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Wall Street Optimistic Ford/UAW Deal Will be Approved

October 18, 2011
2 min to read


Wall Street is optimistic the tentative labor agreement between Ford Motor Co. and the United Auto Workers that keeps U.S. labor costs competitive will pass in the final two days of voting.


Ratings agencies have said successful ratification of the vote is a precursor to upgrading Ford's credit rating. The automaker is hoping to return to investment grade as early as year end, a status it lost in 2006, according to The Detroit News.

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Two-thirds of the 41,000 Ford workers have finished their ratification votes and 62 percent are in favor of the four-year pact.


Most of the union locals still to report will not be finished voting until Tuesday — the deadline for all 58 locals.


The agreement requires a simple majority to be ratified, at which point the agreement becomes official. Confirmation of passage is expected Wednesday.


"After some early results appeared to put ratification at risk (vote was 55 percent against early Friday), several large facilities have voted in favor by wide margins, including Dearborn Assembly (62 percent in favor) and Kansas City Assembly (88 percent in favor)," said analyst Rod Lache of Deutsche Bank in a research note Monday.


"It now appears likely the deal will pass, as the remaining 40 percent of the workforce would need to vote approx 70 percent "no" in order to swing the overall outcome."

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Lache said the agreement will keep Ford's U.S. labor costs relatively flat over four years, ratification removes the risk of a work stoppage and the deal positions Ford well if the auto industry recovers in the U.S.


Additionally, "we believe that this clears one of the final hurdles to the announcement of a meaningful dividend at Ford in the relatively near future," Lache said.


Brian Johnson at Barclays Capital also said in a research note Monday that approval by Ford workers appears likely.


"Overall, we estimate the tentative contract would add about 70 cents per hour to Ford's labor costs, or about $70 million annually — assuming only 1,000 skilled trades retire," Johnson said.


"Higher attrition could lower the net cost further," Johnson said, noting Ford still has the highest cost per hour because the $58 an hour rate going into the contract was much higher than Chrysler Group LLC's $49 and General Motors Co. is expected to benefit from greater skilled trades attrition and cuts to legal services.

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Barclays estimates a strike would have cost Ford $273 million a day in lost revenue and $71 million a day in lost profit, although some of that would be made up in 2012 with increased overtime, Johnson said.


"Nevertheless, a strike would have delayed any rating agency upgrade or dividend," Johnson said.

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