Ford to Make Fewer Vehicles
The ailing American auto industry shrunk again Friday as Ford Motor Co. said it would slash production for the rest of the year and parts maker Delphi Corp. said an additional 6,300 workers had opted to retire early or be bought out.
Ford’s announcement confirmed expectations that steeper cuts, including more factory closings and payroll trimming in management ranks, are coming -- along with substantially reduced sales.
The big hit will come in the fourth quarter, when Ford will periodically idle workers at 10 U.S. and Canadian plants as it slashes pickup truck and sport utility vehicle production by 28%.
Soaring fuel prices have hit hard at Ford and its Big Three rivals General Motors Corp. and Chrysler Group, all heavily dependent on trucks, as buyers have begun shifting to smaller, lighter and more fuel-efficient cars and car-based crossover vehicles.
“The short-term ramifications will be ugly.... The sharp decline in production volumes will make it more difficult to see any signs of a turnaround at Ford,” said Craig Hutson, an auto industry bond analyst at Gimme Credit.
Ford lost $1.3 billion through the first half of the year. The automaker -- like GM and Chrysler -- has been losing U.S. market share to foreign-based brands for more than a decade.
Delphi, headquartered in Troy, Mich., is attempting to emerge from Chapter 11 bankruptcy proceedings as a considerably slimmer company better able to compete as its principal customers, the once-dominant U.S. automakers, are being overtaken by import brands.
The new buyouts and early retirement announced Friday bring to almost 19,000 the number of union workers who have agreed to leave Delphi this year, with another round of buyouts due next month.
Ford too has chosen September to announce more details of an accelerated turnaround bid.
Its initial plan, dubbed Way Forward and issued in January, called for the Dearborn, Mich.-based automaker to shutter 14 North American plants and slash 30,000 factory jobs from its payroll in the next six years, speed production of fuel-efficient passenger cars and return its North American automotive operation to profitability in 2008.
Ford said Friday that it would cut production for the full year by 9% -- or 286,000 vehicles -- from 2005 levels. The company, long No. 2 in the U.S. auto market to GM, was outsold in July by Toyota Motor Corp. for the first time.
“Ford is making the hard decision to cut production rather than throw money at the problem with incentives,” said industry analyst Ken Elias, a partner at Maryann Keller & Associates.
Reduced truck output will account for Ford’s entire annual production cut as the company continues to promote its passenger cars. Notable models include the new mid-size Fusion sedan and the Mercury Milan and Lincoln MKZ siblings, which have racked up promising sales in their first several months in showrooms.
Ford’s car production for the year, though down from earlier projections because of the fourth-quarter cuts, still will be up by 118,000 vehicles from last year. But the company will build 404,000 fewer trucks, with more than two-thirds of the reduction occurring from now through the end of the year.
“Ford is acknowledging that with a shrinking market and increased competition, production had to be cut,” Elias said.
With the newly announced cuts, the automaker plans to make 3.05 million vehicles in North America for the full year.
The decline in production will have a ripple effect, extending to Ford’s parts suppliers, including Delphi; its manufacturing employees, whose work hours will shrink; and its dealerships, which will have fewer vehicles to sell. Its shareholders may feel the pinch too: For more than a decade, Ford’s trucks have been its most popular -- and profitable -- vehicles.
“The lower production will have a significant negative effect on Ford’s cash flow in the fourth quarter,” Standard & Poor’s credit analyst Robert Schulz said in an investment note Friday.
Ford’s stock fell 17 cents, or 2.1%, to $8.
But the company’s bonds have moved higher, “suggesting investors believe Ford is making the tough decisions to improve its long-term chances of success,” analyst Hutson said.
Tough but necessary was the message Ford management sent to employees Friday.
The company’s moves represent “the most aggressive reduction of a North American production plan in more than 20 years,” Chief Executive William Clay Ford Jr. said in a companywide message.
“We know this decision will have a dramatic impact,” he said, but it is “the right call for our customers, our dealers and our long-term future.”
Parts suppliers -- already suffering as the U.S. automakers shrink -- will be especially hard hit, Elias said.
That makes the newly announced Delphi departures a bit of potential good news.
Delphi, a former GM subsidiary and still its biggest supplier, intends to close or sell 21 of its 29 U.S. plants as part of its reorganization.
Trimming payrolls through voluntary retirements and buyouts reduces pressure from its biggest unions, the United Auto Workers and the International Union of Electrical Workers-Communications Workers of America.
Delphi has asked a U.S. Bankruptcy Court judge for power to impose steep wage cuts on remaining employees if it cannot reach an out-of-court settlement with the unions, which have threatened to strike if it does.
A hearing on the request has been delayed to Sept. 18 to permit negotiations among Delphi, its unions and GM to continue.
GM is helping to mediate -- and has underwritten much of Delphi’s payroll cutting -- because a Delphi strike would cut off the flow of crucial parts. That would quickly force GM to halt North American production, threatening its own recovery efforts.
