The beginning of Ford Motor Co.'s new lease on life came at the end of a dramatic morning at the company's Dearborn headquarters, when President of the Americas and de facto hatchet man Mark Fields advised the world the auto maker would be shuttering plants and laying off workers.
Flanked on the dais by clay models of the Ford Fairlane and the Ford Reflex concepts, Fields flexed the word “innovation” 13 times before delivering the news that assembly plants in St. Louis, Atlanta, and Wixom, MI, would be shuttered, along with the Batavia, OH, transmission plant and the Windsor, Ont. Canada, casting facility.
Overall, 14 manufacturing plants will be closed by 2012, Fields said, his voice even. After announcing the end of jobs for between 25,000 and 30,000 hourly and salaried workers, he paused. If it were not for effect, it certainly achieved it anyway: Ford Tough.
Tough enough to cut Ford's annual vehicle-making capacity by 1.2 million units, or 26%, by 2008.
It was all part of the Way Forward plan, dubbed so by the company as the way out of sliding market share, financial losses and vast sales drop offs in the crucial SUV segment. But while the Way Forward may be concrete in the minds of Ford Motor Co. executives, it resonates for its vagueness with many others.
Although Ford promises to return its North American automotive operations to profitability by 2008, the restructuring plan only identifies a handful of the plant closures and sets few business or financial milestones.
In a question and answer session following the announcement of the closings and layoffs, analysts and reporters were turned back more often than they were given a straight answer. CEO Bill Ford had already admitted the company would become even less forthcoming with Wall Street, saying the auto maker would discontinue publishing its annual earnings guidance in an effort to establish more long-term thinking and risk taking within Ford. Even that announcement was cloaked in a hazy declaration: “We need to underscore an important point inside the company and out. We cannot succeed in the long run if we're focused only on the short term.” Plans for a new North American assembly plant, subtly dropped into the mix during Fields' address, were likewise short on detail.
The plant will be based on “low cost, (but) not necessarily geography,” Fields said, declining to disclose timing or likely products for the facility. “And a lot of work goes into these decisions,” Fields adds. “We know this causes stress for employees and for the communities….”
Two of the doomed plants to be named later this year have yet to be determined by Ford, sources say, in hopes of encouraging the plants to compete against each other on production goals.
The Way Forward plan was unveiled on the same day the company announced its 2005 financials, which included a 19.2% gain in fourth-quarter earnings. At the same time, the company reports a 2005 pre-tax loss in 2005 of $1.6 billion in North America, a drop of $3 billion from 2004, blaming dwindling U.S. market share, lower dealer inventories and a poor exchange rate. Ford's North American sales totaled $81.4 billion in 2005 compared with $83 billion in the prior year.
Overall in 2005, Ford's worldwide automotive sector reported a pre-tax loss of $1 billion, compared with a pre-tax profit of $850 million year-ago.
The plan's announcement generated some stern admonitions on Wall Street, where analysts were quick to fire back.
“I think this is déjà vu with what they did in 2002,” said one Wall Street analyst who asked not to be named. “They are delusional if they think they can maintain market share. I think they need to consider shrinking the company.”
In a release, Citigroup cited the lack of specifics in the Ford plan, noting, “financial guidance for '06 provides little detail.” Citigroup holds onto its sell status for Ford.
At Bear Stearns, analyst Peter Nesvold, in a report on Ford stock, broke it down succinctly: “We continue to expect sentiment to worsen before it improves.” The auto maker refused to address its critics in specifics, though, as Chief Financial Officer Don Leclair calls 2006 “a year of transition.”
“The path to profitability will not be linear or smooth,” Leclair says.
The auto maker's 2006 projections show pre-tax losses for both its North American operations and total automotive operations. Still, there are promises from the auto maker that resound: Hybrid versions of the Ford Five Hundred, Mercury Montego, Ford Edge and Lincoln MKX will be delivered between 2008-2010 as part of its previous vow to build 250,000 hybrids a year by 2010.
The company also says it will achieve a net material cost reduction of $6 billion by 2010, while promising more global vehicle architectures. That movement to global vehicle architectures “is led by the effort in Europe,” Jim Padilla, Ford president and chief operating officer, says, “with the (Premier Auto Group) teams, with the B-cars and C-cars being the best example. We started with passenger cars and have pretty much consolidated them.”
Can this business behemoth, bloated with self-acknowledged bureaucracy, slim down enough? It is doing away with employees left and right, for a start.
The auto maker cut 10,000 jobs in 2005, about 8,000 salaried and hourly workers from the automotive side and another 2,000 from Ford Motor Credit. In November, it announced plans to eliminate another 4,000 salaried workers.
The inability of these auto giants to regroup stems from their age and size, says Earl J. Hesterberg, a former Ford sales executive and current president and CEO of Group 1 Automotive Inc.
“They (Ford and General Motors Corp.) have to size their companies for their level of business,” Hesterberg says. “And they haven't been able to do that in recent history.
“There are a lot of constraints facing these companies that are 100 years old. And they don't have the complete freedom to do whatever they want.”
If Ford succeeds in righting its North American ship, the feat will have been born of necessity with links to family heritage, says Global Insight analyst John Wolkonowicz.
“There is a sense of urgency in the Ford family to stop pussyfooting around,” says Wolkonowicz, who worked at Ford in the 1980s as a member of Ford's Product Development Organization. “They know that if they're still going to have this company, they have to make some changes. And I think they may have reached the point where they have to do something now. Ford has been brought to the brink.”
Fields preemptively acknowledged skepticism of the effectiveness of the plan following the failure of 2002's revitalization program to bail out the auto maker. That plan, too, was unveiled with themes of a new vitality and aggressive pursuit of excellence.
“My request, including to those of you who have written us off, is to keep an open mind and to ultimately judge us by our results — not our words,” Fields urged.
Bill Ford, as well, addresses the skeptics, saying that the company has “never seen this level of cuts taking place; never seen this level of innovation.”
“It's worked with Ford of Europe, worked at Mazda, and it's working at Land Rover as we're sitting here,” Ford said. “A lot of the levers we're pulling were pulled before, and it's worked.”
— with Cliff Banks
Plants to be closed
Wixom, MI
Opened: 1957
Size: 4,700,000 sq.-ft.
Current employment: 1,567
Products: Ford GT, Lincoln LS, Lincoln Town Car
History: Thunderbird
Hapeville, GA
Opened: 1947
Size: 2,800,000 sq.-ft.
Current employment: 2,028
Products: Ford Taurus
History: Falcon, Cougar, Torino
Hazelwood, MO
Opened: 1948
Size: 3,176,080 sq.-ft.
Current employment: 1,445
Products: Ford Explorer, Mercury Mountaineer
History: Grand Marquis, Aerostar, Crown Victoria
Batavia, OH (Transmission)
Opened: 1980
Size: 1,800.000 sq.-ft.
Current employment: 1,745
Products: CD4E Transaxles, CFT23 Transaxles, CFT30 Transaxles
History: CD4E transmission for the Ford Escape, Mercury Mariner, and the Mazda Tribute, CFT 30 (CVT Technology) for the Ford Freestyle, Ford 500, Mercury Montego
Windsor Casting, Windsor, Ont.
Opened: 1934
Size: 500,000 sq.-ft.
Current employment: 684
Products: Cylinder blocks and crankshafts
History: Cast iron cylinder heads, master cylinder for breaking system
Also:
Production at St. Thomas Assembly will be reduced to one shift.
St. Thomas, St. Thomas, Ont.
Opened: 1967
Size: 2,600,000 sq.-ft.
Current employment: 2,578
Products: Crown Victoria, Grand Marquis
Source: Ford Motor Co. - http://media.ford.com/facilities/
