Labor unrest at Ford’s (F) auto supplier plant in India has prompted the company to shut down its Oakville, Ontario, plant for the week, which employs 3,000 workers in two shifts. The closure would cost Ford 5,000 vehicles. The idled employees would get 65% of regular pay from a combination of funding from the company and employment insurance.
The strike at Rico Auto Industries in the state of Haryana in India turned violent after an employee died recently during a protest. It has triggered a shortage of transmission parts to the Canadian plant. The plant produces Edge SUV, the Flex and Lincoln MKT seven-passenger vehicle and the Lincoln MKX.
Last week, labor trouble had erupted at some of Ford’s plants when some members of United Auto Workers (UAW) declined to ratify the modifications to its 2007 labor contract. The modifications include banning strikes over wages or benefits, freezing entry-level wages and changing work rules to require some skilled-trade employees to multi-task. 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.
Gary Walkowicz – a member of the bargaining committee at the Dearborn Truck Plant in Michigan – and six other plant leaders had signed a letter to employees urging them to vote against the agreement as it would require too many concessions and would limit the workers’ right to strike.
The ratification agreement, which would run till 2011, would have helped Ford end its cost disadvantage. The company was upset with its higher labor costs compared to its Detroit rivals, General Motors and Chrysler. Both of its rivals were given concessions by UAW as they headed into bankruptcy protection earlier this year. Thus, Ford intends to lower its labor costs to match its rivals.
However, the workers opposing the deal have a different standpoint. They have argued that Ford is presently a healthier company compared to General Motors and Chrysler, which accepted federal bailout funds and went into bankruptcy earlier this year. Ford showed a net income of $2.3 billion or 69 cents per share in the second quarter of the year, its first profit since the first quarter last year. This was against a net loss of $8.7 billion or $3.89 per share in the second quarter of 2008.
Ford will also resume discussion on contract negotiations with the Canadian Auto Workers (CAW). 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 U.S. plants.
We continue to recommend the shares of Ford as Neutral.
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