New Ford Labor Contract Results in $600 Million Charge

Cars and Drivers

Published: November 30, 2015 9:10 am

Last Updated: January 13, 2020 4:41 pm

When a company reports that it is about to take a $600 million expense, shares of that company’s stock usually get a stern message from stockholders. Ford Motor Co. (NYSE: F) announced just such an expense Monday morning and the share price rose.

Ford will report an expense of $600 million for the 2015 fiscal year to pay for the new contract the company signed with the United Auto Workers union. The expense is primarily associated with the contract ratification bonus that Ford agreed to pay if the union agreed to a new four-year contract. Some 53,000 Ford workers will receive a $10,000 signing bonus which includes a $1,500 advance payment on 2016 profit sharing.

The good news, according to Ford, is that the deal is cheap:

Overall, including the ratification and lump sum bonuses, Ford’s U.S. labor costs will increase by less than 1.5 percent a year, which is less than the company’s present forecast of inflation over the contract period.

Ford noted that its contract with the UAW “effectively closes the labor cost gap to General Motors and substantially narrows the gap to Fiat Chrysler Automobiles.”

Kristin Dziczek, director of the industry and labor group at the Center for Automotive Research, has calculated that labor costs per vehicle at Ford will rise about $200 per vehicle to $2,401 and hourly costs will increase from $57 to $60. General Motors Co.’s (NYSE: GM) total labor costs per vehicle will drop from $2,374 currently to $2,350 in 2019, and hourly costs of $55 will rise to $60. Hourly labor costs will rise from a current level of $47 an hour to $56 over the next four years at Fiat Chrysler Automobiles N.V. (NYSE: FCAU), and labor costs per vehicle will rise from the current $1,771 to $2,500.

Under the new union contracts, GM and Chrysler will pay signing bonuses of $8,000 and $3,000 or $4,000, respectively. Chrysler’s payments will depend on whether a union worker was a tier 1 or tier 2 employee.

Ford shares traded up about 0.2% in Monday’s premarket session, at $14.56 in a 52-week range of $10.44 to $16.74.

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