“You know you’re in a position to pick us apart on this thing. You can have three different VEBAs,” he told Gettelfinger. “Here’s how we want ours constructed. We want to put less money on the table, but we’ll give you a lot of leverage. We can’t convince the other two companies that this is in their best interest. But this is what we need.”
Laymon told Gettelfinger that, while Mulally may have just secured the largest home improvement loan in history, it was the last one Ford was likely to get anytime soon. He brought in Ford’s chief economist, Ellen Hughes-Cromwick, to explain the company’s growing concern about the global credit markets and the likelihood of a serious financial crisis. The union chief listened, but the Caterpillar experience was too fresh in Gettelfinger’s mind. The UAW was willing to accept a discount in each automaker’s contribution to its VEBA. The companies would not be required to fund these trusts at 100 percent of their actual liability. But Gettelfinger wanted all three to make their contributions in cash. The reason the UAW was willing to assume responsibility for their retirees’ health care in the first place was that the automakers were in serious financial trouble. That was taking its toll on the companies’ stock prices. There was no way of knowing how far they would fall, and the union was unwilling to bet its retirees’ futures on a rebound.
Ford’s labor team was sympathetic to the UAW’s position, but Don Leclair was more worried about the company’s own cash reserves. Ford needed the money it raised on Wall Street to fund Mulally’s revolution. Leclair also wanted to preserve as much of a cash cushion as possible to help the company ride out the economic storm he saw looming on the horizon. Still, as spring turned to summer, both Ford and the UAW felt good about the progress they were making on the VEBA and other issues.
The union was a big believer in pattern bargaining. It picked one company to negotiate with first, then used that contract as a template for the others. Gettelfinger hinted that Ford would be the target company once the formal talks began on July 23, 2007. That meant it would be allowed to set the pattern according to its needs, and General Motors and Chrysler would have to accept more or less the same terms. At least that was how the game had been played for decades.* However, as it became clear that Leclair was the one calling the shots on the VEBA funding, Gettelfinger began to grow impatient. They kept talking, but Leclair refused to budge on how much cash he was willing to put on the table. After the two had gone back and forth for a few hours, Gettelfinger simply slid his chair back, stood up, and left without saying a word.
Leclair was apoplectic. He rushed back to World Headquarters and told Mulally the union could not be trusted. Mulally’s secretary called Joe Laymon and asked him to come to the CEO’s office.
“That fucking guy walked out on me!” Leclair shouted at the HR chief when he walked in.
“He has a right to do that,” Laymon said with a shrug. He told Mulally not to worry; Gettelfinger would be back.
But the UAW leader decided to deal with General Motors first.
It was a smart move on Gettelfinger’s part. GM had been the first of the Detroit Three to appreciate the potential of the VEBA. Its CFO, Frederick “Fritz” Henderson, understood the mechanics of it better than anyone. He would not give the UAW everything it wanted, but he was willing to come a lot closer than Ford was. GM was less concerned about its cash position than it was about its $51 billion unfunded liability for hourly-retiree health care.
Serious negotiations between General Motors and the UAW began on September 14 and continued with few pauses for the next ten days. There were whispers that a deal was imminent. Then, on September 24, Gettelfinger surprised everyone by calling a strike. Within hours, picket lines were up around all of GM’s factories in the United States. The company’s negotiators were dumbfounded. They thought they had a deal. They did. But Gettelfinger knew the concessionary agreement he was about to announce would be a tough sell to his members, and he needed their votes to ratify it. The walkout was designed to demonstrate that he had gone to the mat for the workers and to convince them that the deal he negotiated with GM was the best one possible under the circumstances. Two days later, Gettelfinger sent them back to work and announced that the UAW had reached an agreement on a new contract with the automaker.
General Motors got its VEBA. It would have to pay only $35 billion into the union-run trust, and it got three years to do it. That represented a discount of about 70 cents on the dollar. In addition, GM could cover more than $4 billion of its VEBA obligations with a convertible note that the union could cash in for stock. When the last cash payment was made, GM would no longer be responsible for providing health insurance to current or future UAW retirees. That would be the union’s problem.
But there was more to the deal than the VEBA. General Motors and the UAW also agreed that the automaker could pay new hires who were assigned to what were now identified as “non-core jobs” substantially lower wages and provide them with fewer benefits. These jobs included most factory positions not directly involved in the production of vehicles or vehicle components. And the agreement changed the rules governing GM’s jobs bank. From now on, workers could say no to only one job offer. If they did not accept the next position GM offered after that, they would have to leave the company. In exchange, GM made substantial new product commitments to the UAW and promised additional investment in its American factories.
On October 10, the UAW announced that its members had ratified the agreement. But the vote had been perilously close at several factories. It would be even closer at Chrysler, which announced an almost identical agreement with the union the same day after a brief walkout lasting less than seven hours.*
Ford had said all along that, if it could not go first, it wanted to go last. By the time formal high-level negotiations between the Dearborn automaker and the UAW resumed on Wednesday, October 31, the terms of the UAW’s deals with GM and Chrysler had been published. Ford knew exactly what the union was willing to accept. It also knew that the UAW was willing to bend the pattern, because it had given Chrysler slightly less favorable terms than it had negotiated with GM. Ford hoped it could tweak the contract to better meet its needs. It might even be able to get a sweeter deal from the union, because Gettelfinger would not have to offer the same terms to GM or Chrysler.
Once again, Ford’s special relationship with the UAW paid off.
The company successfully pushed for more favorable terms on the two-tier wage system. The deals the union cut with GM and Chrysler were tied to specific job classifications. Ford saw several problems with that. For one thing, many of those non-core jobs were the same cushy positions UAW members aspired to at the end of their careers. Ford suspected that was a big part of why ratification proved so difficult at some of its competitors’ factories. Those workers often carried a lot of clout on the assembly line. At the same time, Ford was worried that the system GM and Chrysler had negotiated with the union left the door open to ongoing disputes at every facility over every job. So Hinrichs and Mulloy proposed a less complicated approach. About 20 percent of Ford’s UAW-represented workers were employed in non-core jobs. Ford suggested that all new hires come in as second-tier workers regardless of what job they were assigned to do, but agreed that no more than 20 percent of Ford’s hourly workforce would be made up of these lower-wage workers. If it reached that cap, some second-tier workers would have to be promoted to the first tier before Ford could hire any more entry-level employees. The UAW agreed. The union also agreed that any new positions the company created by bringing work back into its factories that was currently being performed by outside suppliers could also be filled with second-tier workers without those new employees counting toward the total percentage. The union’s ranks were dwindling, and it needed to add more members to survive financially. So Gettelfinger and King viewed this as a win for both sides.
Ford also got a better deal on the jobs bank. Its workers could stay in the program for only one year and had to accept any job Ford offered
them, even if it required them to relocate.
In exchange for these more generous terms, Ford not only made good on the product commitments Mulally had made back at the Dearborn Inn earlier that year but also agreed to keep several U.S. plants open that had been slated for closure as part of its Way Forward restructuring plan. These included Ford’s Ohio Assembly Plant in Avon Lake and the Wayne Stamping and Assembly Plant.*
Gettelfinger was a big believer in old-school negotiating tactics. He thought the only way to reach the best possible deal was through marathon, around-the-clock negotiations. So that is what he insisted on at Ford, even though most of the heavy lifting had already been done in the secret sessions early that year. Both sides stayed at World Headquarters until almost eleven o’clock on Halloween night, and they were back at the negotiating table by seven the next morning. From that point on, there were no more breaks.
Everything was wrapped up by Friday evening, with one exception—the VEBA. Here, too, the UAW was willing to give Ford slightly more favorable terms than it had negotiated with GM and Chrysler, but it was still not good enough for Leclair. He continued to push for more stock and less cash. As the sun set on Saturday, the two sides were no closer to a deal than they had been that morning. The other Ford negotiators could see that Gettelfinger was losing patience and started to worry that the whole agreement might unravel. Ford’s labor team told Leclair that the company had to be more flexible. Leclair refused to budge. Mulally was brought in to mediate.
As Ford’s senior leadership debated the issue on the twelfth floor, Hinrichs got word that the UAW bargaining team was getting ready to leave. He ran downstairs to try to keep Gettelfinger and King at the table. Hinrichs launched into a long, rambling presentation outlining all of the product commitments Ford was prepared to make in its U.S. factories if it got the deal it needed on the VEBA. It was all stuff they had heard before. The union men listened, but they were growing impatient. Just when he thought he was losing them Hinrichs got a call from upstairs. He whispered into his phone for a few moments, and then asked Gettelfinger to follow him up to Laymon’s office. Mulally was waiting there when they walked in. Leclair was nowhere to be seen. Mulally explained that something had come up at the Jaguar–Land Rover headquarters in England that required the CFO’s immediate attention. Unfortunately, someone else would have to take over the VEBA negotiations. Mulally apologized. Gettelfinger grinned. He agreed to wait while Ford controller Peter Daniel drove into the office from his home.
By the time Daniel arrived at World Headquarters, it was about 10 P.M. When the two sides reconvened at the bargaining table, it was closer to midnight. Daniel laid out the following terms: Ford would pay $17.3 billion into the VEBA trust. That was roughly the same percentage of its total liability that GM and Chrysler were putting into theirs. But Ford could cover only 40 percent of that with cash. The rest would have to be paid in the form of convertible notes. That was substantially less cash than the other two automakers were putting up, but it was as high as Ford could go. However, the company would agree to invest the difference in its U.S. factories. It took almost three hours to go over the details. Just before 3 A.M., Gettelfinger pushed back his chair and stood up. Hinrichs thought he was going to walk out again. Instead he looked around the room and then spoke in a voice that betrayed little of the exhaustion everyone else was suffering.
“We need this VEBA structured the way it’s proposed, because we need the investments in our plants to keep our people in those plants,” he said solemnly. “I take responsibility for what we’re agreeing to. We need to get this deal done.”
The Ford negotiators looked at each other with wide eyes. It was over. At 3:20 Sunday morning, Ron Gettelfinger and Alan Mulally shook hands in Joe Laymon’s office. Joe Hinrichs, who had not even taken a nap since Thursday, found he could not stand up. He had to call for a driver to take him home.
Voting on the new contract began four days later. Ford had no trouble winning ratification for its deal. Few workers were happy about the concessionary agreement, but most viewed it as a necessary evil.
“I figure in today’s economy, this is probably the best we’re going to get,” said John Kujat, a Michigan Ford worker, as he cast his vote in favor of ratification.
On December 3, the leaders of Ford Motor Company and the United Auto Workers gathered at World Headquarters to sign the formal document. Both sides praised the spirit of cooperation that had characterized their talks since the beginning and expressed their confidence that the deal would lead to a better future for the company and the union.
“This is an historic day for Ford,” Bill Ford declared. “The teamwork was amazing, and we came up with a contract that is—in my mind—excellent for the employees, excellent for the retirees, and great for the company.”
Mulally did not get everything he wanted. The jobs bank was still there, though there were few workers left in it and those who remained would be gone within a year. But it was close enough. The new deal with the UAW had not only gone a long way toward closing Ford’s labor cost gap with its foreign competitors, but also moved a huge chunk of the company’s legacy costs off the books. Mulally had done what many inside the Ford believed was impossible: He had figured out a way to profitably produce cars in the United States.
Now he needed to convince the American people to start buying them.
*The U.S. Supreme Court ruled the NIRA unconstitutional in 1935. However, that same year Congress passed the National Labor Relations Act, which limited the power of employers to oppose union organizing and industrial action.
*Formerly General Motors’ parts subsidiary, Delphi had been spun off in 1999 to capitalize on the then-hot market for initial public offerings. Since then, the company had struggled along with the rest of the nation’s automotive suppliers.
*The Dearborn Inn is run by Marriott but owned by Ford Motor Company.
*For years, the UAW had tried to organize these foreign-owned factories, but most were strategically located in the South, where high-paying jobs were scarce and there was little love for organized labor.
*A notable exception was Chrysler, which negotiated separate deals with the UAW for several years following its near-death experience in the early 1980s.
*The strike at Chrysler was more about convincing recalcitrant members of the UAW’s own bargaining team to accept the deal that Gettelfinger had already reached with the company.
*The Wayne Assembly Plant would later be closed, but the workers there were all reassigned to the Michigan Truck Plant next door. It was retooled to produce the new Ford Focus and other products based on the same platform.
CHAPTER 12
Selling It Like It Is
You can’t build a reputation on what you are going to do.
—HENRY FORD
If Toyota had a rock star in its ranks, it was the gaijin Jim Farley—the American marketing savant behind its über-cool, youth-oriented Scion brand, and the man credited with making Lexus the Cadillac of luxury automobiles. Farley was the cousin of zany, drug-addled comedian Chris Farley, and it showed. He looked like a thin version of his more famous relative and had something of his unhinged air that, combined with his often out-of-control hair, gave the impression of a mad scientist probing the outer limits of the Japanese automaker’s staid corporate culture.
Ford Motor Company wanted to help him escape.
Bill Ford had been wooing Farley since 2005. Long before he had even heard of Alan Mulally, Ford had been eyeing Toyota’s rising star and had learned three very important things about him. First, his family was from Michigan. Second, his grandfather had been an early Ford employee who went on to found a parts company that was still a Ford supplier. Third, Farley’s first car was a 1966 Ford Mustang that he still owned, along with a 1934 flathead Ford hot rod. Bill decided to reach out to him through a mutual friend, Larry Buhl.
“You should be back at Ford,” Buhl told Farley in late 2004, reminding him of his familial connection to th
e company. “They need help right now.”
Farley agreed to meet Bill Ford at the Detroit auto show in January 2005. Buhl snatched him from the Toyota stand and drove him to the same office building at the Detroit Lions’ training facility in Allen Park that Ford would later use for its secret meetings with the United Auto Workers. The conversation was light. At the time, Bill Ford was starring in the company’s commercials and Farley asked him how those were being received.
“The research says women in their sixties and seventies think I’m cute,” Ford told him with a laugh.
Farley kept waiting for the job offer, but Ford seemed to want to talk about anything but that. Then, as the two men stood up to shake hands, Ford made a quick pitch.
“You know, we’d really like you to seriously consider coming to Ford,” he said.
“I’m really happy at Toyota,” Farley replied without even a moment’s hesitation.
Ford asked him to think about it. He gave Farley his phone number and told him to call if he changed his mind.
Farley doubted that would happen. He was happy at Toyota. But a personal tragedy forced Farley to take stock of his life. When he did, he began to wonder just how far he could go at Toyota. His former boss, Jim Press, had become the first non-Japanese on the company’s board of directors but was rumored to be chafing at what had turned out to be a largely symbolic promotion.* Farley wanted more than that. He wanted to make a difference. He also wanted to be free. Farley prided himself on being a maverick, but the higher he rose at Toyota, the harder that became. On a spring day in 2007, he was driving down the 405 freeway near Los Angeles, fuming because he had been going back and forth with his masters in Japan for months over issues relating to the upcoming launch of the Toyota Tundra pickup. They kept overruling his decisions about a product he knew they knew nothing about. Toyota had just named Farley head of its Lexus division in the United States, but that now offered little consolation.
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