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Ford Reaches Deal with CAW

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Ford Motor Co. (F - Free Report) has reached a tentative 4-year deal with Canadian Auto Workers (CAW) union that would create 500 jobs and help the company save costs by paying lower hourly wages to new hires.

The 20,000 workers-union has accepted a cut in starting wages ($24 per hour) that would take 10 years to reach $34 per hour instead of 6 years. The deal also included bonuses amounting to $2,000 for cost-of-living adjustments.

However, the union failed to reach any agreement with other Detroit automakers, General Motors Company (GM - Free Report) and Chrysler, controlled by Italy’s Fiat SpA , due to some plant-specific issues. According to these automakers, Canada is considered to be the most expensive country in the world to manufacture cars. Among them, Chrysler operates the largest facility in Canada.

The agreement with Ford pacified CAW union and helped avoid strike at all three automakers. However, if the union failed to reach any agreement with GM and Chrysler after continuous negotiations they may decide to call its first auto strike in Canada since 1996.

Ford, a Zacks #3 Rank (Hold) stock, posted a 39% fall in profits of $1.20 billion or 30 cents per share in the second quarter of the year from $1.98 billion or 49 cents in the corresponding quarter of 2011 due to lower operating results in all the regions except North America. However, the company’s profits were higher than the Zacks Consensus Estimate of 28 cents per share.

Revenues in the quarter dipped 6% to $33.3 billion, due to the same factors mentioned above. However, it exceeded the Zacks Consensus Estimate of $32.0 billion. In the first half of the year, Ford’s U.S. total market share was 15.4% in the U.S. and 8.1% in Europe.

For 2012, Ford continues to expect industry volume in the range of 14.5 million–15.0 million vehicles for the U.S. and about 14 million units for the 19 European markets covered by the automaker.

Ford anticipates market share in the U.S. and Europe to be lower than 16.5% and 8.3%, respectively in 2011. It also expects the overall pre-tax operating profit to be lower than 2011 compared with the prior guidance of tallying. Operating margin in the Automotive segment is anticipated to be equal or lower rather then the prior guidance of improve over 5.4% in 2011.

Ford reiterated its guidance of Automotive structural costs to increase by less than $2 billion in 2012 in order to support higher volumes, new product launches and global growth plans. The automaker now expects capital expenditures of $5 billion compared with the prior guidance of $5.5 billion–$6.0 billion in 2012. It expects to meet challenges in Europe and South America by executing its One Ford plan.

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