Ford Expects to See Health Savings Ahead of Rivals
By Terry Kosdrosky and Jeffrey McCracken
The Wall Street Journal
Friday, 2007, November 16, 2007
Ford Motor Co. said its new labor deal with the United Auto
Workers will let it book savings on retiree health care as early
as the third quarter of 2008, ahead of its Detroit rivals, and
will allow it to buy out more workers.
Ford officials said yesterday that the company will offer
buyouts to UAW workers by the end of the year, with employees
leaving in early 2008. Ford and the UAW still need to work
out the specifics. But as part of the new contract with
the UAW, the company won't close five factories it had
previously indicated it would shut as part of a broader
Ford shares fell 20 cents, or 2.5%, to $7.78 in 4 p.m. New York
Stock Exchange composite trading.
Ford's four-year contract with the UAW, which union members
ratified this week, allows it to shed its hourly retiree health
obligations, which are expected to total $23.7 billion in 2007,
by seeding a union-run trust with $13.2 billion. The
health-care debt will be shifted to the trust, known as a VEBA,
for voluntary employees' beneficiary association.
Ford, which sees the VEBA being established by 2010, expects to
see a $1 billion benefit in annual net cash flow and annual
health-care savings of $2 billion thanks to the trust.
Ford, considered the weakest of the Big Three auto makers of Detroit, says one key difference in its UAW
contract compared with those of General Motors Corp. and
Chrysler LLC is that Ford will be able to recognize some
VEBA-related expense savings months sooner. Ford's
agreement with the UAW sets the effective date of the VEBA upon
approval by a federal district court and preclearance review
from the Securities and Exchange Commission. Under their
UAW agreements, GM and Chrysler must wait until they get
approval from a circuit court, along with SEC preclearance
Ford estimates this will allow it to get positive accounting
treatment in the third quarter of 2008, "which helps us because
of our 2009 profitability goal," said Ford human-resources head
Joe Laymon. Ford has said its automotive operations will
be profitable in 2009.
Marty Mulloy, Ford's vice president of labor affairs, said
during the conference call that the contract comes "very close"
to closing the $30-an-hour gap between Ford's factory labor
costs and the labor costs at nonunion U.S. auto plants owned by
Japanese auto makers.
--Jeff Bennett contributed to this article.
Write to Terry Kosdrosky at
email@example.com and Jeffrey McCracken at