Union agrees pay deal with Ford

Ford is struggling to recover from severe losses last year

The main US car union has agreed to allow Ford to cut the wages of a fifth of its staff in half in exchange for greater job and benefits security.

Ford will freeze outsourcing and pay $15.4bn (£7.4bn) toward medical benefits for its retired workers.

These conditions are the focus of a new four-year contract favoured by the United Auto Workers (UAW) union.

The deal is similar to those already agreed with GM and Chrysler, and will be put to Ford's UAW members this week.

UAW president Ron Gettelfinger called the contract a "great agreement" and said he hoped to wrap up a ratification vote on the proposed four-year deal with Ford by next Monday after local union officials gave unanimous support.

They're in a very rocky position right now David Cole, Center for Automotive Research

The talks had centred on health care and pension benefits for retired workers and protecting US jobs.

The agreement caps an historic round of talks between the main US auto industry's union and three US car giants.

But analysts are sceptical whether the approved cost savings will help Ford embark on the speedy recovery it needs to reverse the $12.7bn loss it posted last year.

"They're in a very rocky position right now," said David Cole, chairman of the Michigan-based Center for Automotive Research. "They need to cut down their immediate cashflow problem."

Outsourcing freeze

As part of the agreement, Ford has committed to pay $13.2bn to set up an independent fund, known as a Voluntary Employee Benefit Association (VEBA), to help secure healthcare for retired workers, the union said.

Until the VEBA becomes operational in 2010, Ford will continue to pay for retiree health care benefits, at a projected cost of $2.2bn.

The UAW also said it won guarantees that no further US factories would be closed, besides three which have already been identified, and a promise that millions of dollars would be invested in expanding Ford's North American manufacturing base.

In addition, Ford has committed to a freeze on outsourcing over the lifetime of the agreement, which would help stem thousands of job losses in the struggling auto giant's home market.

These provisions helped Ford to broker a reduction in the hourly pay of entry-level employees to $14.20 an hour, half the current level of $28.88, which it will be able to pay to 20% of its workforce.

The two-tier wage structure is similar to provisions in the deals agreed by Ford's domestic rivals General Motors and Chrysler, where staff that do not work on the assembly lines will be paid lower wages.