Ford Canada labor talks aim to cut $16/hr gap

* Ford labor costs $16/hr higher in Canada than in U.S.

* CAW wants Ford to guarantee its Canada production levels

Labor costs at Ford Motor Co (F.N) are about $16 an hour higher in Canada than in the United States, the Canadian Auto Workers confirmed on Friday, but union said it needs guarantees on production levels before it agrees to concessions to level the field.

The CAW and Ford have been in cost-cutting negotiations since Sept. 8.

The talks follow deals the union made with General Motors Co [GM.UL] and Chrysler in the spring to help those companies qualify for billions of dollars in government aid needed to survive the industry downturn.

Those three-year collective agreements cut around C$19 ($17.60) an hour from labor costs at GM and Chrysler.

The United Auto Workers struck a deal with Ford in March that the company said brought its U.S. labor costs down to around $55 an hour. That leaves CAW labor costs, which include wages, benefits, vacation time, and a bevy of other items, about $16 higher.

Based on the UAW already making economic sacrifices, that's in the ballpark, Ken Lewenza, the CAW's president, told Reuters. You can argue a buck or two either way, but that's in the ballpark.

Ford, which has not needed any government funding to stay afloat and was the only one of the three Detroit-based automakers not to restructure under bankruptcy protection, says it now needs cost reductions to compete.

Ford has said costs at its Canadian operations are its highest worldwide.

The CAW said that it is willing to work with Ford to cut labor costs, but in return, Ford must guarantee it will keep a certain proportion of its Canada-U.S. production in Canada, which is what GM and Chrysler agreed to in the spring.

Ford has about 13 percent of its Canada-U.S. production in Canada, while Chrysler has about 20 percent and GM about 18.

The CAW says Ford's Canadian production footprint will fall below 10 percent in 2011, when the large sedans being manufactured at its St. Thomas, Ontario, assembly plant are slated to be phased out.

Ford said it has no new product to go into the plant, which employs about 1,500 of the company's 7,000 Canadian workers.

With out a deal between the CAW and Ford, Canada is at risk of further production cuts, said a source close to the Ford-CAW negotiations.

The source, who could not be named because of the sensitivity of the situation, said the company is under pressure to consolidate its manufacturing facilities into low-cost labor jurisdictions.

The source said the $16 an hour cost gap figure is based on an exchange rate of 86 cents per Canadian dollar. The exchange rate is currently closer to 93 cents.

Lewenza said that on top of the UAW concessions, the biggest reason for the Canada-U.S. cost gap at Ford is the rise of the Canadian dollar.

He argued that CAW plants have productivity advantages over U.S. plants and that should be taken into account.

David Mondragon, Ford of Canada's chief executive, disagreed.

Right now we do not have a productivity or cost advantage over North American jurisdictions at our Canadian facilities, he told Reuters. So, we do have challenges and we need to address those challenges with the CAW.

($1=$1.08 Canadian) (Reporting by John McCrank; editing by Peter Galloway)