Ford-UAW deal cuts wages to $55 an hour

DETROIT (Reuters) - Ford Motor Co expects operating savings of $500 million per year from an agreement with the United Auto Workers that will push hourly wage rates into the "ballpark" of foreign-based rivals, the company said on Wednesday.

The agreement trims average wages and benefits for UAW hourly workers to about $55 per hour this year, while the U.S. operations of foreign-based automakers -- or what executives call "transplants" -- pay workers on average $48 to $49 per hour, Ford said.

The agreement with the UAW, which workers ratified earlier in March, allows Ford to suspend some performance and bonus payments, reduce overtime costs and cut a paid holiday, as well as restructure funding of a union retiree healthcare trust.

Joe Hinrichs, Ford's global head of manufacturing, said the savings from the operating agreement and restructuring of the funding of the trust, the Voluntary Employee Beneficiary Association, are "critical to our future competitiveness."

"This gets us to within the ballpark of where the transplants are," Hinrichs said in a conference call with analysts and reporters.

"Over the next couple of years with the buyouts and with the ability to leverage some of the other tools that are now in this agreement, we think we can get there within the next couple of years on parity with the transplants," he said.

The annual savings could exceed $500 million if industry conditions allowed Ford to exercise all of the changes in the agreement, Hinrichs said.

Ford has about 42,000 hourly workers covered by the contract. About half of the annual savings would come from the elimination of performance bonuses and the Christmas bonus and the suspension of cost of living increases.

Ford restructured payments into the VEBA, including the option to contribute about half in company stock, to conserve cash. The plan to make payments in stock requires shareholder approval at the Ford annual meeting this year.

Ford, which posted a record $14.7 billion net loss for 2008, has said it believes it has adequate liquidity to operate through the economic downturn without seeking emergency U.S. government loans.

The agreement with the UAW effectively puts Ford's U.S. hourly wage rates in line with the cuts cross-town rivals General Motors Corp and Chrysler LLC have been negotiating with the union under their government bailouts.

Chrysler, about 80 percent controlled by Cerberus Capital Management LP, and GM have received $17.4 billion of emergency government loans and have requested billions more in emergency loans to complete restructurings.

GM and Chrysler also have reached tentative agreements with the UAW on labor issues, but have withheld details until talks are completed on the funding of their healthcare trusts.

Wages and benefits in the GM UAW agreement are patterned on the Ford contract, but the contracts differ in other areas such as employee placement and company-specific details, UAW Vice President Cal Rapson said in a letter to members on Monday.

"It appears that the agreement essentially meets the terms set forth by the U.S. Treasury loan (to GM)," KeyBanc Capital Markets analyst Brett Hoselton said in a note to clients.

"If correct, we believe this is a significant milestone and investors should now turn their attention to negotiations with the bondholders," Hoselton said.

Ford has announced salaried job cuts and executive pay reductions and last week launched an effort to reduce $25.8 billion of automotive debt by up to 40 percent through conversion of debt to equity and tender offers.

Ford also has agreed to offer buyouts to UAW-represented workers from April 1 through May 22. Ford has offered buyouts previously to hourly workers and the offers will be lower than those in the past due to the current economic conditions.

Ford plans to consolidate assembly work between adjacent Michigan Truck and Wayne Assembly plants near Detroit. The automaker is converting its Michigan Truck plant to build the European-designed 2010 Ford Focus small car.

The Wayne facility will continue to perform stamping and some body work and the consolidation is not expected to result in job cuts from the Wayne facility.

Ford shares were up 9 cents, or 4.9 percent, at $1.94 on the New York Stock Exchange late in the trading session.

(Reporting by David Bailey; Editing by Lisa Von Ahn and Gerald E. McCormick)