Last year's United Auto Workers' strike has significantly impacted Ford's relationship with the union, leading the automaker to reconsider its future manufacturing plans, according to Ford CEO Jim Farley. Speaking at the Wolfe Research Global Auto Conference in New York, Farley expressed that Ford has always valued its relationship with the UAW and had a track record of avoiding strikes since the 1970s. However, last year's strike saw Ford's profitable factory in Louisville, Kentucky, being shut down for the first time.
As Ford navigates the transition from internal combustion engines to electric vehicles, Farley emphasized the necessity of carefully evaluating the company's manufacturing footprint. He revealed that Ford made the decision to produce all of its highly profitable big pickup trucks in the United States, resulting in higher costs compared to competitors who established truck plants in Mexico after going through bankruptcy. Farley explained that despite the added cost, Ford believed it was the 'right kind of cost' to bear.
Farley acknowledged that the UAW strike had indeed changed the dynamics of their relationship, referring to it as a 'watershed moment' for the company. He emphasized that this shift had tangible business implications. The settlement reached with the UAW following the strike led to significant wage gains for top-scale factory workers, with a contract in place until April 2028, entailing a 33% raise and a top wage of approximately $42 per hour.
The CEO noted that high manufacturing costs remained one of the key factors contributing to Ford's $7 billion annual cost disadvantage compared to its competitors. However, Farley expressed confidence in the company's progress in reducing those costs through cultural and structural changes. Ford aims to eliminate $2 billion worth of costs this year, with Farley expecting manufacturing cost reductions to offset the expenses associated with the UAW contract entirely. According to Ford, the UAW agreement would eventually add $900 to the cost of each vehicle.
With regards to its electric vehicle strategy, Ford is shifting focus towards smaller, lower-priced EVs and electric work vehicles such as pickups and full-size vans. Farley stated that any EV larger than the Ford Escape small SUV would need to 'be really functional or a work vehicle.' To this end, Ford has a small team dedicated to developing the foundations of a more affordable, smaller electric vehicle, which is expected to be profitable due to the availability of U.S. federal tax credits reaching up to $7,500 per vehicle.
While no specific timeline was provided for the release of the small EV, Farley revealed that Ford's next generation of electric vehicles would be launched between 2025 and 2027. However, the CEO's comments about the changed relationship with the UAW have raised questions about the potential manufacturing location for the new small EV. As Mexico offers lower labor costs, there is speculation whether it would be produced there. Importantly, vehicles manufactured in North America would still be eligible for the U.S. tax credit.
Ford's CEO showcased the impact of last year's UAW strike on the company's outlook and manufacturing decisions. As the automaker continues its shift towards electric vehicles, careful considerations will be made regarding manufacturing locations and cost structures in order to maintain competitiveness in the evolving automotive landscape.
