future of Ford and GM and union

[coldmm803]

DETROIT/CHICAGO (Reuters) - As Wall Street ponders the future of Detroit, analysts see sharply diverging scenarios emerging from an uncertain summer and crucial contract negotiations with the United Auto Workers union. The more bullish see General Motors Corp. (NYSE:GM - F - news) and soon-to-be-privately owned Chrysler Group clinching a transformational labor deal that would put their costs on a footing with more nimble Japanese rivals led by Toyota Motor Corp. (7203.T).Others see a risk that the UAW will hold out for only modest concessions on behalf of the 180,000 factory workers it represents, leaving the Detroit-based automakers drifting toward a more wrenching financial reckoning.With talks between the UAW and Ford and GM set to start next week, that deepening uncertainty is playing out in a split between fundamental analysts and indications of heightened risk in the options market."Some hope for landmark concessions that will rejuvenate the industry for decades ahead, while others hold out little hope," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group. "As such, options traders are pricing in a greater degree of uncertainty going forward."JP Morgan analyst Himanshu Patel raised his ratings on GM and Ford this month to "overweight," saying a UAW contract to replace a four-year deal expiring in September would boost earnings.Patel said cost savings from a new contract could add $1.86 per share in earnings for GM and 38 cents per share for Ford in a best-case scenario. "Signs are strengthening that the UAW will engage in radical changes," he said.By contrast, Bear Stearns analyst Peter Nesvold downgraded GM to "peer perform," saying investors would be prudent to take profits after the stock's run-up since May.After bottoming out in early May, GM shares have gained 23 percent, outperforming the broad market by a wide margin. Ford shares have trended higher since mid-March, rising 15 percent.JP Morgan's Patel attributed much of that rally to an emerging view that both Ford and GM would be able to get the UAW to agree to a trust fund for retiree health care that would remove one of their major operational uncertainties.But he said the market had only partly priced in the benefit from that potential shift of some $8 billion in liabilities from the balance sheets of the two automakers."While the easy money has been made, we still see a compelling risk-reward case in both names on a 12-month view," he said.MARKET SKEPTICISM PERSISTSOthers are more skeptical that the gains can be sustained in light of the pressures facing both loss-making automakers."If you look at the sector, you're generally rewarded at this point for taking profits and declaring partial victory," said David Sowerby, portfolio manager at Loomis & Sayles, who does not own shares in either company.U.S. automakers pay their unionized workers about $75 an hour in wages and benefits, compared with $45 an hour for workers at plants owned by Japanese automakers, according to internal data from Detroit's automakers.That gap stems largely from the cost of providing health care benefits, including benefits for retirees, which annually runs to $4.8 billion at GM and $3.1 billion at Ford.As analysts handicap the odds of those costs being reduced, the options market has priced in more risk. Some analysts said that also reflected the approach of second-quarter earnings. But Wilkinson of Interactive Brokers noted that implied volatility of 41 percent for GM options earlier this week was the highest reading "since February when shares tumbled when the Tracinda Group threw in their cards and left the poker table." Billionaire Kirk Kerkorian's investment arm, Tracinda Corp, sold its stake in GM last year following the automaker's rejection of his proposed tie-up with Nissan-Renault. Implied volatility can be read as a percentage measure of how much a stock is expected to move in a rolling 12-month period. Brian Overby, an options analyst with TradeKing, said the large number of outstanding put options in GM and Ford with expiry in January 2008 and 2009 shows that "the options market is worried about the long-term aspects" of both. Meanwhile, the Chicago Board Options Exchange has rolled out new credit option contracts that would pay out if either GM or Ford default on bond payments before September 2012. Neither contract has traded yet, but indicative prices point to a roughly 32 percent default risk for GM and roughly a 40 percent risk for Ford over that period.

[Whelan]

I'm still confused why Ford continues to produce crap over here but makes fun cars in Europe and Australia. Take the new European Focus for example:Convertible Versiondrop the top and it instantly can be a great competitor with Sebring convertible and VW EosC1 Focuswhat our focus should have looked like, big wheels, no gap, sportier.Here is the new Focus in Europe!Ford Focus RSFord S-Maxi.e. Mazda 5 but hotter lookingI don't want to hear about emissions and other crap either, they could very easily get these cars to our shores. There cars over there nowadays have front bumpers that can save a person if they were to hit a pedestrian, and headlights that are much better than our current junk. GM is already starting to do this with its company Holden in Australia and now Opel's coming over as Saturns. It would be cheaper than trying to design all new cars here, and they could really take the small car market by storm if they wanted. But they are so out of the small car market, the Focus is old and needs to be updated like the European one, the Fusion is a mid size, and they have nothing economy, only one hybrid in the whole lineup and its an uncomfortable Escape. Not to mention the Mazda Tribute is the Ford Escape and the redesign looks nothing like mazda's current lineup of sexy streamlined cars.

[coldmm803]

i agree whelan, i think the european fords look great, that focus rs is bad as*what was the ford in casino royale? was it a focus

[ajflan]

Yeah that is the car that was in Casino Royale.

[Whelan]

I know my response was not entirely on topic but just think even back in the 90's when we had the Escort GT crap box, what did Europe get, the Cosworth, great looks even today and a great tuner car with huge aftermarket support over there!Them2.0L 4 w/ 227hp AWD (bad mother ******)Us1.8L Mazda 4 w/ 127hp FWD (that was all we got)

[scherry2]

it might be a good idea to move this to political asylum.my checks say $27.00 per hour and If I don't go to the doctor it cost GM nothing in healthcare. let alone $43 per hour for healthcare. the $70 per hour is based on speculation that what GM thinks a uaw member might use. retirees are in the process of being covered by healthcare managed by the UAW and paid for with our 3% raise last year and $$ invested by GM. don't believe everything you read, the media owns the information and what you get is what they want.

[cs1992]

$27 an hour? Do the math $27 x 40hrs x 52 weeks = $56160 (per year)No OVERTIME included.To most people (myself included) that is a lot of money. Many college graduates do not earn that salary even after 5 five years experience. Local Ford plant employees in my area earned top pay in 2-3 years. Something is wrong here! No offense, but if you make $56k a year sweeping the floor of an automobile assembly plant, screwing the knobs on radios or snapping Ford/Chrysler/GM logos onto sheet metal, you better consider yourself more than well paid. There are people that would do those jobs for half the money.Please do not take offense to this post. I realize that we all choose our professions and I appreciate the service that line workers provide. However, let's be realistic, because you are not going to find many similarly paying jobs with similar skills backgrounds in the 21st century. BTW, I said "earned" in the paragraph above because that Ford plant no longer exists. It was closed because it was not economically viable to keep it in service. Hundreds, if not thousands, lost their livelihood and I would not wish that on anybody. But, if these guys were making $35-$40 k a year it makes you wonder if things would be different.

[scherry2]

Quote, originally posted by cs1992 »$27 an hour? No offense, but if you make $56k a year sweeping the floor of an automobile assembly plant, screwing the knobs on radios or snapping Ford/Chrysler/GM logos onto sheet metal, you better consider yourself more than well paid. ummm that would be considerably less AFTER taxes.now no offense, but your description of what you said a UAW member does shows just what you don't know. assembly line work is not ""screwing the knobs on radios, or snapping logos on sheet metal" try installing most of the door assembly door glass and door regulator in 45 seconds, turn around and be ready for the next door. or how about installing the body on a frame every 45 seconds. want me to go on? "Many college graduates do not earn that salary even after 5 five years experience" and your point is?people have been buying vehicles made by UAW members for years, no no one *****ed at contract time 4 years ago? Foreign vehicles cost the same as their American counterparts made by UAW members. any corporation that gets the UAW to cut their wages will not lower the price of the vehicle. so whats the difference to the consumer? none, its all profit to the corporation.

[jimincalif]

I'd like to see whoever came up with the $70 per hour explain the calculation. Certainly benefits are expensive, but from a $27/hr base rate to $70 all up seems extreme.I know in my company, health insurance is running about 10% of wages, but we don't offer anywhere near the same level of coverage. So let's double it to 20% of wages for current health benefits.Retirement, I don't know the details of the various retirement plans, but a 100% pension starting at age 62 for $56K per year might require a reserve of about $700K. This does not include COLA or survivor benefits. Let's be generous and increase this to $1.2 million. Accumulated over a 30 year career that would be $8.70 per hour.Next, retiree medical. I don't know the actuarial factors involved here. Let's say it is the same generous reserve as the pension, $1.2m or $8.70 per hour.What do we have?Base rate $27/hr+ 20% for current medical 5.50/hr+ pension 8.70+ retiree med 8.70Throw in 15% for payroll taxes, worker's comp, and vacation, another $4/hr.Total $53.90 per hour.I've got to believe these estimates for medical and pension are on the high side. So current total pay is not $70 per hour for someone making $27 base.Now there could be more cost to make up for unfunded liabilities in these plans for underfunding in prior years. These are real costs to the companies, not just speculation; they have to be reflected in their earnings per accounting rules. So maybe the entire cost of labor, including contributions for prior underfunding is close to $70 per hour, but it is unfair to imply that is what current workers are getting unless they actually are.Again, when the press reports something like this $70, I'd like to see it broken out. You'd think a fact-checker somewhere would ask for verification of this.

[Whelan]

Don't forget things like Union dues as well. Although I'm sure they are not much, there are a few other things in the Auto industry that are very different from your typical job. I work in HR, not with auto industries but dealing with people's 401K, the fact that anyone has a pension is crazy, they hardly exist anymore. Not to mention the average someone like me would need to retire with to be comfortable with me and my wife is in the neighborhood of 2-3 million.

[NascarXprt]

hey Whelan dont forget Fords Falcons! Mmm V-8 Supremacy...

[Whelan]

Who can forget the Falcon, XR8 mmmm. Loosely what the Mazda 6 design is based on. Hence the Falcon XR6 Turbo.Also available in the old Ranchero styleLet's look at Ford Australia's lineup shall we, particularly the sporty ones.Ford Fiesta XR4 2.0L 147hpIt's like a Scion Xa but better lookin and on Steriods!Ford Focus XR5 Turbo2.5L I5 Turbo 222hpWe had a SVT version once, 170hp, wow, what a joke!