PAINFUL

Ford slashes 28% of its work force in sweeping bid to save itself

Bill Vlasic and Bryce G. Hoffman / The Detroit News

DEARBORN -- Ford Motor Co. is staking its future on the success of a gut-wrenching restructuring of its North American operations that will dramatically downsize the No. 2 U.S. automaker.

Mired in one of the deepest crises in its 102-year history, Ford on Monday unveiled its long-awaited "way forward" plan to slash up to 30,000 manufacturing jobs, cut 4,000 salaried employees and shutter 14 factories -- including its assembly plant in Wixom.

"These cuts are a painful last resort, and I'm deeply mindful of their impact," Chairman and CEO Bill Ford said. "They're going to affect many lives, many families, and many communities."

The restructuring plan is Ford's most determined effort yet to stem deep losses in North America and beat back surging foreign automakers. Even so, some investors and analysts said Ford left key questions unanswered Monday and they remain skeptical that the automaker is moving quickly and aggressively enough.

Ford's announcement was another staggering blow to the traditional American auto industry, coming on the heels of the bankruptcy of auto-parts giant Delphi Corp. and moves by General Motors Corp. to cut 30,000 of its own hourly workers and close 10 plants.

Since 1979, Detroit's automakers have cut more than 600,000 jobs -- including about 80,000 since 2001 -- in a desperate bid to overcome huge legacy costs and troubled brands.

The central aspects of Ford's "way forward" plan were first reported Dec. 7 by The Detroit News.

Bill Ford said the plan represents nothing less than a cultural revolution and a declaration of war -- against not only Ford's competitors, but also its own change-resistant bureaucracy.

"Today, we declare the resurgence of Ford Motor Co.," Bill Ford said. "Here is what we will not stand for: incremental change, avoiding risk, thinking short-term, blocking innovation, tying our people's hands, defending procedures that don't make sense, and selling what we have instead of what the customer wants. In short, we will not stand for business as usual."

It was a message that scores of Ford employees invited to hear the announcement at a Ford design center in Dearborn greeted with enthusiastic applause. Ford's announcement, part of a historic retrenchment of the U.S. auto industry in the past year, drew throngs of local, national and international members of the media.

With its U.S. market share in a 10-year freefall, dropping to a low of 17.4 percent last year, Ford said Monday that its North American auto operations posted a pre-tax loss of $1.6 billion last year.

Ford committed to returning the business to profitability no later than 2008. "That's not a prediction. That's a promise," said Mark Fields, president of Ford's America's division, who oversaw the restructuring plan, which was hammered out by 50 people during 60 hectic days.

Ford also said it expects to cut $6 billion from its annual cost structure by 2010.

Production to be cut 26%

But fixing its core auto operations will come at a heavy price. According to the plan, Ford will reduce its North American production capacity by 1.2 million vehicles -- or 26 percent -- over the next six years. Ford currently has the factory capacity to build 4.8 million vehicles a year in North America using 43 parts, stamping and assembly plants, but it only sold 3.3 million last year.

The job cuts will be equally severe. The 25,000 to 30,000 factory cuts combined with the planned 4,000 white-collar cuts amount to up to 28 percent of Ford's 122,000-person North American work force. Ford has approximately 87,000 hourly workers and 35,000 salaried workers. And, given Ford's losses in North America last year, neither blue-collar nor white-collar workers can expect meaningful bonuses. Ford said half the jobs the automaker is cutting will be through attrition, while the rest will be through layoffs. He said the company plans to help workers using buyouts and possible placement in other plants.

Ford Chief Financial Officer Don Leclair said employee buyouts and other elements of the restructuring plan could cost the automaker around $500 million this year.

Ford also committed to reducing its 53 corporate officers by 12 percent by the end of the first quarter. Ford did not say which executives would be leaving, but one of them is expected to be Steve Lyons, group vice president over sales and marketing in North America.

"We will be making painful sacrifices to protect Ford's heritage and secure our future," Bill Ford said.

Industry analysts said the moves represent a realistic assessment of Ford's steadily declining share of the U.S. auto market.

"You have to praise their sense of realism, that they'll never get to a 25 percent share again," said David Healy of Burnham Securities. "They have got to do this to survive."

Some on Wall Street, though, questioned whether Ford has gone far enough given that Ford shareholders have suffered through an alarming drop in stock value in recent years. Shares of Ford gained 42 cents, or 5.3 percent, to close at $8.32 on the New York Stock Exchange Monday.

"We think (Ford) plans to be more aggressive with design and technology in its vehicles, to be faster in the refreshing of its vehicle lineup and to make added cost cuts that will help improve financial performance over the rest of the decade," said Efraim Levy, an analyst with Standard & Poor's Equity Research. "However, we do not believe the restructuring will meet all of Ford's objectives and we think that not all benefits will accrue to the bottom line."

Automaker looks long term

Ford said it would no longer provide earnings guidance beginning in 2006 -- a signal that it will focus on its long-term viability rather than quarter-by-quarter results.

"We can't succeed in the long run if we're focused only on the short term," Bill Ford said.

The massive restructuring comes four years after Bill Ford announced a similar plan to revitalize the company, which included some 20,000 job cuts and several plant closures. He noted the earlier plan was successful in returning the automaker to profit worldwide, but neither the goal of making $7 billion a year in pre-tax profits by mid-decade or stabilizing U.S. market share was achieved.

The new round of job cuts and plant closings pose a direct challenge to the leadership of United Auto Workers union, which is already bracing for a fight on similar issues with GM and Delphi.

UAW President Ron Gettelfinger blasted Ford's plan as "extremely disappointing" and "devastating news for the many thousands of hard-working men and women who have devoted their working lives to Ford."

Moreover, Gettelfinger said a showdown over the wholesale elimination of jobs and factories is coming at the Big Three-UAW national contract talks in 2007.

"Certainly, today's announcement will only make the 2007 negotiations all the more difficult and all the more important," Gettelfinger said.

But Ford can ill afford to continue operating at less than 80 percent of its manufacturing capacity, Fields said.

"The hard but simple reality is that Ford has the costs, capacity and staffing of a company that is much larger than our sales and market share can support -- even under the best of conditions," Fields said.

A total of 14 Ford manufacturing facilities, including seven vehicle assembly plants, will cease production by 2012. The first wave includes the idling of five assembly plants and two large component factories by 2008. Included among the shutdowns are assembly plants in Wixom; Atlanta, Ga.; and St. Louis, Mo.; a transmission plant in Batavia, Ohio; and a casting plant in Windsor, Ontario. In addition, Ford's assembly plant in St. Thomas, Ontario, will be reduced to a single shift.

Two more assembly plants will be added to the list later this year. In addition to the facilities named Monday, analysts also have predicted the assembly plant in St. Paul, Minn., that makes the slow-selling Ford Ranger pickup. Ford said it was not ready to name the other plants that will close.

Low-cost plant is in works

The automaker also said it plans to build a new low-cost manufacturing site in North America, but did not provide additional details.

The cuts will have devastating consequences in company towns such as Wixom, where 1,567 workers face an uncertain future when Ford's 49-year-old assembly plant shuts down next year.

Wixom worker Venessa Seldon, 35, got an urgent phone call from her teenage daughter Monday following Ford's announcement.

"She called from school and said, 'Mom, are we broke?' I told her that we'll be OK," said Seldon, who works on car radiators at the Wixom plant where the Lincoln LS, Lincoln Town Car and Ford GT are built.

Seldon, who has three daughters, was among a handful of employees who trickled into Leon's Food and Spirits restaurant across the road from the 4.7 million-square-foot plant where Ford nameplates have been produced since 1957. Up until the last minute, she thought factory workers had a chance.

Michigan Gov. Jennifer Granholm said the Wixom plant closing is another example of how the lack of a U.S. industrial policy on health care costs and balance-of-trade issues is crippling American automakers.

"This is a story we have heard over and over again in Michigan," Granholm said. "We're going to do everything we can to help these people, but I hope this gets Washington to take notice that we have a problem."

Ford's problems in the market have been well-documented. Sales of its large sport utility vehicles have tanked due to rising gas prices, and its passenger cars had until recently fared poorly against offerings from Japanese and European companies.

Still, Ford remains profitable, unlike GM.

The company said Monday that it earned $2 billion worldwide in 2005 on revenues of $178.1 billion, but continued to bleed red ink in its North American business.

The "way forward" plan highlighted Ford's future product strategy. The critical component, Fields said, will be strengthening the company's Ford, Mercury and Lincoln brands.

Carmaker keeps all 3 brands

Killing one of the brands was considered, but ultimately rejected, Fields said.

"Ford is a stronger company with all three brands but if -- and only if -- each appeals to a different set of customers," Fields said.

He said all three brands had been burdened by conservative designs and slow product-development cycles. By utilizing Ford's global vehicle platforms, Fields said the average age of a Ford product in 2008 will be 3.2 years, compared to 4.4 years currently.

Ford will also accelerate its development of small cars, crossovers and hybrids. Fields said that hybrid versions of the Ford Five Hundred and Mercury Montego sedans, and the Ford Edge and Lincoln MKX crossovers will debut between 2008 and 2010. Ford also revealed that the upcoming Lincoln MKS sedan will be built on the same platform as the Five Hundred and Montego.

Still, the cost-cutting portion of the "way forward" will largely determine whether Ford will be healthy enough financially to pursue its product blitz.

Prior to the plan's release, some industry analysts wondered whether Ford downsizing would go far enough. Reaction from Wall Street was mixed after Monday's announcement.

"We expect management to bring capacity in line with demand by one million units, but question whether this will be enough, given continued declines in market share," Jon Rogers, an analyst at Citigroup, wrote in a research note.

Bill Ford conceded that cuts alone won't turn around the company his great-grandfather founded more than a century ago. "You can't cut your way to success," he said.

"Our 'way forward' is not a retrenchment. It's about taking back our future," Fields declared, echoing his boss. "We are ready to reclaim our place as America's car company."

You can reach Bill Vlasic at (313) 222-2151 or bvlasic@detnews.com.