Ford to Critics: Our Plan Will Work

[ehaase]

http://www.freep.com/apps/pbcs.dll/article.../609170675/1014

 

Ford to critics: Our plan will work

Jobs, plants, demand set to align

BY SARAH A. WEBSTER

FREE PRESS BUSINESS WRITER

 

September 17, 2006

 

Summarizing the story

On Friday, Ford Motor Co. introduced its new Way Forward plan, which among other steps calls for:

• Reducing operating costs by $5 billion.

• Cutting 30,000 hourly jobs and 14,000 salaried jobs.

• Upgrading 70% (by volume) of Ford, Lincoln and Mercury products by the end of 2008.

• Restoring profit in North American operations by 2009.

 

Many industry analysts criticized the plan for failing to quickly reduce the automaker's plant capacity to match demand for its vehicles. On Saturday, top Ford executives said the plan:

 

• Reduces the workforce to the right size for demand first, by the end of 2008.

• Will bring production capacity down to match demand by 2010.

 

Don Leclair, chief financial officer:

"We could go ahead and close all those plants right now. ... But that would cost more. That would cost more to do that than to keep an old plant open and running on one shift. ... That's the way to go. It would be dumb for us right now to go from 84% to 100%. ... We're not going to do that."

 

"In time, we will get all of the installed capacity out."

 

"No one will be satisfied -- I won't be satisfied, Mark won't be satisfied -- until we're earning an acceptable return on our investments. ... It'll be awhile, but we do know what to do."

 

Two top executives of Ford Motor Co. offered an impassioned defense Saturday of the company's latest turnaround plan, saying it was the smart way to bring capacity into line with vehicle demand.

 

They said the company's excess factories would be trimmed by 2010, but workforce reductions must come first.

 

Stung by Wall Street's reaction to the retooled Way Forward plan announced Friday, the leaders met Saturday with the Free Press to explain why their plan cuts enough jobs and closes enough plants quickly enough.

 

"We do know what to do and we're doing it," Chief Financial Officer Don Leclair said in an interview in his top-floor office at the company's World Headquarters in Dearborn.

 

Mark Fields, Ford's president of the Americas and the executive vice president leading the turnaround plan, joined the discussion by telephone.

 

Industry analysts criticized the plan Friday, saying in part that Ford did not adequately explain its plan to trim excess plant capacity. Ford's stock price tumbled by 12% during the day.

 

Leclair said the plan calls for cutting the workforce to the right size first -- by the end of 2008 -- and said production capacity would match demand by 2010.

 

Closing more plants now "would be dumb," Leclair said. "It would cost us more."

 

Leclair and Fields acknowledged that perhaps they didn't explain their new plan as well as they could have Friday, but they insisted it was the right approach.

 

"We probably should have clarified a bit more," Fields said.

 

In the highly anticipated announcement Friday morning, Fields and Leclair said the company would cut 30,000 hourly workers and the equivalent of 14,000 salaried jobs and close 16 plants. It will offer a menu of buyout options to all 75,000 UAW hourly workers.

 

Among the surprises Friday, Ford said it did not expect to make a profit on North American operations until 2009.

 

By the time the job cuts are complete, the automaker said it would close only five assembly plants and four parts plants. That would leave Ford with enough factories to build 3.6 million cars or trucks a year by 2008. Those numbers exceed the company's own estimate of demand for its vehicles in North America.

 

Ford estimates it will sell 3 million vehicles a year in North America as its market share slides to 15%. New Chief Executive Officer Alan Mulally, who helped make Friday's presentation, said: "The most important thing we do is to size our company and our capacity to the current demand."

 

When an automaker doesn't use all of its factories and employees to their full capacity, it's almost like giving workers full-time pay to do part-time work. In 2005, Ford used just 79% of its capacity, the latest report from Harbour & Associates of Troy showed. That cost Ford a lot of money.

 

Praise from one analyst

 

Many industry watchers said they wanted to see a plan that squarely matches jobs and plants with demand for Ford vehicles.

 

But David Cole, director of the Ann Arbor-based Center for Automotive Research, said Saturday that Wall Street analysts were being unreasonable in their criticism of Ford's plan.

 

"The key to making money in this business is running plants all the time," he said. "Capacity utilization is the name of the game."

 

Closing plants, or scuttling brands like Mercury, which shares several model platforms with Ford, might be a future option, "but not now," Cole added.

 

Cole said Ford must cut health care costs and cut its workforce with buyouts. He said Ford's retooling of its local labor agreements gives the company more flexibility and makes a "huge impact on the cost structure."

 

"All in all, this was very successful," Cole said.

 

Under the retooled Way Forward, Leclair said Ford would have exactly enough hourly workers to build 3 million vehicles in the United States, Canada and Mexico by 2008.

 

"So, we will have no excess capacity," Leclair said. "Is it perfect? No."

 

It is still true that Ford would be left with enough plants to build 3.6 million vehicles by 2008. Leclair calculated that as 84% system-wide capacity utilization.

 

But he said it would be more expensive to close those extra plants now. That's because the vehicles they build provide the company with essential revenue, and it would be too expensive to move the products to other plants.

 

Leclair said it is smarter to run existing plants on lighter shifts and keep producing essential vehicles. He also noted that the plants that would be left open and run part-time are nearly paid for in full, so they don't cost that much to keep running at half-steam.

 

"We could go ahead and close all those plants right now," he said. "But that would cost more. That would cost more to do that than to keep an old plant open and running on one shift. ... That's the way to go. It would be dumb for us right now to go from 84% to 100%. ... It would cost us more. That would be dumb. We're not going to do that."

 

After 2008, Ford will close two more assembly plants and five parts facilities that make engines, transmissions or stamped parts.

 

Trying again

 

This is Ford's third attempt since 2002 at a restructuring effort.

 

On Jan. 15 of that year, Bill Ford announced a revitalization plan that aimed to cut 35,000 jobs and promised to bring $7 billion in pretax profits to Ford by this year. That plan fell off course last year.

 

Profits tumbled to $2 billion in 2005, down from $3.5 billion in 2004. But Ford's worldwide automotive operations showed the real depth of the problem. Ford posted a $3.9-billion loss in its auto-sales operations last year -- nearly 20 times worse than the $200-million loss Ford posted in 2004.

 

The solution to that bad performance was to be the so-called Way Forward plan, announced Jan. 23.

 

Crafted by a committee led by Fields and Anne Stevens, who retired last week as chief operating officer of the Americas, the plan spread up to 34,000 job cuts -- about 25% of the company's workforce in North America -- and 14 plant closures through 2012.

 

But the 7-year Way Forward was criticized for being too spread out, failing to identify most of the plants slated for closure or moving as fast to cut jobs as a similar turnaround plan being handled by rival General Motors Corp.

 

GM cut 35,000 workers from its payroll more than two years ahead of schedule because of its popular buyout program, which cost $3.8 billion.

 

High fuel prices and plummeting truck sales, especially of the mainstay F-Series pickup, magnified the flaws of Ford's plan. Ford posted a half-year loss of $1.4 billion -- largely because of a $4-billion loss in the North American division that gains elsewhere only partially offset.

 

On Friday, Ford's top executives blamed the need for a new restructuring on high material costs and rapid shifts in consumer demand away from profitable trucks to more fuel-efficient cars and crossovers, which will now be a priority at Ford.

 

Ford has lost 1.1% of the U.S. market this year compared with the same eight months of 2005, including 2.3% in August compared with the same month a year ago. Through August, sales of Ford vehicles were down 9.9% this year. Although car sales were up 4.1%, truck sales were off 17%.

 

Ford's new plan estimates the company's percentage of new car and truck sales in the United States, Canada and Mexico eventually will fall to 14% to 15% from 17.4% at the end of 2005.

 

Leclair said the company has tested its new plan with more scenarios this time, although he wouldn't say how high Ford believes gas prices could climb or how Ford might survive a terrorist attack that disrupts the economy. But he said Ford is now prepared and its revamped Way Forward plan is robust.

 

"We did a lot more stress-testing this time," Leclair said.

 

Contact SARAH A. WEBSTER at 313-222-5394 or swebster@freepress.com.

[Guest Sixcav]

Ok, job cuts, plant closures, heard it all before. I'd like to hear about the new appealing line of cars (not trucks and SUV's) that Ford has in the development pipeline.

[DCK]

Cuts cuts cuts, maybe if they came out with product pelople want we wouldn't needs all these cuts.

[RichardJensen]

Yeah, and if the dog wouldn't've stopped at the tree, it might've caught the rabbit.

 

Nothing quite like making yourself miserable playing 'what if'

[Guest Sixcav]

Yeah, and if the dog wouldn't've stopped at the tree, it might've caught the rabbit.

 

Nothing quite like making yourself miserable playing 'what if'

 

Well I figure it's either that or make myself miserable playing "Ford Excuse Department" lol

[RichardJensen]

Well I figure it's either that or make myself miserable playing "Ford Excuse Department" lol

Why make yourself miserable at all?

[Guest Sixcav]

LOL, Right over the head Richie.

[MichiganTruck_Mafia]

Why make yourself miserable at all?

 

Yeah, why bother coming to BON?

[DCK]

Yeah, and if the dog wouldn't've stopped at the tree, it might've caught the rabbit.

 

Nothing quite like making yourself miserable playing 'what if'

I understand I played the would of, could of, should of, card. But all these cuts do make you think what if Ford realized their wrong ways in 2000 and put out great vehicles that people wanted then much of these could have been avoided.

[StevenJ]

I understand I played the would of, could of, should of, card. But all these cuts do make you think what if Ford realized their wrong ways in 2000 and put out great vehicles that people wanted then much of these could have been avoided.

:blah: :blah: :blah:

 

More like, what if Ford never bought Jaguar, Land Rover, or Aston Martin, and all that money that went into thoose money pit Brittish brands went into making Lincoln and Mercury into the brands they should have been? What if Ford hadn't let the Panther cars languish for fifteen years with the same basic body, interior, and power train? What if Ford would redo the Ranger to retake it's throne in the small pick up market sooner? What if Ford had replaced the US Focus the Euro Focus so that they would have a 'competitive' B class car?

[Guest Sixcav]

The Ford Excuse Department is having an "all hands event" tonight boys. lol

[630land]

The biggest problem is that Ford Mo. Co. has not invented a "Time Machine" to go back and fix the 'blunders'. Critics are expecting something to that effect.

[Guest Sixcav]

The biggest problem is that Ford Mo. Co. has not invented a "Time Machine" to go back and fix the 'blunders'. Critics are expecting something to that effect.

 

First off, I expect much better performance from guys that make many millions of dollars a year. This shouldn't have happened to begin with. Putting all their eggs in the pickup and SUV basket was a stupid, stupid, stupid ass thing to do. Let me just add that it was stupid. You didn't see any other car companies just pretty much flat out ignoring their car lines because of their pickups and SUV'x. Always, always, always have a plan B. Let me just add to always have a plan B. Their plan B was a total joke. If they didn't know that it was a joke then they had no business running a multi billion dollar corporation. Now I understand the no since crying over spilled milk line of thought but here's problem # 2. I don't hear anything to really address the problem here. It's like "Hey Ford, your stuff isn't selling because it's not appealing and your appealing stuff isn't selling because nobody want's to pay $250 a month for gas. What are you doing about it?"

 

Ford . . "Well we are going to fire some people and close some plants."

 

Critics ... "Ok, but what are you doing to get sales up."

 

Ford . . "Well we are gong to fire some people and close some plants."

 

Critics . . . "What about new products that are appealing and will sell?"

 

Ford . . "We are going to fire some people and close some plants."

 

Customers . . .

[ebritt]

Ok, job cuts, plant closures, heard it all before. I'd like to hear about the new appealing line of cars (not trucks and SUV's) that Ford has in the development pipeline.

Sorry , just more and bigger trucks.