Under increasing pressure from stockholders as sales and profits decline, Ford is reportedly looking at cost cuts that could include the elimination of as much as 10 percent of its global workforce.
With a current workforce of around 200,000 employees worldwide, that means Ford could trim as many as 20,000 jobs, a large share of those apparently in the U.S. and Asia, though the final figure could be smaller. Other measures are designed to rein in spending and reverse the sharp, 35 percent drop in earnings Ford suffered during the first quarter of this year — triggering widespread criticism of the carmaker’s management by analysts and investors.
In a statement, Ford declined to directly address the reported job cuts, but noted, “We remain focused on the three strategic priorities that will create value and drive profitable growth, which include fortifying the profit pillars in our core business, transforming traditionally underperforming areas of our core business and investing aggressively, but prudently, in emerging opportunities.”
While the statement said Ford would not comment on speculation, it did add that “Reducing costs and becoming as lean and efficient as possible also remain part of that work.”
On April 27, as it announced its weak Q1 earnings, Ford revealed plans to implement $3 billion in cost cuts though, at the time, it offered no details.
A flurry of headwinds put the drag on Ford earnings during the first quarter of 2017, the numbers dropping 35 percent to $1.6 billion. Among the challenges Ford faced: declining sales, increased recall costs, as well as rising prices for steel and other raw materials. It also made some hefty investments in retooling plants like one outside Detroit that has ended production of small passenger cars in order to focus on more profitable light trucks.
Questions About Mobility
While management has said many of those factors were out of its control, or critical to respond to market trends, Wall Street has taken an increasingly skeptical view of the strategy put in place by CEO Mark Fields, who has tried to reposition Ford as a “mobility company,” rather than just an automotive manufacturer. Fields has increased spending on such things as connected car and autonomous vehicle technologies, Ford promising to introduce a fully driverless vehicle by 2021.
Ironically, while such moves have played well for some competitors — including traditional automakers like Daimler and Toyota, as well as new entrants like Tesla — it hasn’t resonated with Ford investors, shares of the second-largest U.S. automaker falling by roughly 40 percent since Fields officially became CEO on July 1, 2014. The stock closed that day at $17.41 a share. On Tuesday morning, as the market digested reports of new cost cutting, Ford shares were on the rise, climbing slightly above $11, though still near its 52-week low.
“Profitability is under pressure, so cuts are necessary, pure and simple,” said analyst Joe Phillippi, of AutoTrends Consulting.
Related: Weak Auto Sales Lead to Ford Layoffs
Like others approached about the reported Ford plan, Phillippi said he is waiting to see just where the cleaver will fall and what will be impacted.
Out of Touch?
Few would be surprised by a retrenchment in the U.S. market. After the longest recovery in U.S. automotive history, and three years of record volume, sales are expected to slip this year. The decline was initially expected to be modest — IHS Automotive, for example, predicting sales would come in at 17.4 million for all of 2017, down just 100,000 vehicles from last year. But the decline in demand has been far more severe than anticipated during the first four months of 2017, Ford particularly hard hit.
One problem for Ford, critics contend, is that it hasn’t adapted quickly enough to shifting market trends, notably the rise in demand for SUVs, crossovers and pickups, light trucks collectively accounting for almost two-thirds of the American market so far this year. Last month, Ford’s President of the Americas Joe Hinrichs said utility vehicles could see another 10 point rise in market share over the next five years.
Ford is racing to expand both its truck line-up and production capacity. But that has also generated heat. Then-candidate Donald Trump sharply criticized the automaker during last year’s presidential campaign for plans to move small car production out of the Michigan Assembly Plant to a new plant in Mexico. Ford in January announced it was scrubbing the second plant due to low volume forecasts — but also said it would still move production of models like the Focus sedan to an existing Mexican plant. The suburban Detroit factory will now produce two revived models: the Bronco SUV and Ranger pickup.
For his part, analyst Philippi said he would not be surprised to see Ford trim resources — including engineering jobs — from small car programs. It might also take steps to cut costs on parts and component production.
Since Trump has entered the White House, Ford officials have tried to improve relations with the new president. But the planned cost-cutting program could counter the president’s goal of bringing more manufacturing jobs back to the U.S.