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Workers leave the Wixom Ford factory in 2003. The plant is one of a few Ford sites with limited prospects for new work, making it a candidate for closure in the automaker's latest cost-cutting plans. An executive reportedly told employees last month the company has four more North American plants than it needs.Ford fights to save future
With troubles mounting, Bill Ford Jr. has launched his second major turnaround plan in four years. The stakes are higher than ever.
For the second time in his tumultuous four-year tenure as Ford Motor Co.'s chief executive, Bill Ford Jr. has ordered a major downsizing of the dynasty started by his great-grandfather Henry Ford 102 years ago.
Brutal competition, staggering health care and pension obligations and an unrelenting market share slide have left the affable 48-year-old with little choice but to impose harsh cost-cutting measures across Ford's North American operations.
In recent weeks, the automaker has announced plans to cut more full-time salaried workers and scale back benefits. More is coming by the end of the year. "Nothing is off the table," Chief Financial Officer Don Leclair told analysts last month after detailing dismal second-quarter earnings.
Twice since June, Bill Ford has called about 20 top executives to offsite meetings to rethink the automaker's future, a high-ranking company source told The Detroit News. Leading the frank talks, Bill Ford asked executives to imagine themselves as outside investors and assess the company. Where are the opportunities for growth? Which businesses are losers that should be shuttered?
In other meetings across the company in recent weeks, top managers have been preparing employees for painful measures. Job reduction in some departments could reach 30 percent, but it is unlikely Ford will downsize that extensively across the board.
But the goal is to cut deep enough to ensure Ford's long-term survival and head off the need for more restructuring in years to come.
Company sources say Ford's plan is to negotiate the closure of several North American assembly plants to bring manufacturing capacity in line with lower sales.
Bill Ford has been through this before. In January 2002, he announced plans to cut 21,000 jobs, shutter some assembly and parts plants, and eliminate unprofitable car and truck models to stem losses totaling $6 billion in 2001 and 2002.
Leaner and more focused, Ford became profitable again and earned a combined $4 billion in 2003 and 2004.
But despite improvement in volatile markets such as South America, and signs of recovery by the Premier Automotive Group -- its collection of European luxury brands -- Ford's core North American auto business has suddenly veered off course this year.
Hit from all sides
Ford has been lashed by the same headwinds facing rival General Motors Corp. and the rest of the U.S. auto industry.
Competition is greater than ever from foreign automakers. Rising gasoline prices have curtailed demand for profitable SUVs. Steel prices have skyrocketed. And health care costs keep rising with no end in sight.
The bottom line: Ford's North American auto operations posted a $907 million pre-tax loss in the second quarter, a swing of $1.4 billion from a year ago.
Bill Ford has abandoned his goal of generating $7 billion in annual pre-tax income by 2006. Its credit rating is at junk-bond levels.
More worrisome, in a robust sales climate Ford's U.S. market share has fallen below 18 percent -- down from 26.4 percent a decade ago -- despite near-record incentives. And with investors hammering its stock -- its shares have lost 83 percent of their value since 1999 -- the company has stopped estimating how it will fare financially from quarter to quarter.
"Bill has probably signed on to a situation that has proven to be much more difficult than anybody could have imagined," said veteran auto industry analyst Maryann Keller. "This is a company with a cost structure that reflects a market condition and market share that doesn't exist anymore. (The cuts) have to be big."
With his family's legacy and his professional reputation hanging in the balance, Bill Ford has a small window of opportunity to pull off a difficult repair job.
Protector of legacy
At most other public companies, a CEO in his position would be fretting over job security. But the extended Ford family controls the automaker through a special class of stock and has never flagged in its support of Bill Ford.
He frequently speaks of the tremendous sense of responsibility, even burden, he feels to preserve Ford for future generations.
"To me, this isn't a job," Bill Ford said in a speech last year. "It is my heritage and my children's future."
But protecting that future means taking a cold-eyed approach to downsizing Ford -- again.
The automaker is undertaking an intense review of operations staffed by salaried workers -- particularly in areas such as public relations, human resources, information technology and legal services. Top managers have been asked to identify operations or functions that aren't critical to the company, according to Ford sources familiar with the plans.
Ford managers expect significant cuts in Ford's sales and marketing operations. One idea on the table is to merge the back-office and regional operations of the Ford and Lincoln Mercury divisions.
Since spring, Ford has cut 1,100 white-collar positions -- mostly through buyouts and early retirements -- in addition to 10 percent of its contract employees. And the automaker has pledged to cut an additional 1,750 salaried personnel -- 5 percent of the 35,000 white-collar workers employed by its North American automotive operations -- by Oct. 1.
The first involuntary layoffs hit Ford's public relations staff last month after the company received a tepid response to buyout offers.
The moves, combined with June's suspension of matching 401(k) contributions and a global freeze on management bonuses, set the stage for more significant changes at the giant automaker.
"You've got a picture of a company that seems to understand that it's got a big problem," Keller said. "And if you deal with the cost issues related to white collar, it's certainly easier to go to your blue-collar workers and say, 'We've done all these things. We need relief.'"
Help sought from unions
Ford is seeking relief in discussions with the United Auto Workers union, which represents 88,000 hourly employees in 27 U.S. plants.
Like GM, Ford wants the union to make concessions to health care benefits for employees and retirees -- an obligation expected to cost the company nearly $3.4 billion this year, up 9 percent from 2004.
Plant closings may be announced later this year but likely won't be executed until Ford and the UAW negotiate a new labor contract in 2007. Ford is also pushing for concessions during negotiations on a new labor contract with the Canadian Auto Workers union, which represents nearly 12,000 hourly workers in seven plants.
Roman Krygier, Ford's group vice president of quality and manufacturing, held a meeting last month with middle managers and told attendees that the company has four more assembly plants in North America than it needs, said employees who attended.
Several plants have emerged as likely candidates for closure. Ford's factory outside St. Louis was scheduled to close under the initial restructuring, but union leaders saved it. Yet it is still operating on a single production shift -- a handicap in today's market.
Three other plants are building models with outdated designs, and their prospects for attracting future production are uncertain. They include:
• An assembly plant in Wixom that builds the Lincoln Town Car and LS, and the Ford GT; 1,830 employees.
• A Twin Cities, Minn., site where Ford builds the Ranger pickup; 1,965 employees.
• A factory in St. Thomas, Ontario, where the Ford Crown Victoria and Mercury Grand Marquis are assembled; 2,578 employees.
While Ford deliberates the future of its North American plants, it is accelerating the sale of non-core assets to raise cash and focus on designing, building and selling cars and trucks. In June, the automaker launched a plan to spin off part of its interest in Hertz, its wholly owned car rental company.
But downsizing and selling assets to raise cash alone won't get Ford out of its current bind, analysts say.
"Cutting capacity and reducing white-collar head counts, reducing costs -- all that stuff is motherhood and apple pie," said Merrill Lynch analyst John Casesa. "You have to do that to survive. But it's not enough to thrive.
"As investors, we'd like to know more about what happens after that. How does it distinguish itself? What formula will it use to earn higher returns?"
That question has dominated the recent offsite meetings called by Bill Ford. The first one occurred in June at Ford Field in Detroit. The second was last month at the Ford Conference & Events Center in Dearborn. Bill Ford's outside-in approach to plotting the company's future is similar to a successful tactic used by Comerica Inc. Chairman Eugene Miller in 1994 after the bank merged with Manufacturers National Corp.
Boost in product investment
Ford's survival in its second century will likely come down to the cars and trucks it produces.
And Bill Ford vows cost cuts will not come at the expense of product development.
"I will not cut the essential investments in products, technologies and expanding markets that are the building blocks of our future success," he said after Ford issued first-quarter results. "That would be mortgaging our future, and that is not something that we are going to do."
Ford is adding to its 790-member design staff and searching for more engineers to bolster development of eco-friendly technologies such as gasoline-electric powertrains and hydrogen fuel cells.
Greg Smith, president of Ford's Americas operations, told analysts last week that the automaker's strategy will become readily apparent in the weeks ahead as it introduces three new midsize cars -- the Ford Fusion, Mercury Milan and Lincoln Zephyr.
"This is a product business," Smith said.
The cars represent Ford's most aggressive foray into the midsize car segment since the Taurus made its debut in 1985. And they are the first products of a new process that seeks to integrate design, engineering and manufacturing in a way that brings inherent quality improvement, while reducing costs and shortening development time.
But analysts fear Ford is not keeping pace with the aggressive models planned by rivals. And if gasoline prices stay high, Ford will remain vulnerable to the downturn in industry SUV sales, which generates a disproportionate amount of the automaker's profits.
A recent Merrill Lynch report says Ford has replaced 15 percent of its vehicles a year, second-lowest in the industry to GM's 14 percent. Korean automakers have replaced 26 percent of their sales volume during the period.
"Ford's product flow has been thin," Casesa wrote in the report, adding that "we expect the company to lose more market share through 2009."
The latest offerings have been hit-and-miss. The new Mustang is among the hottest cars on the U.S. market, but the Freestyle -- Ford's first true crossover vehicle -- reportedly will be phased out in 2007.
Launched last year as a 2005 model, the Freestyle will be reconfigured for reintroduction later. And Ford has been forced to match GM in offering discounts to move new models such as the Five Hundred and Mercury Montego sedans.
"Not everything a car company does is going to be a success," said Jim Hossack, an analyst with California-based research firm AutoPacific Inc.
End of waiting games
Elena Ford, Bill Ford's cousin and Ford's director of North America product marketing, planning and strategy, said Ford is moving to push product plans and cut development costs. Seven new products are scheduled to reach showrooms before 2006. Next year will see at least five major introductions.
"We're not in the mode of waiting the way we used to," Elena Ford said. "We used to, yes. Did we make a mistake by waiting too long? Yes. There is no way we are waiting long periods of time any longer."
Jeff Washington, president of UAW Local 900, which represents workers at two Ford plants in Wayne, said Ford must further trim its upper management ranks if it expects the UAW to sacrifice.
"What does bother me is when you look at these top executives," Washington said. "If I'm out of a job, that isn't fair."
Before Bill Ford became CEO, Ford had two levels of vice presidents. Today there are four layers of upper management.
At 49, there are four fewer corporate officers than there were when Bill Ford became CEO in November 2001.
But Bill Ford must step up to the plate in a climate that is decidedly more hostile than when he ousted embattled CEO Jacques Nasser.
Rising gasoline prices, interest rates and employee benefits are undermining Ford's prospects.
And the competition is intensifying, as Japanese, Korean, European and now China-based automakers prepare for an assault on the North American market.
Bill Ford has no choice but to remake the company that bears his family name.
"Churchill said it best," said Jim Sanfilippo, an analyst with consultants AMCI Corp. "'For God's sake, do something brave.'"
You can reach Eric Mayne at (313) 222-2443 or emayne@detnews.com.
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The Detroit News.
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