New Ford-UAW contract expected to improve firm’s credit rating

Article by Christian Andrei, on October 20, 2011

The U.S. hourly employees of Ford Motor Co. have ratified a new four-year agreement that will most likely result in credit-rating improvements. However, a return to investment-grade status might still be a year away. About 63% of Ford’s employees were in favor of the contract in balloting during the last two weeks, the UAW disclosed Wednesday.

Moody's Investors Service and Standard & Poor's have stated they're evaluating their credit scores on the Michigan-based company, which dropped to so-called junk status six years ago. S&P may elevate the automaker two levels to BB+, the highest non-investment grade level, the New York-based ratings company declared in a Sept. 29 statement.

It probably will assign a "stable" prospect on Ford, suggesting there's less than one-third probability that the company will be upgraded again within a year, according to auto analyst Robert Schulz at S&P. He further stated that the deal may have "some pluses and minuses on the cost side."

However, he also mentioned that it "generally is consistent" with the company's ongoing ability to remain profitable in North America On the other hand, Moody's Investors Service has publicized on October 5 that it could possibly uplift Ford's credit rating from Ba2, two steps beneath investment grade, pending the ratification of the contract.

Moody's stated it would finish its assessments of GM and Ford at the same time, but has not specified what the new ratings for the automakers could be. An investment-grade rating would significantly decrease borrowing expenses for Ford, said Mirko Mikelic, who serves as a senior money manager at Fifth Third Asset Management in Grand Rapids, Mich.

The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, or simply the United Automobile Workers (UAW), is a labour union composed of workers from the United States, Puerto Rico and Canada. Established in the 1930s under the Congress of Industrial Organizations (CIO), the UAW promptly progressed during its first 20 years.

With Walter Reuther serving as president from 1946-70, it became a significant part of the Democratic Party’s liberal wing, which included movements for civil rights and against Communism. The UAW gained a reputation for improving automotive industry workers’ salaries and pensions. However, at the end of the 1970s, it was unsuccessful in unionising the foreign-branded auto plants in the South. Membership figures gradually regressed as automation eventually superseded traditional labour use, and the effects of economic and manufacturing factors (including NAFTA and the onslaught of globalisation) were manifested.

Nowadays, UAW members are employed in a wide range of industries, including autos, auto parts, casino gambling, higher education and health care. Their main office is in Detroit, Michigan, and there are approximately 390,000 active members and over 600,000 retired members in 750 local unions. Around 2,500 contracts involving 1,700 employers were negotiated.

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