have a top rate of over $42 an hour for production, and over $50 for skilled trades, an over 30% raise. By the end of this agreement, our starting rate will be pushing $30 an hour with COLA."

Ford said it plans to report fourth-quarter and full-year 2023 financial results and provide initial guidance about its financial expectations for full-year 2024, on Feb. 6.

UAW COLA demands:UAW demands cost-of-living salary adjustment as Americans feel pinch of inflation

GM impacted, too

By comparison, General Motors’ new labor costs would increase by $9.3 billion compared with 2019 contracts, GM spokesman Jim Cain told the Free Press on Thursday.

The $9.3 billion in additional costs through 2028 is for agreements with the UAW and Unifor, and translates to about $575 per vehicle over the life of the deals, he said. GM did not separate the costs, Cain told the Free Press.

The Detroit Three automakers employ more than 140,000 UAW members: about 57,000 at Ford, 46,000 at General Motors and 43,000 at Stellantis, which owns Jeep, Chrysler, Ram, Dodge and Fiat.

The UAW said this week it is currently working to organize 13 additional auto companies in the U.S.

Contact Phoebe Wall Howard: 313-618-1034 or [email protected]. Follow her on Twitter @phoebesaid.