DEARBORN, MI – Ford Motor Co.’s top manufacturing boss warns Canadian costs must be reconciled with global cost structures, as the auto maker prepares for contract talks with the Canadian Auto Workers union.

“The marketplace doesn’t look at a vehicle built in Canada vs. the U.S. as being different, so we have to have a manufacturing model and business model that works if we’re going to sell vehicles built in Canada in North America. And that’s a challenge,” says Joe Hinrichs, group vice president-global manufacturing, who served briefly as president and CEO of Ford of Canada in 2005.

Ford operates assembly plants in Oakville and St. Thomas, ON.

Oakville currently builds the popular Ford Edge and Lincoln MKX cross/utility vehicles and is slated to begin output of the Ford Flex CUV later this year. St. Thomas produces the Ford Crown Victoria, Mercury Grand Marquis and Lincoln Town Car.

“We’re very focused on Oakville, because the Flex is launching there and we had some success launching Edge and MKX from a quality standpoint up there,” Hinrichs says. “We’re expecting the same to reoccur.”

Particularly troublesome to auto makers building vehicles in Canada is the declining value of the U.S. dollar, which is now nearly on par with the Canadian dollar, eroding some of that country’s cost advantage.

“Clearly (that) has a ramification on our business model,” Hinrichs says. “And the Canadian business-manufacturing standpoint has to be in step with what we do in the rest of the world.

“We don’t overreact to near-term exchange issues, but longer term we know what it takes to be competitive in manufacturing, and there are significant opportunities in our manufacturing business in Canada.”

Since 1985, when the CAW broke away from the United Auto Workers union, U.S. and Canadian labor contracts have diverged, Hinrichs says.

In the CAW negotiations slated to begin in July, Hinrichs is likely to ask for many of the same concessions wrung from the UAW this fall, including 2-tier wages and the option to outsource non-core manufacturing work.

However, CAW President Buzz Hargrove is vowing to hold ground.

“Ford will probably say they want some of the things they got with the UAW,” Hargrove says in an interview. “But I’ve said personally, privately and publicly we’re not doing 2-tier wages. We’re not going to have second-class workers that get less pay and half benefits. We’re not going down that road.”

Hargrove also opposes a potential shutdown of the St. Thomas plant, which employs some 2,400 workers and currently is operating on one shift. Ford has not announced such plans, but media reports suggest St. Thomas could be closed by the end of 2010.

“We are absolutely determined to do everything we can as a union to save this plant by winning new investment and product commitments,” Hargrove says, although he acknowledges it is difficult to keep a plant open that operates at half capacity.

“There are not many plants in the auto industry around the world that survive very long on one shift,” he says. “If sales support one shift and they keep making money it may survive, but if sales drop off we’ll need new product, and we’ll be talking about that at the bargaining table.”

As for the labor-cost disadvantage over the U.S., which some analysts peg at more than $25 an hour, Hargrove recalls a conversation he had years ago with General Motors Corp. CEO Rick Wagoner.

“We’re not going to try and buy our way out of the crisis of the auto industry, in our case it’s the appreciation of our currency,” he says. “I always fall back to the time when we had a $20 advantage and Wagoner said, ‘We don’t negotiate around currency because it is volatile.’ I agreed with that then and do now.”

Meanwhile, Hinrichs says a new round of buyouts is scheduled for the U.S., following discussions with the UAW.

“We took a lot of people out of our operations here in the last 18 months or so in North America. And we’re realizing savings associated with that,” he says. “It’s not a secret we intend to do another buyout program, but we do have to negotiate specifics with our (UAW) partner, which we’re currently doing. We’re looking forward to finalizing that.”

bpope@wardsauto.com