Ford to Merge Its North American, European Operations : Autos: Wide-ranging reorganization is aimed at improving efficiency. It could save the company $3 billion a year.
Criticized for spending too much and taking too long to develop new vehicles, Ford Motor Co. said Thursday that it will improve efficiency by merging its North American and European operations.
The reorganization--the most wide-ranging at Ford in more than 25 years--could produce savings of up to $3 billion a year by decade’s end, when the changes will first touch car and truck production, the company said.
“We have these two big elephants called Europe and North America,” Chairman and Chief Executive Alexander Trotman said at a news conference at the company’s worldwide headquarters here. Each unit develops, designs and markets its own vehicles, often resulting in duplicative efforts.
“Our concern is to have a harmonious dance between these two,” Trotman said.
Ford’s goal is to reduce the cost of product development, design, parts purchasing and related activities. That could mean some reductions in the company’s 322,000-member work force, but executives said they hope the shrinkage can be handled through attrition.
Analysts praised the realignment but said it is long overdue.
“It’s about time,” said Jim Harbour, a manufacturing consultant in Troy, Mich. “The sleeping giant behind Ford finally woke up.”
David Cole, executive director of the University of Michigan’s Office for the Study of Automotive Transportation, said the reorganization addresses Ford’s fundamental weakness: duplication of systems and processes.
“What this does is give Ford a road map into the future,” he said.
Though Ford is the most efficient U.S. auto maker and has one of the strongest balance sheets in the industry, its profit margins are slimmer than those of some competitors.
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The reason: Ford’s development costs are much higher. Harbour estimates that Ford spent $800 per vehicle on development costs last year--60% more than Chrysler. It took six years and $6 billion to develop its Mondeo mid-size sedan, while Chrysler needed $1.3 billion and about three years to develop is Neon subcompact.
“Clearly, Ford has problems with product development,” said Maryann Keller, an analyst with Furman Selz, a New York brokerage. “With today’s announcement, they admit it.”
Trotman drew attention with his effort to undertake a remodeling of the 30-year-old Mustang. By using a team approach similar to that espoused in Thursday’s reorganization, he brought the new model in on time and under budget.
He now hopes the new structure will help Ford develop more “world cars”--basic designs that can be sold in several regions. Its past two efforts in that direction--the Escort and Mondeo--took longer and cost more than planned because of infighting among the European and North American staffs.
The restructuring establishes Ford Automotive Operations to oversee operations in Europe and North America. Its president, Edward E. Hagenlocker, will be in charge of five vehicle programs, each with worldwide responsibility for the design, development and engineering of vehicles assigned to it.
The structure is similar to that used by other auto makers. Chrysler has reduced costs and development time by giving more power to its so-called platform teams--cross-functional groups that design, engineer, manufacture and market a vehicle from start to finish.
