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GM deal with government will hurt Ford

The pressure that the Administration is putting on the UAW and the creditors at GM (NYSE: GM) and Chrysler may be good for the two troubled car companies, but the help for the two weak companies could hurt the strongest one -- Ford (NYSE: F).

Any cost advantages that come out of deals forced on labor because of the threat of Chapter 11 will cut costs at GM, and might bring those costs well below what Ford has been able to get in concessions on its own. GM could end up with a substantial gross margin lead over the No. 2 U.S. car maker.

According to The Wall Street Journal, "Ford, which is trying to engineer a turnaround on its own, has already reached agreements with its union to reduce wages and restructure retiree health care costs. It also offered bondholders a deal to shed some debt." The cuts at GM will probably trump those that Ford will get.

What is the solution? Well, as usual, the federal government will have to get involved. It cannot fix GM and Chrysler and in the process break Ford. That almost certainly means that the auto task force will have to go back to the UAW and ask for equal treatment for all three companies. So many auto workers are about to be put out of jobs in the name of making Detroit profitable that there might as well not be any union at all.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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Last updated: November 27, 2009: 09:52 AM

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