Ford Motor Co. (F) has finally reached a tentative national agreement with 250 leaders of the United Auto Workers (UAW) on modifications to its 2007 labor contract. The deal, which runs until 2011, will help Ford end its cost disadvantage while securing jobs for the union workers at the same time. However, the deal has yet to be approved by the 41,000 UAW members at Ford. Voting will begin this week.

Ford was upset with its higher labor costs compared to its Detroit rivals, General Motors and Chrysler. Both of those companies were given concessions as they headed into bankruptcy protection earlier this year. However, the deal will enable the automaker to lower the labor costs to match those of its rivals.

If the members ratify the agreement, they will be given bonuses and additional work with investments at some factories. The $1,000 bonus is payable in March next year to every UAW worker. Additional work includes manufacturing a new product in the Chicago assembly plant with a planned addition of 300 jobs in 2010.

The deal also bans strikes over wages or benefits, freezes entry-level wages and changes work rules to require some skilled-trade employees to do more than one job. Under the deal, the union is also required to enter arbitration with Ford rather than strike in the next round of contract talks in 2011.

Ford will also resume discussion on contract negotiations with the Canadian Auto Workers (CAW) on Oct 26. Both the parties opened negotiations last month for a contract agreement that could preserve jobs in Canada by allowing for future investment, besides addressing a wage gap compared with workers at the plants in the U.S.

We continue to recommend the shares of Ford as Neutral with a target price of $8.
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