Will Ford Workers Strike?

| About: Ford Motor (F)

The image of UAW workers with picket signs touting unfair wages is something that no one wants to see, but the possibility now exists thanks to a union vote that authorizes Ford (NYSE:F) workers to strike if negotiations between the auto maker and the UAW break down. While the issue of wages and negotiations with unions can be terse, this round of labor talks has a new flavor that we have not experienced in a while, and the implications of these issues may give Ford a negotiating edge.

When the government stepped in and bailed out GM and Chrysler with an infusion of cash, there were certain concessions made by the UAW. The bailout allowed the companies to survive and even revamp their businesses. It also prevented the union from striking against GM and Chrysler. Through that period, Ford became somewhat of a shining star by not taking any bailout money. Ford's reward for taking the harder route is that the UAW, in negotiations with all three makers, can strike.

This reason, while perhaps sentimental, is one key negotiating tool that Ford has in Ford's cap. The perception that the union will punish Ford, the company that did not take a bailout, would leave a stigma on the UAW that could take years to erase. It is the classic mantra that no good deed goes unpunished. This mantra is something that people in America are growing tired of, in particular because of the state of the economy.

A more fundamental reason that I do not see a strike happening is the fact that Ford employees are the highest paid in the industry, and the "Big Three" have a higher average pay than many competitors. This makes it hard for the UAW to complain about pay, and even more difficult to complain that Ford is not paying well enough. According to The Center for Automotive Research, Ford has labor costs of $58 per hour, while Japanese competitor Toyota (NYSE:TM) comes in at $55. The $3 per hour may not seem like much, but when spread over thousands of workers for tens of thousands of hours, the numbers get big quickly.

One compliant of the UAW is that merit raises and a 401(k) match were reinstated for salaried employees but not union members. However, the union neglects to state that UAW workers received profit-sharing checks averaging $5,000 in 2010. The argument that the union has is that this is a "one-time" perk and not the same as getting a merit raise.

A strike against Ford at this point would not receive very much public support. The workers at Ford are the highest paid in the industry, and Ford went into massive debt in order to avoid taking bail-out money. Ford is turning a profit now, but does that mean that the union should seek more and possibly put the industry back to a set of circumstances that brought about the crisis in the first place?

This is about whether the union issue, which is currently a cloud over the equity, will really be an issue at all. In terms of the stock, it is my belief that Ford is undervalued in part because people are not only nervous about the economy but also nervous about potential labor issues. With negotiations set to start on September 16, the negotiations are something that every Ford investor should keep in mind. If the issue is resolved, and I believe it will be, Ford could see one substantial hurdle removed, making room for some upward movement in the stock.

I feel that the union is in an uphill battle on this round of negotiations and that a deal that works out for all will rule the day.

Disclosure: I am long F.