- The Washington Times - Tuesday, November 3, 2009

Ford Motor Co. reported a third-quarter profit of nearly $1 billion Monday, a testament to the automaker’s shrewd financial and product moves in recent years, but analysts worry the company could become a victim of its own success.

The same day, the United Auto Workers union (UAW) announced that Ford workers rejected a new contract pushed by union leaders, at least in part because its members felt that Ford was so healthy they didn’t have to make further concessions.

Ford reported net income of $997 million, or 29 cents per share, in the quarter, compared with loss of $161 million, or 7 cents, a year ago. Analysts had expected a loss. The company also posted its first operating profit since early last year and said it expected to be “solidly profitable” in 2011.

Related story: GM posts monthly sales gain

A new union contract would have lowered Ford’s labor costs in line with General Motors Corp. and Chrysler Group LLC. It also included a no-strike provision. Workers are barred from striking Ford’s domestic rivals for several years as a condition of their bankruptcy restructurings.

“The UAW contract is up in 2011, and I think there could be a strike,” said John Wolkonowicz, an analyst with IHS Global Insight in Lexington, Mass.

“I think [Ford Chief Executive Alan] Mulally is not going to give in to them. There could be a strike just as the market heats up.

“Ford will be the focus. They work with one manufacturer to set a pattern for the industry, so they’ll choose the company they can strike because then they have some clout,” Mr. Wolkonowicz said.

Independent auto analyst Tom Libby agreed.

“Going forward, that’s very important because in the long run it puts them at a disadvantage versus the other two companies. That’s a very core cost, labor per unit. Per-unit costs have got to be in line with the competition if you are going to be sustainable long term.”

Mr. Wolkonowicz said Ford has to manage the expectations of investors and workers.

“It’s a tightrope that Ford has to walk,” he said. “On the one hand, you have to sound very confident about the future for the financial markets, to get your stock up and keep your borrowing costs down. On the other hand, if you make it sound too good the union will think you’re out of the woods and they don’t have to give anything back.

“But the fact is that you’re not out of the woods by a long shot and that [union vote] put Ford deeper in the woods,” Mr. Wolkonowicz said. “You could argue that union management should have painted an accurate picture for the rank and file, but apparently they didn’t do that.”

In fact, Ford said Monday that it would raise up to $3 billion with new stock and convertible notes due in 2016 to raise cash and boost its balance sheet.

Bernie McGinn, president of McGinn Investment Management Inc. in Alexandria, is more optimistic about Ford’s labor relations. His firm owns 320,000 shares of Ford and has $60 million under management.

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