Ford, in Tailspin, Speeds Cutbacks
Beset by falling sales and ballooning costs, Ford Motor Co. said Friday that it would accelerate its turnaround plan by speeding the tempo of cutbacks in its factory workforce and slashing an additional 10,000 jobs from its white-collar payroll.
Ford also said that its key North American auto operations would not return to profitability until 2009 -- a year later than previously expected -- and that it was suspending payment of its quarterly stock dividend for the first time in more than 20 years.
The announcement was a concession by the No. 2 U.S. automaker that the sweeping restructuring plan it unveiled in January -- dubbed the Way Forward -- was not enough to turn itself around.
“It is now clear that we were too optimistic in January about our ability to stabilize our market share,” said Mark Fields, head of Ford’s North American auto operations. “The simple fact is that the business model that served us for decades in North America no longer works.”
Wall Street, which typically cheers news of corporate downsizings, reacted sourly. Ford’s stock fell as much as 15% before recovering somewhat to end the day off 12%.
Some investors clearly were hoping for bolder moves, such as selling Ford’s money-losing Jaguar brand or a stake in its profitable lending division, Ford Motor Credit -- steps that the Dearborn, Mich.-based company ruled out.
“Overall, I was underwhelmed by the announcements,” said Craig Hutson, an automotive analyst with corporate bond research firm Gimme Credit in New York.
Fields said the decision to speed the Way Forward plan was driven by several factors.
The sharp increase in gasoline prices this year has caused buyers to desert Ford’s bread-and-butter pickups and sport utility vehicles in favor of more fuel-efficient vehicles, accelerating a broader shift from the bigger-is-better ethos that had ruled the auto market since the 1990s. In addition, skyrocketing commodity costs have hammered Ford’s bottom line, Fields said.
As a result, Ford lost $1.4 billion during the first half of the year and saw its domestic brands’ share of the U.S. new vehicle market shrink to an all-time low of 16.8% through August, down from 25.7% for 1995.
Ford had said in July that it needed to revamp its restructuring effort. Another sign that more profound changes were in store came last week when Chairman William Clay Ford Jr. gave up his post as chief executive to make room for Alan Mulally, a turnaround specialist from Boeing Co. Mulally, who will take over daily operations Oct. 1, attended Friday’s announcement.
The revised game plan outlined Friday calls for Ford Motor to increase the number of cuts in its white-collar workforce to 14,000 from 4,000. The automaker also now is offering buyouts to all 75,000 of its union workers, with the goal of reducing its hourly payroll by 25,000 to 30,000 by the end of 2008, four years earlier than previously planned. And the company added two factories to the roster of 14 already slated for closing.
The goal is to cut costs by $5 billion a year by the end of 2008.
In addition, Ford plans to speed its introduction of new vehicles and redesign of existing models. By the end of 2008, 70% of Ford, Lincoln and Mercury vehicles are to be new or significantly upgraded, up from a previous estimate of 50%.
Revamping its lineup of cars, pickups and SUVs is considered a key to Ford’s recovery plan. In looking for ways to cut costs, Fields said, Ford chose not to skimp on development budgets “because this is a product-led recovery.”
With sales of its mid- and full-size SUVs such as the Explorer and Expedition tanking, Ford is pinning much of its hope on so-called crossover vehicles. Crossovers resemble SUVs but are built on car platforms and generally get better gas mileage.
The company expects the Ford Edge and the Mercury MKX crossovers, due this fall, to be hits. And it announced plans Friday for a full-size crossover that would go on sale in 2008.
Ford also said it would introduce a revamped version of its F-150 pickup in 2008 -- long the best-selling vehicle in the U.S. -- and next year would roll out updates of its Ford Five Hundred sedan, Freestyle crossover and Focus compact. It also plans yearly updates of its popular Mustang and will continue to sell the Lincoln Town Car.
The company gave little guidance, however, about promised new compact cars to compete with the likes of Toyota Motor Corp.'s Yaris and Honda Motor Co.'s Fit.
“It would’ve been nice to have had small cars on the market during the past nine months or so,” said Ken Elias, a partner at automotive research firm Maryann Keller & Associates.
Despite the addition of a stamping plant in Ohio and a Canadian engine plant to the closure list, some analysts are concerned that Ford isn’t cutting its car-making capacity fast enough to match its shrinking market share.
The company expects to reduce annual production capacity by 26% to 3.6 million vehicles by the end of 2008 and aims to stabilize its U.S. market share at 14% to 15%. A market share of 14% would indicate the need for annual production capacity of only 2.5 million vehicles, said Hutson of Gimme Credit.
“There’s still a big gap between capacity and what the demand will be in North America,” he said.
Ford’s decision to offer buyouts to all of its union workers mirrors a similar move this year by General Motors Corp. GM, Ford and the No. 3 U.S.-based automaker, the Chrysler unit of DaimlerChrysler, are all trying to lighten the burden of providing union-scale wages and benefits to workers and retirees.
In another indication of the industry’s struggles, DaimlerChrysler said Friday that its Chrysler Group would lose twice as much money in the third quarter as previously estimated and said the unit would cut production in the third and fourth quarters to reduce dealer inventories.
Ford has cut its dividend several times since the late 1990s but hadn’t suspended the quarterly payment to shareholders -- currently 5 cents a share -- since 1982.
Ford’s stock closed Friday at $8.02, down $1.07.