Will UAW Contract Overhang Curb Enthusiasm on Ford?

Jul.27.11 | About: Ford Motor (F)

It is no secret. The United Autoworkers Union (UAW) contract is set to expire in September of this year. The union and their membership add a substantial amount to the costs of building a car in the United States, and certain concessions were made when GM and Chrysler teetered on the edge of bankruptcy.

Now that the big three automakers seem to be on the way to recovery, the new contract carries perhaps more importance than ever for all sides. The companies need to be able to remain profitable, and the unions would like to see the creation of jobs and the return of some concessions laid out when times looked bleak.

Ford Motor Company (NYSE:F) announced its numbers today, and while the company beat the street, its numbers were down $67 million from the numbers reported for the same period last year. These numbers could carry a lot more importance than a typical quarterly report. While some thought that the company would do what it took to appear weaker than it is for the benefit of upcoming labor talks, I do not think this was the case.

I feel Ford reported strong earnings and even delivered guidance that will be appreciated by the street. Simply stated, the numbers of the quarter will not carry a direct impact on the labor talks, and certainly won't be the sole negotiating tool used by the union. The numbers are the numbers, and will be used by both sides in the labor negotiations.

Last quarter Ford was well aware that the labor talks were going to be pending, but still announced stellar numbers. The same happened this quarter. The union is not the only factor Ford needs to consider. The company took out substantial loans to avoid bankruptcy, and has been active in refinancing for lower, more manageable rates. Ford is also trying to get its credit rating up to investment grade.

Ford Will announced a good quarter because that is exactly what the company had. The numbers illustrate that it is on the path to a better future. The fact that this year was slightly worse than last lends credence to the stance that a partnership with the unions has weight. The key is whether the unions want to bet on the future or try to cash in today.

Disclosure: I am long F.