Ford plans for the future:
WSJ.com - Ford Will Shed 28% of Workers In North America : By JEFFREY MCCRACKEN and JOSEPH B. WHITE Staff Reporters of THE WALL STREET JOURNAL January 24, 2006; Page A1: DETROIT -- Ford Motor Co. has made it official: Detroit is ditching its business model of the 1990s, and the cost now totals more than 60,000 jobs at Ford and rival General Motors Corp. Ford yesterday announced plans to close 14 North American factories, including seven assembly plants, and slash up to 34,000 North American jobs over the next six years. About a month ago, GM rolled out plans to cut almost as many jobs by 2010. Both companies will emerge from these retrenchments smaller, slugging it out in a crowded U.S. auto market. Underscoring the gravity of the situation, Ford yesterday also announced a $1.55 billion loss at its North American operations for 2005.
The question now is whether the cuts at Detroit's giants are the beginning of a new, more competitive era, or just the beginning of the end. "We cannot play the game the old way," Ford Chairman William Clay Ford Jr. said in an interview.
For years, Ford and GM relied on making a lot of money on a few products -- mainly large pickup trucks and sport-utility vehicles -- to cover losses or bolster slim profits on small and midsize cars. The old way, as Mr. Ford said, took the approach that "if you build it, they will buy it." That meant building vehicles even when sales were slow simply to keep factories running and avoid paying wages to idled workers, as required by union contracts.
"Our product plans for too long were defined by our capacity," Mr. Ford said in a speech to investors, reporters and Ford employees gathered in a Ford design studio yesterday. "From now on, our vehicles will be designed to satisfy the customer, not just fill a factory."
For both companies, the transition will be painful and expensive -- but essential. The overall U.S. auto industry remains relatively robust, with sales close to record levels and employment at about one million people, roughly the same as in 1990, according to a recent Congressional Research Service report. The difference between then and now: About a fourth of all U.S. auto jobs are now with foreign-owned manufacturers, the report found.
Ford estimates that the "Way Forward," as its restructuring is dubbed, will cost $470 million this year as it buys out worker contracts and writes off closed plants. Ford Chief Financial Officer Don LeClair said the company could incur $500 million in additional costs this year for other buyouts, including workers at auto-parts plants that were part of Ford's former Visteon Corp. unit.
Costs will also rise as Ford adds more workers to the JOBS Bank -- a program negotiated with the United Auto Workers union under which workers receive full pay and benefits if their jobs are eliminated. Ford has about 1,100 workers in its JOBS Bank already, and the company estimates that each UAW member in the JOBS Bank costs it about $130,000.
Of the 14 plants that Ford said it will close by 2012, five were named and slated to be closed soon: vehicle-assembly plants in St. Louis, Atlanta, and Wixom, Mich.; an engine-parts plant in Windsor, Ontario; and a transmission plant in Batavia, Ohio. In addition, a Ford assembly plant in St. Thomas, Ontario, will lose one shift. Ford plans to close two more assembly plants by the end of the year, but will build one "new, low-cost" manufacturing site in North America. It didn't say where or when.
Ford said it also will immediately begin cutting 10% of its white-collar work force in North America, or about 4,000 salaried positions, through buyouts, attrition, layoffs and reductions of contract or agency workers. Ford said it will trim its executive ranks by 12% in the first quarter. It will announce specific executive departures Tuesday, including that of Ford sales chief Steve Lyons, according to people close to the company. All told, Ford will reduce its North American work force by nearly 28%.
Announcing its latest financial results yesterday, Ford said the $1.55 billion loss at North American operations last year will widen so much this year that it will overtake the automotive profits Ford expects to earn in Europe, Asia and elsewhere. Overall, net income last year dropped 42% to $2 billion, or $1.04 a share, from $3.5 billion, or $1.73 a share, a year earlier. Ford said fourth-quarter net income rose 19% to $124 million, or eight cents a share, from $104 million, or six cents a share, a year earlier. But in its North American operations, Ford posted a pretax loss of $143 million for the quarter.
Ford, like GM, is selling some nonautomotive assets -- like its Hertz car-rental business -- with the proceeds going in part to fund restructuring. Still, Ford said gross cash on hand, at $25.1 billion at the end of 2005, could fall closer to $20 billion by the end of this year. The auto maker said the restructuring will return its North American automotive operations to profitability "no later than 2008."
Ford's efforts to shrink and regain profitability in North America mirror those of crosstown rival GM, which is expected to report a huge loss when it announces fourth-quarter results later this week. Late last year, GM announced plans to eliminate about 30,000 jobs and close nine plants.
If Ford and GM can cut capacity to match demand, while also making their factories and their labor contracts more flexible to meet changing consumer tastes, they could ultimately be able to charge more for their vehicles. Both auto makers have been hurt in recent years by their reliance on profit-eating consumer incentives such as no-interest financing. Ford's restructuring will reduce its current vehicle-making capacity of 4.55 million units in North America to about 3.35 million by 2008, or nearly in line with the 3.3 million vehicles it sold in the U.S. and Canada in 2005.
Wall Street remains skeptical that the two auto makers can pull it off. Ford's credit ratings sank deeper into junk-bond territory earlier this month, even after Standard & Poor's Corp. and other rating agencies got early glimpses of the restructuring plan. Their shares have also continued to trade lower. In 4 p.m. composite trading on the New York Stock Exchange yesterday, Ford shares were at $8.32, up 42 cents on the day, but down from $13.46 a year ago.
A major challenge for both will be restructuring their relationships with the UAW, specifically the JOBS Bank program, which many industry watchers think the auto makers will try to eliminate when the current four-year UAW national agreement expires in September 2007.
Mr. Ford declined to discuss specific issues related to the UAW. But he noted that Ford did win UAW approval, albeit narrowly, for a package of concessions on health-care costs. "The rules of the game have changed for them and for us," Mr. Ford said.
UAW President Ron Gettelfinger, who has been working closely with GM and Ford to renegotiate the UAW's labor pacts to lower health-care costs, said in a statement that Ford's announcement yesterday is "devastating news for the many thousands of hard-working men and women who have devoted their working lives to Ford. Certainly, today's announcement will only make the 2007 negotiations all the more difficult and all the more important."
Mark Fields, head of Ford's North American operations, has led turnarounds for Ford at Mazda Corp. and at Ford of Europe. His latest campaign, he says, is as much about changing a conservative, top-down management culture as it is about cutting Ford's excessive capacity. "We've grown too conservative, too hierarchical, too resistant to change and new ideas," he says. "Frankly, true accountability has not been our strong suit. Acting like a smaller company can change this."
To do this, Ford will pursue a strategy of more global vehicle platforms, as well as more global purchasing, so that one part or commodity is the same across all vehicle lines in any country. Ford is counting on this purchasing plan, launched late last year, to save $6 billion over the next four years.
Mr. Ford said Ford has the building blocks to develop more competitive small vehicles. "It won't take as long as you think," he said.