FORD
Carlos Osorio  /  AP
“These cuts are a painful last resort, and I’m deeply mindful of their impact,” Ford’s Chairman and Chief Executive Bill Ford said in announcing the cuts Monday.
By Roland Jones Business news editor
msnbc.com
updated 1/25/2006 4:24:36 PM ET 2006-01-25T21:24:36

At this year’s North American International Auto Show in Detroit, Ford CEO Bill Ford, facing a loss of North American market share to Asian rivals, said that automaker has “a lot to do, and some of it will be painful.”

Although few knew it at the time, Ford’s prediction was on the money. The nation’s second-largest automaker said Monday it would cut 25,000 to 30,000 jobs and idle 14 facilities by 2012 as part of a restructuring designed to reverse a $1.6 billion loss last year in its North American operations and bring it back to profitability by 2008.

The details of the firm’s restructuring plan, dubbed the “Way Forward” by company officials and Ford’s second in four years, have been the subject of much speculation in the media for some time. When Ford finally unveiled the plan Monday, it was broader than many had predicted. Still, analysts say it remains to be seen whether the huge job cuts and plant closures will be enough to get the company back in gear.

“Unfortunately, I didn’t hear any more than I thought I would hear from Ford today,” Brett Hoselton, an automotive analyst with KeyBanc Capital Markets, told CNBC Monday. “Plant closures, job layoffs … that’s just more of the same from Ford.”

Hoselton said he would have liked to hear Ford’s executives discuss their product development program — a part of the business where drastic changes are required.

“What you’re finding in the automotive business is the products you design today affect your profitability three to four years down the road,” Hoselton said. “What we are seeing today is some pretty good changes at General Motors, but nothing like that at Ford, and I think Ford is really going to be in dire straits in five to 10 years from now.”

Like its U.S. rival GM, Ford has struggled in recent years with a loss in U.S. market share to Asian rivals, a decline in sales of its large SUVs because of higher gasoline prices and a crippling healthcare bill and pension costs for its U.S. workforce and retirees.

Ford’s latest restructuring comes two months after GM’s own move to temporarily remove the cloud of bankruptcy hovering over the world’s largest automaker. In November, GM said it plans to cut about 9 percent of its global work force, and close nine North American assembly plants and three service and parts facilities to slash $7 billion of expenses in 2006.

Ford and GM face similar problems, and the solutions to those problems are likely to be similar too, notes Rebecca Lindland, an automotive analyst at consultancy Global Insight. “They both need to get union concessions, manage costs and start producing really great products,” she said.

Lindland was encouraged by Ford’s pledge Monday to focus on the consumer. “They have a good base to start from,” she said. “Consumers like the Mustang and the F-150 truck and they are selling as many as they can build, especially on the Mustang side. So they have the capabilities there, it’s getting that to pervade the whole rest of the company that will be the real challenge.”

However, Lindland said in some areas Ford’s plan was “disappointingly vague,” particularly when it comes to the plants it plans to close. Ford said it will idle 14 plants by 2008, but only announced the names of a handful involved.

“That is something you think they’d have a definite idea about,” she said. “It suggests to me they still have a learning curve in terms of discovering what America wants from cars and trucks, and you wonder how long it will take them to understand the products consumers want and respond to that.”

On Monday, Ford’s President of North American operations Mark Fields said the company plans to shake up its product line-up, which has been criticized for being too bland. The company will focus on building vehicles with new hybrid gasoline-electric engines and other environmental innovations, bringing out 250,000 hybrids by the end of the decade. Ford will also focus on smaller cars and bring out bolder designs he said.

With its new Edge and 2007 Lincoln MKX, Ford is also pinning its hopes on a hot new segment of the automotive market — car-based “crossover” vehicles, or CUVs, which unlike traditional truck-based SUVs designed for off-roading, or hauling large trailers, are built off the same basic underpinnings as cars and tend to be more fuel efficient. But the market segment is a highly competitive one, including BMW’s X5, the Acura MDX and Lexus RX, said Lindland.

The Lincoln MKX crossover succeeds the Lincoln Aviator SUV in Lincoln’s line-up. People know about the Aviator, but they don’t know about the new conservatively-designed crossover, said Lindland.

“Ford doesn’t have a lot of new products for 2006 and one of our concerns with the new products is they are new name plates that will require a lot of education and for consumer,” Lindland said. “If a car is not expressively designed, it takes a while for a consumer to understand it.”

Ford's Fields has also said the automaker plans to focus on cars with a distinctly ‘American’ style. Earlier this month at North American International Auto Show in Detroit, Ford joined other U.S. automakers showing off retro-styled American cars by unveiling a Shelby version of its Mustang called the Shelby GT500, named after American racing and automotive design legend Carroll Shelby.

Nostalgia may not be such a bad strategy for Ford, said Lindland.

“People want a Ford to look like a Ford and not like a bad copy of a Camry, and that’s why the Chrysler 300 and Ford Mustang have done so well — they are very distinct American designs,” she said.

“The domestic automobile manufacturers have been chasing the tails of the Asian carmaker, and that’s not really the right thing to do,” Lindland added. “The baby boomers really have abandoned GM and Ford, and now they are turning 60 and can buy more toys, so the reissue of these beautiful American muscle cars is not a bad thing.”

Ford’s financial future relies on its negotiations with organized labor, as the United Auto Workers union will have to agree to some portions of the restructuring plan revealed Monday. The so-called “Big Three” U.S. automakers — Ford, GM and Chrysler — are readying for tough union negotiations in 2007 when their contract with the UAW is set to expire.

But those union negotiations now look challenging. On Monday, UAW union President Ron Gettelfinger and Vice President Gerald Bantom issued a statement on the Ford restructuring plan, calling it “extremely disappointing” and “devastating” news and adding it will make next year’s contract talks more difficult.

“For Ford, the way to get back to profitability is to bring out great products, and the unions’ role is to help the company to lower costs,” Lindland said. “If they don’t, the threat of bankruptcy looms and no one is kidding themselves about that. They have to work together for long-term success, and nobody wins if Ford goes bankrupt. So it’s imperative that unions come up with very generous concessions.”

Ford’s North American market — the most profitable part of the world market — is where it is struggling the most. Ford posted a higher-than-expected 19 percent increase in earnings Monday for the fourth quarter of 2005, boosted by strength in its finance arm and the sale of its Hertz rental car unit. But the automaker’s core automotive division lost $1.6 billion in North America where its market share fell even as it made money in the rest of the world.

“The industry is in what we could describe as a perfect storm,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.

“We have had healthcare costs increases at about three times the rate of inflation, we’ve had tremendous increases in material costs and of course the impact of high fuel prices, which has hurt the most profitable parts of the business, and there has been no ability to pass the cost increases on to customers. So you have to restructure fast,” Cole told CNBC.

Another problem for Ford is its production plants are not being used to capacity, and there are not enough sales to increase production. Ford used just 79 percent of its North American plant capacity in 2005, down from 86 percent in 2004, according to preliminary numbers released last week by Harbour Consulting, a firm that measures plant productivity. By contrast, Nissan and Honda had 97 percent capacity utilization while Toyota was operating at full capacity.

Ford hopes Monday’s idling of plants will cut 26 percent of its production capacity by the end of 2008. Ford also said it would cut material costs by $6 billion, vowing to streamline parts purchasing, even as it rolls out more fuel-efficient hybrid vehicles and small cars to respond to consumer concern over high gas prices.

“We must reduce capacity in North America,” CEO Ford said Monday. “From now on our products will be designed and built to satisfy customers, not just fill a factory.”

Ford is also struggling with shrinking market share. Four years ago, before the company’s last restructuring, Ford said it sold 3.96 million vehicles sold for all of 2001 and had 23.1 percent market share in North America according to automotive market research company Autodata. Since then, sales have dropped to 3.15 million for the whole of 2005 and its market share is now 18.6 percent. Over the past 10 years Ford has seen its share of the U.S. market drop to its lowest level since the 1920s.

But Ford is unlikely to see its market share rebound to the levels it enjoyed in the past notes John Novak, an automotive analyst at Morningstar.

“They’ll never get back to 20 percent market share they once had,” Novak told CNBC. “The ‘Big Three’ idea is dead; it’s the ‘Big Six’ now — Ford, GM, DaimlerChrysler, Toyota, Nissan and Honda.”

The Associated Press and Reuters contributed to this article.

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