Ford Motor Company Avoids a Costly Strike in Canada -- for Now

By Markets Fool.com

Ford's huge Oakville Assembly Plant in Ontario makes the hot-selling Ford Edge and Lincoln MKX crossover SUV, along with other models. A last-minute labor deal averted a strike at the plant earlier this week. Image source: Ford Motor Company.

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Strike averted:Ford Motor Company (NYSE: F) reached a tentative labor agreement with the union representing hourly workers at its facilities in Canada late on Monday night, moments before workers were set to walk out at several critical Ford facilities.

What's the deal?

Under the deal, hourly workers at three Ford factories and a parts-distribution center will receive modest wage bumps and a boost in the pay rate for newly hired workers. While existing workers will continue to participate in a defined-benefit pension plan, newly hired workers will be enrolled in a defined-contribution retirement-savings plan similar to a U.S. 401(k) plan.

Significantly -- from the union's perspective, at least -- Ford also agreed to investments to support the production of future new products at three factories in Ontario.

Ford's deal follows the pattern set by GM and FCA

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Ford's tentative agreement with the Unifor labor union follows the pattern of recent agreements that Unifor negotiated with General Motors (NYSE: GM) and Fiat Chrysler Automobiles (NYSE: FCAU). Like the United Auto Workers in the U.S., Unifor aggressively negotiates a deal with one of the Detroit Three, and then pushes the others to adopt similar terms.

Reports hinted that Ford was resisting some provisions of the "pattern" deal that Unifor struck with GM in September. But in a statement on Tuesday, Unifor president Jerry Dias claimed victory:

Despite Ford's efforts to push concessions and reject the pattern set with GM, our bargaining committees were firm and focused on reaching our priorities. This tentative agreement secures the pattern and [then] some. It includes a significant investment for Canadian made Ford products, it lays the path for a long-term footprint and it offers well-deserved increases for our members and gains for retirees.

About those future products for Ford's Canada factories

Few details were available on Wednesday, as union leaders said that they wanted to disclose them to members before revealing them publicly. But union officials did say that Ford has committed to invest 700 million Canadian dollars ($522 million U.S.) to build future products at its three factories in Ontario:

  • Oakville Assembly builds the Ford Edge and Flex and the Lincoln MKX and MKT, all crossover SUVs. It employs about 5,000 workers, the majority of Ford's Canadian workforce.
  • Windsor Engine builds the 5.4 liter V8 and 6.8 liter V10 engines for Ford trucks. It employs over 600 workers.
  • Essex Engine, also in Windsor, builds 5.0 liter V8 engines for the Mustang and Ford's trucks. It employs over 800 workers.

Specifically, Ford promised a new engine program for Essex Engine, a continuation of V10 production at Windsor Engine, and committed to an agreement to continue exporting vehicles produced at Oakville,officials said. The union had been concerned that Ford intended to close Windsor Engine. While its future was secured for the four-year term of the new deal, it isn't clear whether all of the current workers at Windsor Engine will be retained.

As for Oakville, the union said that Ford will discontinue production of the slow-selling Flex in 2020.

Is this a good deal for Ford?

According to an Automotive News report, Ford had concerns about the specifics of the plan to increase workers' wages in increments over time. But as with the GM and FCA deals, the pay increases for workers are affordable for Ford, and the costs will be partially offset over time by the agreement to place new hires in a defined-contribution retirement plan.

Ford shareholders should also remember that strikes are very costly: Labor peace is a valuable thing in and of itself. Assuming that workers ratify the deal, Ford should have four years of labor peace at its Canadian facilities.

What's next for Ford and Unifor?

Ford workers will have to vote to approve -- or "ratify" -- the new contract. The vote is expected to happen this weekend.

Will it pass? It's not yet clear how workers will react to the deal. The Unifor-represented workers at GM and FCA voted to approve their (similar) new deals by comfortable margins. But Automotive News reported that workers at Oakville were seeking additional concessions that appear not to have been included in the tentative contract.

If it doesn't pass, that doesn't necessarily mean that workers will strike. The union's negotiators will first go back to the bargaining table to try to get additional concessions from Ford. We'll know more after the vote is held this weekend.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.