Ford challenges union view on labor cost savings

A senior Ford Motor Co. executive said on Tuesday that the No. 2 U.S. automaker needs to see both improved labor productivity and lower costs as it emerges from a crucial round of contract talks with the United Auto Workers union.

"There's still lots of opportunity for us to address the productivity side and the labor cost side of the equation," said Joseph Hinrichs, vice president for manufacturing in North America and a member of the No. 2 U.S. automaker's negotiating team.

Ford, like General Motors Corp. and newly private Chrysler LLC, is locked in contract talks with the UAW aimed at replacing a four-year deal on wages and benefits that expires September 14.

Ford, like other both GM and Chrysler, is seeking to bring its average hourly labor costs down from above $70 close to the $44 per hour paid on average by three major Japanese automakers at their plants in the United States.

Most of that gap for the loss-making Detroit automakers represents "legacy" costs, including the price of providing health care to union-represented retirees.

"We've been working really hard on (productivity) and we still have room for improvement. If you look at the domestic, Detroit Three compared to the transplants, there's a gap," Hinrichs said.

"And then there's the cost of that labor which we have to work on and address, which includes the legacy cost," he said.

Hinrichs -- who was speaking to the JP Morgan Automotive Investment Conference in Detroit and monitored by Webcast from Traverse City, Michigan, site of another industry conference -- was responding to earlier comments from Canadian Auto Workers President Buzz Hargrove.

Hargrove told the same conference on Monday that the labor concessions that Detroit-based automakers are seeking in talks now underway with the UAW would not make a meaningful contribution to a turnaround for the struggling industry.

"Even if the Big Three get everything they are asking for from the UAW, that would reduce the average production costs of a vehicle they sell in North American by only $500," Hargrove told the conference.

Hinrichs said he would not comment on the $500-per-vehicle estimate from the CAW leader, but argued that amount was enough to make a difference in a competitive vehicle market.

"Rightly or wrongly, customers don't necessarily in America appreciate the legacy that the GMs and the Fords have offered (their workers), and so we have to make sure we are able to compete," he said.

Ford is negotiating a new UAW contract for about 60,000 UAW-represented hourly workers.

Before those talks began, Ford had negotiated separate agreements with the UAW for more flexible work rules at most of its plants and an attrition program that saw 27,000 union-represented workers leave the payroll during the first half.

Hinrichs said that the more flexible work rules included in "competitive operating agreements" negotiated with the union would save Ford $500 million on an annualized basis once fully implemented.

Separately, Hinrichs said Ford was unlikely to speed up the production schedule for the next generation of its market-leading F-150 pickup trucks so that it does not risk sacrificing quality.

Facing a heightened battle for market share and more aggressive discounting from Toyota Motor Corp. on its competing Tundra, Ford is set to roll out an all-new pickup truck for the 2009 model year.

Production of the new trucks is set to start next year, Hinrichs said. "The timeline we're on, we're going to stay on," he said. "I don't think we'll pull it ahead much either."