Ford Takes Cautionary Approach in Manufacturing Operations in the United States Following UAW Strike

Ford Takes Cautionary Approach in Manufacturing Operations in the United States Following UAW Strike

Ford, one of the leading automakers in the United States, is reassessing its manufacturing operations in the country after a six-week strike by the United Auto Workers (UAW) union last year. The strike, which forced Ford to raise wages by 33 percent, has led CEO Jim Farley to suggest that the company needs to carefully consider its “manufacturing footprint” as it transitions to electric vehicles.

The relationship between Ford and the UAW has historically been strong, with no strikes involving the union since the 1970s. However, last year’s strike at Ford’s Louisville factory in Kentucky changed that dynamic. The strike resulted in higher wages for workers, with top-level employees securing a 33 percent wage hike that pushes their hourly wages to around $42. Ford also agreed to eliminate wage tiers and reinstate cost-of-living adjustments.

According to UAW President Shawn Fain, the new contract offered more raises to workers than the past 22 years combined. However, the increased wages also come at a cost, adding $900 to the cost of each new vehicle. As a result, Ford is looking for ways to cut down manufacturing costs this year to offset the impact of the new contract.

One option Ford is considering is moving some of its operations to Mexico, where labor costs are cheaper. While Ford has always prioritized manufacturing its big pickup trucks in the United States, this approach has come at a higher cost compared to competitors who have built factories in Mexico. CEO Jim Farley acknowledged that the company’s reliance on the UAW led to its Louisville factory being shut down during the strike, and he sees this as a turning point for the company’s relationship with the union.

Bill Ford, executive chairman of Ford, has previously warned about the negative impact of pushing up labor costs. He stated that higher labor costs restrict investments in new factories and spending on new vehicle development, which could result in job losses for the company and the country as a whole.

Despite these challenges, Ford is determined to make its mark in the electric vehicle market. During the Wolfe Research Global Auto Conference, Jim Farley outlined Ford’s plans for EVs, focusing on smaller and lower-priced vehicles such as pickup trucks and full-size vans. The company is developing a low-cost, small EV that it believes will be profitable, thanks to tax credits offered by the U.S. government. Consumers who purchase EVs are eligible for up to $7,500 in credits, but only if the final assembly of the vehicles is done in North America.

This creates an added incentive for Ford to consider manufacturing EVs in Mexico, as vehicles produced there would still qualify for the tax credits. However, Ford faces pressure to make its EV business profitable as soon as possible. The segment registered an almost $5 billion loss before taxes last year. CEO Jim Farley emphasized that any new EV from the company must become profitable within a year of its release.

Ford also faces competition from China, which is ahead in terms of EV technology. Chinese automakers may seek to establish factories in Mexico to avoid the 27.5 percent tariffs imposed on China-made electric vehicles by the United States. Marin Gjaja, COO of Ford’s EV unit, noted that Chinese EV manufacturer BYD is already exploring factory sites in Mexico.

In conclusion, Ford is navigating a complex landscape in the aftermath of the UAW strike. The company is considering its manufacturing operations in the United States and exploring options in Mexico to reduce costs. Meanwhile, it is investing in the development of profitable EVs to stay competitive and meet consumer demand. The future of Ford’s manufacturing footprint and its success in the EV market will play a crucial role in shaping the company’s trajectory in the coming years.