Tom Krisher | Associated Press
The controversial United Auto Workers strike last fall has changed Ford Motor Co.'s relationship with the union to the point that the company will “think carefully” about where it will build future vehicles, Ford's top executive said Thursday.
CEO Jim Farley said at the Wolfe Research Global Auto Conference in New York that the company has always been proud of its relationship with the UAW and has avoided strikes since the 1970s.
But last year, Ford's highly profitable Louisville, Kentucky, plant became the first truck plant that the UAW shut down with a strike. Farley said as the company looks at the transition from combustion to electric vehicles, “we need to think carefully about our (manufacturing) footprint.”
Ford, Farley said, has decided to build all of its highly profitable large pickup trucks in the United States and has by far the most union members of any Detroit automaker, at 57,000. That comes with higher costs than competitors that filed for bankruptcy and built truck plants in Mexico, he said. But Ford thought it was the “right cost,” Farley said.
“Our dependence on the UAW turned out to be the first truck plant to close,” Farley said at the conference. “Our relationship has really changed. It was a turning point for the company. Does this have a business impact? Yes.”
Responding to Farley's comments, union President Shawn Fain said in a statement Thursday that Ford should remain focused on building the best automotive industry, not a race for lower wages.
“Maybe Ford doesn’t have to move factories to find the cheapest labor in the world,” he said. “Perhaps Ford needs to recommit itself to American workers and find a CEO who cares about the future of this country’s auto industry,” Fain said.
Farley and Fain's statements suggest that the relationship between union and company has changed. The rhetoric, particularly Fain's response, builds on previous public clashes between the two, including when CEO Bill Ford appealed to the union in October to end the work stoppage. Fain responded by saying, “If Ford wants to be the all-American car company, they can pay all-American wages and benefits.”
Marick Masters, an economics professor at Wayne State University, said: “This type of comment is not necessarily useful. I don't think he gets anywhere… There are many ways for a leader to express that.” You have many options and have many things to consider when making a decision. And they don’t have to stick a needle in the UAW’s back or do anything like that.”
Asked about Farley's comments, White House press secretary Karine Jean-Pierre said President Joe Biden believes in manufacturing goods and creating jobs in the United States
“We will do everything we can to make sure it stays that way,” she said.
Biden, she said, also believes workers have the right to collectively bargain for better wages and benefits, as the UAW has done. “This is something the president will always advocate for and advocate for,” she said. “You hear him say all the time: Unions build the middle class, and he believes that.”
Last year, the UAW secured strong wage and other gains after a six-week strike at select plants owned by Ford, General Motors Co. and Jeep maker Stellantis NV. Top factory workers received raises of 27% over a contract that runs through April 2028, bringing their top wage to around $42 an hour. According to Ford, the new UAW contract will cost a total of $8.8 billion over the four and a half year contract period.
According to Farley, high manufacturing costs are one reason Ford has a $7 billion annual cost disadvantage over competitors. He told the conference Thursday that Ford is making progress in reducing those costs through cultural and structural changes within the company.
Ford expects to cut $2 billion in costs this year, and Farley said he believes reductions in manufacturing costs would “fully offset” the cost of the UAW contract. Ford has said the contract would add $900 to the cost of a vehicle until it takes full effect.
Ford has changed its electric vehicle strategy to focus on smaller, cheaper electric vehicles and electric work vehicles such as full-size pickup trucks and vans, Farley said. Any electric vehicle larger than a small Ford Escape SUV “better be truly functional or a work vehicle.”
A small team within the company is developing the foundations for a lower-cost, smaller electric vehicle that Farley said would be profitable because of U.S. federal tax credits of up to $7,500 per vehicle. He didn't give a time frame for the small electric vehicle's launch, but said Ford's next generation of electric vehicles will hit the market between 2025 and 2027.
His comments about the union raised questions about whether the new small electric vehicle would be built in Mexico, where labor costs are lower. Vehicles built in North America are still eligible for the US tax credit.
Farley also said he expects electric vehicle battery prices to fall as competition increases. The company, he said, could opt for a traditional cylindrical battery cell to streamline purchasing and get better prices. He also said Ford could do this with another automaker.
Ford's Model e electric vehicle division lost nearly $5 billion before taxes last year. Farley wouldn't give a break-even date, but said any new electric vehicle the company builds must make money within 12 months of its launch.
In November, Chief Financial Officer John Lawler noted that the deal with the UAW allows the automaker to rebalance production lines, its footprint and automation. The company also sees opportunities in material, warranty and structural costs.
“We must achieve this by reducing the number of hours it takes to build a vehicle, by simplifying designs and reducing complexity,” Lawler said, “and by increasing and focusing on the efficiency of our factories we us.”
In 2023, the company still had net income of $4.3 billion, largely due to strong profits from its Pro commercial vehicle division and Ford Blue, its internal combustion division.
Farley said Ford and others would struggle to compete in electric vehicles with Chinese automakers, which are expected to sell 10 million of them this year. That's a big reason Ford has been recruiting management talent to focus on lean operations, he said.
He said that two years ago, Chinese automakers that were not selling electric vehicles in Europe had now reached 10% market share.
Chinese auto giant BYD's Seagull small electric vehicle will cost about $9,000 in materials, and meeting crash test standards will likely cost the company another $2,000, for a total price of about $11,000. In cold weather it has a range of about 150 miles, “not a fantastic vehicle, but pretty darn good.”
In a statement, Daniel Ives, managing director of senior equity analyst at Wedbush Securities, said: “The UAW strike was a major wake-up call for Ford, and Farley must keep all options for expanding production in Mexico on the table.” “Other low-cost -Locations. The Chinese are flooding the market and that is creating a big problem for Ford, GM, Tesla and others. 2024 is a big year, and the UAW strike was a major shift in electric vehicle strategy.”
In a statement after the conference, Ford added that it is “the No. 1 employer of UAW-represented auto workers” and the only automaker to have created thousands of UAW-represented jobs since 2007, one of our largest product launch years to date USA – with the introduction of the new F-150, Ranger, Explorer, Expedition, Lincoln Navigator and Lincoln Aviator this year. As Jim said, we will continue to build a strong business with the right cost structure and manufacturing location.”
Shares of Ford closed Thursday up 2.4% to $12.52.
Detroit News staff writer Kalea Hall and Associated Press reporter Darlene Superville contributed.