Ford Unveils Wide Job Cuts, Plant Closures
Ford Motor Co. executives said Monday that the company would close 14 factories, eliminate as many as 30,000 jobs in North America in the next six years and work to make vehicles that customers want rather than force-feed them the big trucks that the company has been most comfortable building.
Although the plan is sweeping, many analysts said it might be too tame to enable the company to reassert itself in the crucial U.S. auto market.
In announcing the long-awaited restructuring, Chairman William Clay Ford Jr. and North American chief Mark Fields said the plan ultimately would save $6 billion a year and enable the company to develop its vehicles faster, build them more efficiently and sell them on the strength of innovation, improved quality and bold design.
Ford’s North American auto operations have lost $1.6 billion in the last year. U.S. sales volume has plummeted by more than 25% in the last decade, and Ford’s market share has fallen to its lowest point since the 1920s.
For Ford workers who have known for weeks that the so-called Way Forward plan was coming, Monday’s news was bitter nonetheless.
“I hate to leave this way,” said Wilburn Kelly, 64, a clerk who has worked for 38 years at Ford’s plant in Hapeville, Ga., which was among those that will close. “This was my livelihood.”
Kelly, who expects to retire, said he felt sympathy for younger co-workers. “I feel for all of them,” he said. “They won’t have money.”
Ford’s stock did get a boost, rising 5.3% partly on news of a 19% jump in profit for the fourth quarter, including a smaller-than-expected loss from the North American automotive operations.
Investors could take heart as well in the vow by Fields, who wrote the restructuring plan, that the company’s biggest unit would be profitable again “no later” than 2008.
The automaker identified only five of the factories to be shuttered, leaving many workers unsettled and analysts concerned about the company’s ability to push through its plans while dealing with an uncertain workforce.
“If Ford is going to be successful in reducing costs, improving quality and stabilizing its market share, it will have to do that while at the same time trying to keep workers focused on Ford Motor Co., not on personal problems amid all the uncertainty” of whether theirs will be a plant that will be closed, said Brad Marion, head of consulting firm Korn/Ferry International’s North American automotive practice.
The effort to change Ford’s corporate culture will be “awful hard to do with an organization under stress,” said Burnham Securities Inc. analyst David Healy.
Much of what Fields and Bill Ford talked about was “touchy-feely and hard to evaluate,” Healy said. “But inspiration to come up with brilliant designs might be dampened a bit by worry about whether you still have a job.”
One key challenge for the automaker will be to sell its plan to a skeptical unionized workforce. Ford Motor’s contract with the United Auto Workers expires in 2007, and the UAW must agree to many of the changes in manufacturing processes and in employee benefits that the company wants to impose.
Ford -- like Big Three rivals General Motors Corp. and Chrysler Group -- must pay workers idled this year about 95% of their regular pay under a long-standing agreement with the union that doesn’t expire until a new pact is signed.
Fields said the company expected to pay about $250 million in 2006 for severance and other separation pay plans.
Union workers grudgingly agreed last year to some concessions on healthcare costs, and next year’s negotiations could prove to be rancorous, especially as Ford’s announcement follows by just two months a similar restructuring plan from GM, which is closing a dozen plants and eliminating 30,000 jobs in the next three years.
Both companies are suffering the compounded effects of neglecting product design and all but abandoning the car market to foreign brands in favor of more profitable large trucks. Sales of big sport utility vehicles have been hit hard in the last year as buyers fled because of soaring fuel costs.
UAW President Ron Gettelfinger said Ford’s job cuts “will only make the 2007 negotiations all the more difficult and all the more important.” He called the Ford restructuring “extremely disappointing and devastating news for the many thousands of hardworking men and women who have devoted their working lives to Ford.”
For now, the Ford that lies in workers’ future will cut annual production capacity by 1.2 million vehicles so as to be able to run its remaining plants at full capacity instead of the current 79% -- an industry low.
Under the timetable Fields announced Monday, Ford will close assembly plants in Hapeville and St. Louis this year and a factory in Wixom, Mich., next year. Two more plants will close by 2008 and two in 2012; none of the four were identified. A Canadian assembly plant in St. Thomas, Canada, will drop to one shift from two next year. The company also said it would close seven parts plants, including one in Batavia, Ohio, and another in Windsor, Canada.
Fields said Ford planned to build at least one new “low-cost” manufacturing plant in North America by 2012 to help replace some of the production capacity it is eliminating.
The company’s plan presumes that its present 17.4% share of the U.S. market won’t get any smaller. Many analysts believe that’s wishful thinking, at best, in a market in which all the growth in the last decade has been logged by Japanese juggernaut Toyota Motor Corp. and other foreign brands.
“Given continued declines in market share,” Ford’s proposed production cuts may not be enough, Citigroup Global Markets autos analyst Jon Rogers wrote in a note to investors Monday.
Two major automakers have executed successful turnarounds in recent years.
Chrysler Group, the U.S. arm of DaimlerChrysler, was nearing financial disaster in 2001 when it launched a restructuring. After eliminating about 26,000 jobs and closing plants, Chrysler gave its designers more freedom and they came up with the 300 sedan and derivatives such as the Dodge Charger and Dodge Magnum that have been big hits in the U.S.
Nissan Motor Co. of Japan was heading for insolvency in 1999 when Renault of France acquired a controlling interest and installed executive Carlos Ghosn at the helm. Ghosn closed plants, trashed the tradition of lifetime employment and slashed several billion dollars in annual operating costs.
As costs fell, Nissan hit the street with hot new models, including the redesigned Altima sedan, the 350Z sports car and the Infiniti GX sport utility wagon. Today the company is a powerhouse, with an industry-leading 10.5% operating profit margin.
Fields and Bill Ford said they were modeling Ford’s North American plan on successful efforts to rebuild the company’s European and Asian operations. Fields was head of Ford-controlled Mazda Motor Corp. in Japan and Ford’s European operation and is credited with drafting successful revitalization plans for both.
Investors apparently weren’t as dismayed as analysts by the lack of detail in Ford’s plans: The company’s stock rose 42 cents to $8.32.
Some of that gain, though, was on the strength of a stronger-than-expected fourth-quarter financial performance. Ford ended the year with a 19% increase in quarterly earnings, to $124 million; revenue rose 5.7% to $47.6 billion. For the full year, the automaker posted earnings of $2 billion, down 42% from 2004, as sales rose nearly 4% to $178.1 billion.
One industry watcher who is taking a wait-and-see position on Ford’s restructuring plan is David Cole, director of the Center for Automotive Research in Ann Arbor, Mich.
“The Ford plan is not something you roll out quickly,” he said. “If they’d just laid it all out and said, ‘Here it is, take it or leave it,’ they’d have alienated the union, and there’s a lot they still have to work out with labor.”
Still, he said, “this is, as Mark Fields keeps repeating, a ‘change or die’ time for Ford, the last chance. And I’d be very worried if they endlessly delay things.”
*
Times researcher Jennie Jarvie in Atlanta contributed to this report.
