Ford has reached a deal with the United Auto Workers union to reduce its labour costs in line with Japanese rivals and to help it survive without government loans, the automaker and union have said.

Ford, which posted a record US$14.6bn loss in 2008, said the UAW deal included changes to labour costs, benefits and operating practices and was contingent on Ford resolving the funding of a union-aligned trust for retiree health care.

The needs of Ford's rivals GM and Chrysler, who have had to seek federal loans, helped propel further cost cuts for Ford as the UAW has also reached "tentative understandings" with GM and Chrysler.

As part of the federal loan deals, GM and Chrysler are required to make labour costs competitive with Japanese transplants and make half of planned contributions to Voluntary Employees Beneficiary Association trusts for retiree health care in company stock.

Ford executives had said they expected the union to provide labour cost parity with their US-based rivals, Reuters said.

Ford and the UAW said they would not disclose terms of the agreement until VEBA discussions were completed. The agreement, reached at the weekend, covers 42,000 Ford workers and must be ratified by members.