The Canadian Auto Workers union and Ford of Canada shocked the industry on Monday with a new master agreement on wages, benefits and other issues five months before the existing contract is scheduled to expire.

The agreement calls for a wage freeze, elimination of cost of living adjustments until December 2009, increased co-payments for prescription drugs, lower wages for newly hired employees and will keep one Ford car assembly plant in Ontario open at least one year beyond its scheduled closing in 2010.

But the deal avoids the full two-tiered wage system that the US United Auto Workers agreed to last fall, said Canadian Auto Workers (CAW) president Buzz Hargrove, who has said since that his union would not stand for two-tiered wages in Canada.

"It's principled, pragmatic collective bargaining in a very difficult situation," Hargrove said last night after announcing the agreement.

The union and the company will now negotiate to settle local issues at plants in the Ontario cities of Oakville, Windsor and St. Thomas before workers vote on a full tentative agreement.

If ratified, it will set the pattern for General Motors and Chrysler to match.

Hargrove said he expects both companies to match the pattern, even though they had presented the union with long lists of demands for cuts.

GM said earlier that it need to chop US$30 an hour from its average $77 an hour wage and benefit package to match what the Japanese auto makers are paying in salaries and benefits to workers in their US plants.

"I do not anticipate a fight with GM or Chrysler," Hargrove said.

But there is also no urgency to reach a deal with those two companies because the contracts do not expire until September and the union is not permitted to go on strike while it has a contract.

The deal came about after negotiations between Hargrove and top union leaders with representatives from each of the three companies.

He said it was clear that GM and Chrysler were not prepared to engage in full negotiations this early in a contract year, while Ford indicated it was prepared to do so.

Ford gets helped by a new way of accounting for long-term health care that will add millions to its bottom line, said CAW economist Jim Stanford.

The deal also gives Ford a guarantee that production will not be interrupted at its Oakville assembly plant, which churns out the Ford Edge and Lincoln MKX crossover utility vehicles. They have been smash hits for Ford in the midst of a severe US downturn.

In addition, production of another crossover, the Ford Flex, is scheduled to begin later this spring, so that vehicle will go to market without the threat of a strike in the autumn that would halt production.