DETROIT (AP) - Ford Motor Co. and General Motors Corp. have more at stake than usual as they begin their traditional talks with United Auto Workers: cutting labor costs may be key to their survival.
The traditional handshake ceremonies with the union were to begin Monday with GM in Detroit and Ford in Dearborn, although talks already have been under way for months. The union formally opened negotiations with Chrysler Group on Friday, and the national contracts with all three expire Sept. 14.
The three automakers lost a combined $15 billion in 2006 and are in the midst of shrinking themselves and rolling out new vehicles to better compete with Japanese companies. Industry analysts have said reducing labor costs is critical.
Ford is in the worst shape of the three, having mortgaged its factories to set up a $23.4 billion line of credit to cover losses and pay operating expenses while it restructures. Ford lost $12.6 billion last year and $282 million in the first quarter of this year, and it doesn't expect to make money again until 2009.
Analysts say Ford likely will seek deeper concessions than the other two automakers, perhaps including temporary wage cuts.
All three say the talks need to bring them into labor cost parity with Japanese automakers, who make about $2,000 per car more in profits.
The Detroit automakers say their hourly labor costs are about $25 more than those of Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. when health care, pension, retiree and other costs are factored in.
The Detroit automakers all have the same problems, said Laurie Harbour-Felax, managing director at Stout Risius Ross Inc., who has done detailed studies of auto manufacturing costs.
"Ford is probably not as well-positioned as GM today...but they still have the same issues around health care that are crippling them," Harbour-Felax said.
All three must deal with rising health care costs and the "jobs bank," in which companies pay workers most of their salaries when their assembly lines aren't running. She said her studies have shown that the three automakers pay $1,200 to $1,500 per car in health care costs, far more than the Japanese automakers.
The UAW, however, has said that labor costs represent only 10 percent of the price of a new vehicle.
President Ron Gettelfinger said after talks opened with Chrysler that the jobs bank isn't an issue, because so many workers have left the companies under early retirement and buyout deals negotiated with the union.
Harbour-Felax said she agrees with the union that companies must do more to cut costs and become more efficient. All three automakers have said they are moving toward leaner manufacturing and engineering techniques and use of the same architecture globally on multiple models.