Bailout Nation Mentality: Ford Workers Reject Further Concessions

On October 30, 2009, TheStreet.com published a story about how the UAW membership appeared to be voting against contract modifications with Ford Motor Company (F) despite the recommendation of the UAW leadership. The contract modifications only sought to conform Ford's contract with the revised contract between the UAW and General Motors and Chrysler. At first blush, this seemed curious to me, as UAW workers at GM and Chrysler had already agreed to the same changes negotiated by UAW leadership earlier this year.

As I concluded the article, a "Eureka" moment occurred to me. The UAW workers were acting perfectly rationally in light of the bailout nation mentality that now inflicts us due to massive government intervention in the economy. Let's break it down.

Ford Motor avoiding TARP money and bankruptcy by astute management decisions. As a result, they were able to honor their continuing obligations to the UAW workers. So, when Ford came-a-calling requesting similar treatment to the other U.S. automakers, to remain competitive, no one should have been surprised. But the very fact that Ford successfully avoided the minefields plaguing GM and Chrysler is now the exact reason that the UAW workforce has become emboldened.

Because of government intervention in the automotive industry, not only the financial support directly given to GM and Chrysler but also "Cash for Clunkers", it is almost without question that the U.S. government is not going to allow Ford to fail. Or if it has to file bankruptcy in the future because of a higher, non-competitive cost structure in comparison to its competitors, the U.S. will be there to fund a Ford bankruptcy proceeding as it has done with the other automakers. As a result, it is perfectly rational that the UAW workers would not voluntarily agree to further contract concessions if (i) Ford can afford to pay the union obligations, albeit at a smaller profit to the company, and (ii) Ford is "too big to fail" as GM and Chrysler were deemed to be.

If GM or Chrysler had been allowed to fail or to fend for themselves in Chapter 11, is it highly doubtful that Ford workers would reject cost concessions if their livelihoods were truly at stake? But, they needn't worry about that now. Bailout Nation mentality has now permeated large segments of our economy. And one bailout begets another bailout of the perception of a further bailout if necessary.

Massive government intervention of the type we have witnessed (not including health care) does nothing to restore the discipline of the free market system where failure is a distinct possibility if undue risks are undertaken. Instead, intentionally or not, the government has turned the financial and automotive industries into welfare recipients who will not be held accountable for their bad decisions and outcomes.

Back to the case of Ford, the UAW workers have not figured out how to game Bailout Nation to their advantage. Squeeze Ford as hard as it can, regardless of the differential treatment among the automakers. Ford will either be able to pay the union costs or not. If it can, then the UAW workers will benefit at the expense of bondholders and shareholders since market forces will no longer have much to do with their actions.

On the other hand, if Ford begins to suffer competitive disadvantages and suffer losses because the UAW has decided not to yield ground, the worst that will happen is that the U.S. taxpayer will recapitalize Ford at the expense of the American taxpayers. And if the recent history with GM and Chrysler is a guide, the UAW will probably be the biggest beneficiary of a bankruptcy plan of reorganization. It will undoubtedly receive a disproportionate share of any newly issued stock in relation to the debts owed to it and it will receive a higher priority treatment than those creditors who negotiated higher priorities as a condition to extending credit to Ford.

Bailout Nation mentality has also leeched over to the American consumer via "Cash for Clunkers" and first-time homebuyer tax credits. But that is a topic I will address in a future article.

Disclosures: No position in GM (MTLQQ.PK) or F

Comments

[jfb:]

Your thoughts are "right on". However, there should be another point made, that being that the Obama administration is protecting union jobs, especially the UAW. Just look at the GM and Chrysler bankruptcies to see how they changed that process to benefit the union at the expense of creditors. Ford should consolidate further to be competitive with their lower cost rivals and put a few more UAW members on the street.

A second point should also be made. I read the concession agreement between GM and the UAW. I was interesting to see the totally worthless job restrictions put in place by UAW demands that they were then giving up. Worthless , but costly provisions that were part of the reason GM was is such bad shape financially. If this is some of the same stuff they refuse to give up with Ford, they are really stupid because long-term their jobs will disappear.

Nov 02 07:13 AM

[sethmcs:]

I suspect that the Ford workers anticipated a return to profitability. They know how many cars and trucks are made at there prospective plants. Overtime and extra shifts. The timing of the vote BEFORE earnings release. Ford management was three months too late on this one. The union rejection believe it or not is a bullish indicator for Ford's business prospects by labor.

Nov 02 08:18 AM

[Graham and ...:]

You think the UAW leadership is bad? The UAW "followership" is even worse. No wonder American industry is in trouble.

Nov 02 11:17 AM

[HER1928:]

There is no question that poor management decisions had much to do with the demise of GM and Chrysler. A large contributor to their demise however, was also the never ending demands of the U.A.W. year after year for more and more. Now the U.A.W. has been rewarded for their complicity in the destruction of these two companies by being given a major ownership position in each.
The government is also a major owner because they dumped billions on them to supposedly bail them out. After all of this, the U.A.W. wants to destroy Ford as well, knowing that if push comes to shove, our government that is in the process of taking over private industry, will dump money on them and eventually the U.A.W. will be the winners again. It is obvious that our present administration is aiding and abetting the U.A.W. because of the number of votes they represent. The entire process is outrageous and should never have happened. GM and Chrysler should have been allowed to fail, declare bankruptcy, get rid of the U.A.W. and start over. They then could have become competitive with the non-union Japanese auto makers in this country and the tax payers would have saved billions.
I can assure you of this. I will never buy another vehicle that is union made, or buy from a company that is partially owned by the government.
To put this statement in a little different perspective, you should know that I am a salaried, retiree of General Motors living on what is left of a pension that I was promised when I retired.
If I loose the rest of it, so be it.

Nov 02 11:18 AM

[Big Lou:]

This is a very disturbing development. Ford has made great strides with their product line, restructuring, and shedding non-productive assets. Everyone would have eventually profited from this move. I am convinced Ford will be the only American automaker to remain standing. Unfortunately, I can only assume UAW union leadership smelled blood and were shortsighted enough to put the brakes on further initiatives to ensure Ford's recovery of increased market share. The next logical move will be for Ford management to move more jobs to South America.

Nov 02 11:35 AM

[rpboxster:]

IIRC, the Canadian and Mexican UAW agreed to concessions. Good on them. F will likely move more production to CA and MX.

Nov 02 11:43 AM

[Hayweed:]

Ford should just close on their plants in union states and move their factories to non union states (VA, NC, SC, etc.) They should advise the union that if they don't concede the current issue, that even if Ford does go into bankruptcy, they will leave Detroit forever.

Nov 02 11:46 AM

[dw57:]

not sure that Ford wasn't just lucky. they hocked every thing back 2006. for billions. when they could. now maybe that was the right choice (looking back). but at the time every one thought that was a really bad choice. and there a lot of other reasons that F didn't want a bailout. can't forget the Ford family, had they had a bailout, they would loose control of the company. hard to overlook that too. But they have done really well and so should be commended for that. but they are very much a truck company still. and they need new cars. and lucky (and really good timing) they have some of those in the pipe line (and some that came out this year too). but unless the car market gets well (how likely is that?) they too will be in trouble, per their own testimony, under oath

Nov 02 11:49 AM

[ScroogeMcduck:]

Ford should file for bankruptcy, blame it all on the UAW and put them on the streets with some I told you so's.
See how fast a new contract with pay cuts gets made.

Instead the Leaches will be protected by Obama in exchange for votes.

Nov 02 12:14 PM

[van Schayk:]

If as a result of UAW action, Ford's higher costs put it at a competitive disadvantage, Ford workers may be sacrificing the long term growth for short term gains. Perhaps a more generous profit sharing plan might be a good compromise.

Nov 02 01:09 PM

[Joe Snow:]

I don't think the taxpayers will ever be on the hook for a Ford bailout and here's why, Ford is not under the thumb of the government or the UAW like GM and Chrysler are. Ford is still free to make management decisions without interference from either. If push comes to shove and the UAW workers are making Ford uncompetitive against GM, Chrysler and the imports, then Ford is free to go ahead and start importing cars and shuttering US and Canadian plants. All the Ford workers have done is vote themselves a place in the unemployment line when their jobs are inevitably outsourced and the UAW will be powerless to do anything about it.

Nov 02 01:30 PM

[Joe Snow:]

Exactly what they should do. Relocate all production to right to work states or to plants outside the US and Canada. It's an employers market right now, the workers should just shut up, do their jobs, and take what they're offered and if they don't like it, let them try to find another job paying what they think they're worth, and there aren't any. It's time business stood up to unions instead of kissing their butts every time they start whining about something. You wanna go on strike? Do it down at the unemployment office, because this plant is closing.


On Nov 02 11:46 AM Hayweed wrote:

> Ford should just close on their plants in union states and move their
> factories to non union states (VA, NC, SC, etc.) They should advise
> the union that if they don't concede the current issue, that even
> if Ford does go into bankruptcy, they will leave Detroit forever.

Nov 02 01:35 PM

[Michael J. ...:]

Thanks for all the commentary (95% of which I agree). Also, a note of apology. I realized this morning that the article contained a variety of grammatical errors. I have changed them on the Instablog but am unable to update the article accordingly unless someone knows how to modify a "published" article.

Nov 02 02:26 PM

[Brad Johnson:]

The UAW is badly miscalculating if they think the Big 3 will be continue to be bailed out. The American public is solidly against taxpayer bailouts, and GM and Chrysler have suffered enormously by taking bailout money. If they ask for a second round of bailouts for the Big 3, politicians heads are going to roll.

Obama is not going to have a filibuster proof Senate forever. At some point, the government spigot is going to be turned off.

The UAW is once again slitting their own throats.

Nov 02 03:19 PM

[a. palmer jr.:]

Michael J. No apology is necessary; it was very readable and understandable, at least to me. As for the Detroitization of America...It should never have started. Many people would rather get a government handout than have a job. Me, I always felt just a little guilty even drawing unemployment when I was laid off from a job. But the new mentality, aided by the White House and Senate, is to get what you can from the government rather than work for it.

Nov 02 03:25 PM

[User 369288:]

I have a different view. I would love to ease drop in on a high level management meeting at Ford. The Ford management group are a smart bunch and I think tend to do more longer range planning than most other auto companies. Suppose the Ford meeting discussion went as follows:
We (Ford) aren't going to win this battle with the USA UAW. What are our options? As we move forward, how can we stay competitive and gain advantage? Well, the UAW in Canada has leveled the playing field by voting equal benefits to the GM and Chrysler contract. Let's take a closer look at the cost benefits of moving more manufacturing to Canada. We need to show the Canadian UAW and others around the world that we appreciate their vote and pleased to be in partnership. At the same time, let's also look at Mexico and other parts of the world for a lower cost structure. We need; however, a comprehensive study which would include looking at taxes, shipping, future oil prices, quality of workforce, flexibility in work practices etc. etc.
Our goal should be to design and manufacture the most appealing and best quality automobile in the world while maintaining a cost competitive product and providing enhanced shareholder value over our competition.

If this scenario played out we could see in 10 years Ford USA having token manufacturing, worldwide higher quality, and highly competitive. Short term gain for long term pain on the UAW workers part.
Our( Ford) goal should be to reduce our costs in the USA while we gain competitive advantage worldwide. We will only have a presents in the USA if we can maintain price competitiveness and the best quality in the world.

Nov 02 04:22 PM

[Michael J. ...:]

Please, no SPAM. Take it somewhere else.


On Nov 02 05:23 PM maketalwaysgoesup.. wrote:

> This market always goes up. DJIA 10,600 soon
>
> good articles: financeopinionss.blogs.../

Nov 02 08:08 PM

[OvertheTop:]

Very astute analysis of potential drivers of the UAW vote. Perhaps there may be yet another path to consider which is moving new vehicle production to plants with the lowest cost basis. We may see a shift to perhaps Canada with the new CAW agreement or elsewhere.

I think UAW members have taken a risky gamble with job security. I can only hope this doesn't create a further decline in the North American manufacturing base. Our economy can't sustain yet another hit.

Nov 03 12:11 PM

[HutcH56:]

I am curious how many of you are willing to re-negotiate a contract ,that was to span 4 years, for the 3rd time in 2 years. Yes Ford was asking for additional concessions. That means that they have already gone back to the table twice since 2007. Every business will try to get a lower price for any product they are purchasing ,materials or labor, until there is a final price. UAW employees at Ford factories said that this was the final price for now. You as business people don't or won't see it from the workers point of view. It would not be popular to say we can reach a point that enough is enough. You can say no to something on an individual basis and it isn't news. But you can look at this as 30,000 individuals saying no one person at a time.

Nov 03 01:00 PM

[Brick19:]

I can not believe the jealousy there is among people who make less money than UAW members. They should try working on an assembly line and see if they don't think they deserve the wages then.

Nov 03 11:47 PM

[Brick19:]

I can not believe the jealousy of people who make less money than UAW workers. They are like monkeys in a barrel when one gets near the top the rest pull him down. Let them work the assembly line for a while and I bet they will think they earned every penny!

Nov 03 11:51 PM

[TeresaE:]

The majority of Ford union members, heck ANY union members, do not support your theory.

These are people that are grossly overpaid vs. skills, have better benefits and more time off than most of their customers and continuously feel that they are being screwed over by management. Just like the majority of our citizens refuse to see that their own bosses are being bankrupted and are not all "rich."

This country is quickly becoming nothing but spoiled, entitled, non-workers who think they are owed something.

The third world is beckoning us and all these people will be on the government dole until it crashes down upon us all.

On Nov 02 08:18 AM sethmcs wrote:

> I suspect that the Ford workers anticipated a return to profitability.
> They know how many cars and trucks are made at there prospective
> plants. Overtime and extra shifts. The timing of the vote BEFORE
> earnings release. Ford management was three months too late on this
> one. The union rejection believe it or not is a bullish indicator
> for Ford's business prospects by labor.

Nov 04 10:43 AM

[TeresaE:]

I worked for three years in a Tier One supplier factory while attending college.

I worked nearly a year on mandatory 12 hour shifts and 7 day workweeks.

Even with overtime I did not make 1/5th of what the line workers made. Let alone the pensions, paid time off, education and other perks.

And years later, I worked IN Big 3 plants as an outside vendor.

Getting high, drinking to excess and sleeping on the job for 7 1/2 hours a day with 6 weeks paid vacation seemed real tough.

Poor overworked car makers.


On Nov 03 11:51 PM Brick19 wrote:

> I can not believe the jealousy of people who make less money than
> UAW workers. They are like monkeys in a barrel when one gets near
> the top the rest pull him down. Let them work the assembly line for
> a while and I bet they will think they earned every penny!

Nov 04 10:47 AM

[Leftfield:]

Value delivered for value received. Forgotten in the US by most voters. Forgotten by the most privileged workers.
The whole mess that is our economy has to rid itself of useless and counterproductive deadweight at some point in the equation or we lose any worth and legitimacy to settle for politician's lies. Getting more than you're worth by force (government) is rent-seeking. It builds the oppression and tyranny that stifles freedom and prosperous growth.
Massive government is not protecting legitimate rights. It is not enforcing just regulation of the worst frauds and thieves in history; rather, it has raised Wall St.'s payscale. It has enabled multinational corporations to outsource middle class prosperity through one-way stupid trade. It gives us endless costly, growing bureaucracies like the Department of Education and the Department of Energy that would be a joke if they weren't so tragic.
We will soon see if Americans have degenerated so far and are so hellbent on thinking they can vote crumbs for themselves that we have only tyranny and serfdom to look forward to.

Nov 04 02:36 PM

[GoldLovingP...:]

My Dearest TeresaE,
I didn't know you had to go to college to be a prositute. Do you get 401ks now from your pimp?

My My times have changed.

Goldey


On Nov 04 10:47 AM TeresaE wrote:

> I worked for three years in a Tier One supplier factory while attending
> college.
>
> I worked nearly a year on mandatory 12 hour shifts and 7 day workweeks.
>
>
> Even with overtime I did not make 1/5th of what the line workers
> made. Let alone the pensions, paid time off, education and other
> perks.
>
> And years later, I worked IN Big 3 plants as an outside vendor.<br/>
>
> Getting high, drinking to excess and sleeping on the job for 7 1/2
> hours a day with 6 weeks paid vacation seemed real tough.
>
> Poor overworked car makers.

Nov 04 08:00 PM

[GreedyAmerica:]

The US already has the greatest gap between CEO pay and worker pay of any country on earth and the third greatest income inequality of any developed country (ahead of only Hong Hong and Singapore). The income gap has grown so large that a large fraction of full-time US workers are no longer required to even pay federal income tax (because their families would fall into further poverty). Our doctors make about 3 times the salary of German doctors and way more than any doctors anywhere else in the world. Greed is destroying America, but it's not up to the UAW to make the sacrifices that no one else in this country is willing to make. It's the UAW job to get the best "most greedy" deal they can.

Look at it another way. There are about 2 billion desperate people in this world willing to work for pennies a day to survive. With free trade, US workers will eventually be competing with all these desperate people. So in order to compete successfully, our workers need to be as desperate as these 2 billion. So the US will eventually have more and more millions of extremely desperate people willing to do almost anything (legal or illegal, moral or immoral) to survive. The US already has the highest percentage of its population in prison of any country in the world. How many more prisons will be needed 10 years from now? You can't expect American workers to compete with desperate workers around the world ("so-called Free Trade) until American workers are as desperate as them That's a frightening future.

Nov 05 09:10 AM

[User 373847:]

Such a staggering amount of misinformation over this situation. The CAW you are lauding as playing ball with the company and a shining example of cooperativeness is exactly the opposite. The concessions they recently voted for are a watered down version of the concessions the UAW voted for early this year. They've been dragging their feet and threatening to strike for 8 months and finally voted now. The UAW, on the other hand, Voluntarily voted themselves a pay and benefit cut in Mar. of this year. Without a bankruptcy. That renegotiated contract is the basis of GM and Fiats contract.
Second, the contracts between GM Fiat and Ford are already pattern agreements. Ford does not have any competitive disadvantage compared to the "bankruptcy contracts" GM and Fiat have. Wage rates, benefits, health care, etc. are the same for all of them. The only difference was the no strike clause and the wage freeze on new hires. Ford is allowed to hire 9000 new hires under their current contract. They have laid off and retired almost 50,000 in the last few years and there is a vanishingly small probability they will hire 9000 people in the next 2 years when the contract is up again. It is far more likely they will lay off 9000 than hire them.
The no strike clause is the real and only issue Ford was interested in. The language in the contract doesn't change cost structure or competitiveness or anything at all monetarily. Management simply fears that the UAW would forget how much debt GM and Fiat layed off on the taxpayers or simply defaulted on in bankruptcy. First, Ford hasn't had a strike in 33 years. That means that virtually everyone working at Ford has never had a strike. Why does everyone assume it would happen? Second, how could Ford workers ever get a wage or benefit improvement in the next contract since GM and FIAT have the no strike clause? The answer is they can't. The issue is a non issue. Ford management pressed because they could and because it would simplify a contract negotiation in 2011.

Nov 05 09:20 AM